Important things to check on your home loan contract

Property transactions are complicated. Legalities - and contracts regarding financing and the sale - are a large part of the reason why.

Depending on your state, a property contract might be dozens of pages long and will detail all the particulars of the sale. Meanwhile, the home loan contract you'll sign with your lender will set out all of your repayment obligations, any charges that you may incur over the loan term and details regarding the securitisation agreement on the property.

While you might be used to scrolling to the bottom of most terms and conditions and signing instantly, it's not a great idea to do the same with a property sale contract or a home loan agreement.

Any sensible buyer would be wise to carefully review both contracts before signing, or have a conveyancer or solicitor do so on their behalf.

What should you check before signing your home loan contract?

Lenders must provide you with a detailed contract that sets out all the terms and conditions of your loan agreement.

Some of things that need to be specified in a loan contract, as per section 17 of the National Credit Code, include:

• The loan amount and loan purpose

• The interest rate and the comparison rate

• Any fees or charges that could apply

• A description of the property under mortgage

Some sections of your home loan agreement will likely be pretty generic, with your lender simply fulfilling its legal obligations, but it's still worth checking carefully to make sure everything is in order.

There are a few clauses in particular that one should take a closer look at.

Fees

The home loan contract must set out all additional fees and charges that may apply.

These include any ongoing account keeping fees, late repayment charges, and break costs that might be incurred if a borrower pays off the loan early or refinances.

Such extra fees can become significant expenses and are worth keeping in mind when comparing home loans.

Security cover clause

Your lender also needs to detail the securitisation agreement on your property.

This section of the contract will establish that your lender has the right to repossess the property in the event you default on your home loan.

The contract should specify at what stage a default notice will be issued and how long you will have to address the situation before repossession proceedings will start.

Your personal information

Home loan contracts will generally contain a clause specifying that by signing it, you're confirming all the information you have provided to the lender is accurate and complete.

Therefore, it's worth double checking everything to make sure you have not misrepresented any details before signing, as overlooked mistakes could potentially be grounds for future legal action against you.

For example, if you are a foreign investor, the contract might specify that you need to have Foreign Investment Review Board (FIRB) approval before entering into the loan agreement.

It's a good idea to look through this section and double check you have disclosed everything you need to and fulfilled all your obligations.

Amendments to the contract

Home loan contracts also typically set out how the details may be amended if needed.

For example, when variable rates change, your repayments will likely change. You should make sure the contract specifies that your lender needs to notify you every time there is any such amendment, and take note of how much notice it needs to provide.

What should you check before signing a contract of sale?

Now you know what to look for in the home loan contract, but the paperwork doesn't stop there!

When it comes to the contract of sale, there are a few extra things you should attend to before signing, or at the very least before the cooling off period expires.

Cancelling during the cooling off period often carries a penalty (0.25% of the purchase price in NSW, for example). The earlier you get to assessing the below points, the better.

Read more: The basics of a contract of sale

Inspections

It's highly advisable to conduct thorough inspections of any property before making the commitment to buy.

These can include pest and termite inspections, building inspections, and in depth assessments of whether the property is suitable for you.

For example, if a property is located on a busy main road, you might want to visit it at night to ensure you don't find it unexpectedly and unbearably loud once you move in.

Financing (and the rest)

If a buyer signs a contract of sale without a subject to finance clause and isn't ultimately approved for the necessary home loan, there might still an obligation for them to buy the property.

Spurned sellers can generally take legal action to recoup any losses they bear in these circumstances, so it's essential to take precautions to make sure you aren't on the receiving end of such action.

A 'subject to finance' clause included in the contract offers protection from such occurrences, while getting pre-approved for a home loan before entering any agreement is also generally a good idea.

What details won't be included in the contract?

The details that need to be included in a contract of sale vary between states and territories.

In the ACT for example, a seller needs to provide prospective buyers with all relevant details pertinent to the property, including information on land title and mandatory building inspections. Conversely, vendor disclosure statements are not mandatory in Tasmania, although they are highly recommended.

It's important to know what property details a seller is and is not obligated to share with you in your state or territory.

For example, in Tasmania a seller would not be obliged to disclose a restrictive covenant on the property that forbids development, which could reduce the value of the property.

Ideally, you should lean on your conveyancer or solicitor so to understand all the relevant information before buying.

Current tenancy situation

If you're buying a tenanted property, the current occupants are typically entitled to see out their current lease.

For some buyers - those who need to move in within a certain timeframe, for example - this might cause an issue

If you plan on taking advantage of the First Home Owner Grant in your state, for instance, a common stipulation is that you must move in within one year of the completed transaction. If you're buying a property that's tenanted for the next eighteen months, you probably won't be eligible.

What to look for in the property contract

Generally, the property contract will be prepared by the seller before the property is listed, and then amended with the purchase details.

It's vital for you or your representative to carefully review all of the included conditions and address any concerns you may have.

These are some of the most common issues buyers uncover in contracts of sale.

Fixtures and fittings

It's important to review the contract of sale to see which fixtures and fittings are to be included in the sale.

A fixture is something that is permanently attached or built in to the property. Built in ovens, dishwashers and wardrobes are all examples.

A fitting, on the other hand, is something that isn't attached or is easily removed, like curtains or carpets.

In general, fixtures are assumed to be included in the sale and fittings are not unless specified in the contract. You'll want to go through these details to make sure you get everything you're expecting.

Title details and encumbrances

In most states, sellers are required to provide title information as part of the contract of sale. Title refers to the legal documents that outline the ownership of the property.

If a property is owned outright by the seller, the title is simple. Though, it can be more complicated if there is an existing mortgage on it.

It's important to have a thorough understanding of all the parties that have an interest in the property (or all of the encumbrances), as this can affect both the value of the property and how you will be able to use it. Such interests might include easements, like a public footpath through the property, or restrictive covenants on future development.

Special conditions

As long as a contract of sale satisfies the requirements of the state or territory it pertains to, any provisions it contains are likely to be upheld by the courts.

There are, therefore, all manner of clauses that you might find in a contract of sale.

Some can benefit you as the buyer, like if the contract is subject to finance or satisfactory searches.

In other cases, a close inspection of the contract might reveal that the buyer will be completely liable for GST, or that a ludicrously high interest rate is to be charged in the event of late settlement.

Buying a home or looking to refinance? The table below features home loans with some of the lowest interest rates on the market for owner occupiers.