Settlement day is that much anticipated day when you finally take ownership of your new home. It’s the light at the end of the tunnel after the long and – sometimes arduous – period after you exchanged contracts, where it seems as though you’ve been doing nothing but planning, packing, organising and then packing again.
A lot happens at settlement – much of it behind the scenes. So to help you understand what exactly goes on, we’ve created this guide to the settlement process.
Settlement is the legal term for what happens when the vendor hands over ownership of the property to the buyer. If you’re picturing some kind of retail-like transaction or change of ownership ceremony, think again. Neither you nor the vendor will usually even be present at settlement. Instead, you’ll be represented by your solicitors or conveyancers.
Traditionally settlement day involved representatives from all sides – vendor and buyer’s lawyers and banks – getting together, but this is gradually changing as digital settlement (e-conveyancing) becomes more popular.
At the most basic level, your legal representative will give the vendor’s legal representative the balance you owe on the property, usually 90% of the purchase price. In exchange, the vendor’s solicitor will hand over the property’s title deed so that you can prove to the world you now own the property.
But there’s usually a little more to settlement than that, especially when a mortgage is involved.
If you’re funding your purchase with a home loan, a representative from your lender will also attend the settlement meeting to hand over the some of the funds for the purchase. And, if the vendor has a mortgage, a representative from their lender will often be there too.
Once your lender provides the funding, they’ll register a mortgage against the property. This shows anyone who searches the title of the property that that they have an interest in the property too and will need to be paid out if you sell.
Your solicitor will also make sure that any mortgage another lender had over the property is removed, and that no one else has any right to the property in the form of a caveat. They’ll check that the vendor has fulfilled all the clauses in the contract for sale too.
Settlement can be a complex legal process so it always pays to have expert representation. That means you should arrange for a legal representative in the form of a solicitor or conveyancer to act for you as early in the purchasing process as possible. They’ll help guide you through the process and make sure you know how much you’ll need to pay on settlement, including any stamp duty, council rates, lenders mortgage insurance (LMI) and other fees.
Besides organising a legal representative, you should also let your lender know the date for settlement well in advance. That way, they’ll make sure you have the funds you need to complete the purchase. If there’s any shortfall, they’ll tell you how much more you need to provide.
On top of this, you should organise building and contents insurance that’s effective from the settlement date. And contact the vendor’s real estate agent to arrange a final inspection of the property you are buying.
You’ll usually do your final inspection on the day before settlement or even the morning of settlement day. This is your opportunity to make sure the property is in the same condition you agreed to purchase it in. So take your time to test that all included appliances work properly, as well as the hot water system and the air conditioning or heating.
Check that the fixtures or fittings you’ve agreed to purchase, such as light fittings, floor coverings have been left and that there is no new structural damage. You should also make sure that the keys and any garage remotes work.
If something isn’t as you expected, contact your legal representative immediately so that they can resolve it for you before settlement.
Once settlement happens, you can collect the keys to your new property from the vendor’s real estate agent. You’re now free to move into – and enjoy – your new home.
Meanwhile, your lender will be taking the amount they’ve paid at settlement from your home loan account – an action known as ‘drawing down’ your loan.
Finally, your legal representative will usually follow up with a letter setting out all the amounts you’ve paid to various people or organisations. This includes money you’ve paid directly to the vendor, money you’ve paid to the vendor’s lender to discharge their mortgage, and money you’ve paid to local and State governments in the form of council rates and stamp duty. You’ll also receive information about legal fees.