What Every Home Buyer Needs To Know About Settlement Delays
- Mortgage Insights
- Sep 13, 2024
- 4 min read
Securing a home loan is one of the most significant financial commitments you’ll make, and understanding the intricacies of bank policies is crucial to minimise the risk of settlement delays.
Settlement delays can throw a wrench into your plans and may even leave you in a situation where your home loan approval expires, preventing you from finalising the purchase. To avoid this scenario, it is essential to be informed about bank and lender policies and how that is aligned to the various stages of the home loan process.
Understanding Home Loan Approval Validity
When applying for a home loan, one of the most critical factors to keep in mind is how long your loan approval remains valid. Different lenders have varying policies regarding approval validity, which can directly impact your settlement process. Your Home Loan Specialist should be well-versed in these details to guide you through the settlement process without any hiccups.
For example, some lenders require settlement to occur within 90 days of formal loan approval. While others offer an extension for a fee with updated payslips, many lenders requires a new application. Other banks can provide a more flexible 180-day settlement period. Commonwealth Bank (CBA) has eliminated a fixed settlement time limit, making it an attractive option for borrowers who need longer settlement periods or require bridging loans.
Long settlement periods can be especially helpful for specific situations like refinancing or property loans due to a divorce. Divorce proceedings can take time, and having a flexible settlement timeline can ease the process. If you’re upgrading your current home and need to sell your existing property first, choosing a lender that offers a longer settlement window and bridging finance options is an ideal choice to ensure a smooth transition.
It’s important to keep in mind that missing the settlement window allowed in your loan approval can force you to reapply for a loan or seek an alternative lender at the last minute, causing unnecessary stress and potential financial complications.
The Risks of Long Settlement Periods
While a long settlement period might appear to offer flexibility, it can create unexpected challenges if not carefully managed. Before signing any contract, be sure to confirm your bank’s settlement timeline and determine whether your home loan requires Lenders Mortgage Insurance (LMI), as this can influence your approval process.
Additionally, vendors can delay settlement, often up to 14 days, without facing penalties. These delays can stretch the settlement timeline and cause further complications. To avoid extra costs, it’s a good idea not to lock in moving dates, book removalists, or end rental agreements until your settlement is confirmed.
Stamp Duty Deadlines
In New South Wales (NSW), stamp duty must be paid within three months of the contract exchange, regardless of your planned settlement date. If your settlement is delayed beyond this period, you might find yourself scrambling to secure additional funds on short notice. Many borrowers overlook this critical deadline, only to face last-minute financial stress. Properly understanding and planning for stamp duty obligations will ensure you are financially prepared for your property purchase.
What Happens If the Vendor Delays Settlement?
Unfortunately, vendors do have the right to delay settlement, and such delays are not uncommon. In most cases, borrowers have little control over these delays. If the vendor’s bank isn’t ready, you, as the buyer, may be forced to wait, which could lead to additional costs like rent or temporary accommodation. While you can consult your solicitor about possible reimbursement claims, in most cases, the delay simply means you’ll need to wait until the vendor (seller) is ready to proceed.
When synchronizing the expiration date of your loan approval with the settlement date, it’s essential to keep in mind that if the lender only gives you 90 days from approval, you should strive to settle within 9 weeks (63 days) from the contract exchange. Additionally, consider that the vendor can easily delay settlement for another 14 days because typically a "notice-to-complete" can only be issued by the purchaser after 14 days from the date of settlement (though this may vary subject to the terms of the contract).
In total, that’s 77 days, which leaves only a13-day buffer if your home loan approval is valid for 90 days from the approval date.
How to Avoid Settlement Disruptions
To minimize the chances of settlement delays, ensure that your home loan approval is valid for the intended settlement period. Always double-check stamp duty deadlines to avoid unexpected financial pressure.
Furthermore, if you are moving into the property to be purchased, avoid committing to moving dates, booking removalists, or terminating rental leases until settlement by the parties is officially confirmed.
Additionally, if you’re buying a property with an existing tenant with the intentions to move in, be clear about the vacant possession terms and check your lender’s policies to ensure everything is compliant and meets the terms of the lender. It’s also prudent to have a backup plan in case of unforeseen delays, such as temporary accommodation, if the settlement is postponed.
Key Takeaway
Purchasing a property or home is a monumental financial milestone, and being prepared can save you from unnecessary stress and financial setbacks. By understanding your lender’s home loan policies, planning for settlement timelines, and staying on top of stamp duty deadlines, you’ll be able to navigate the process smoothly.
Work closely with your Home Loan Specialist to ask the right questions and always verify settlement conditions before signing any contracts. By taking these proactive steps with guidance from your Home Loan Specialist, you can confidently secure your property without unnecessary challenges.