- Property settlement is the period between finalising the contract and ownership of the property actually changing hands, usually between 30 and 90 days.
- The settlement period is when the conveyancing gets done and the mortgage is finalised with the funds released.
- On settlement day, the mortgage is officially registered, ownership changes hands, and the buyer can pick up the keys.
There's a bit more to a property transaction than just handing over a suitcase full of money in exchange for the keys. There's typically a few weeks between the buyer and seller agreeing on a sale and the property actually changing hands, known as the settlement period.
What is property settlement?
Property settlement refers to the process that takes place between the contract of sale being finalised and ownership of the property changing hands. It typically includes:
- Conveyancing, or officially transferring ownership of the property from the seller to the buyer. This can be a fairly complicated legal process so most people hire a professional conveyancer or a solicitor.
- Finalising the home loan contract and having the funds released.
- The mortgage being registered
- Paying relevant taxes including stamp duty
- If the sale has 'subject-to' clauses - subject to a building and pest inspection for example - this will take place during the settlement period.
How long does settlement take?
The settlement period is usually between 30-90 days depending on the contract of sale. The NSW Government say settlement day is usually about six weeks after the exchange of contracts, while the Queensland Government estimates between 4-6 weeks. There's no set rule though, it just depends on what the seller and buyer agree upon.
What needs to happen before settlement day?
Conveyancing
Conveyancing is the process of legally transferring the land title from the seller to the buyer. That includes checking the property's title for any issues that could impact the buyer (easements for example) and lodging the contract of sale and memorandum of transfer with the relevant authorities. Professional conveyancers can also help with things like paying the deposit and paying rates and taxes.
Finance
The settlement period is also when the mortgage details are generally finalised. If the buyer has pre-approval, they can just go back to their broker or lender and give the go-ahead, otherwise will need to go through the process of applying for a loan. The mortgage needs to be approved by the lender, as well as registered with the Land Titles office of your state (lawyers or conveyancers generally handle this).
Pay the homebuying costs
Most states/territories require the buyer to pay stamp duty before or on settlement day. Again, lodging the relevant documents is something a conveyancer takes care of. Other homebuying costs may also apply in the settlement period, like the fees for your conveyancer.
Read more: Homebuying costs
Fulfil 'subject-to' clauses
If the contract of sale has a 'subject-to' clause, you'll often have to do what you need to do to fulfil the clause before settlement day. For example, if there's a 'subject to building and pest inspection' clause, you might have two weeks during which you can conduct this inspection before the contract is finalised.
What happens on settlement day?
Settlement day is usually when:
- The mortgage is registered
- Ownership of the property officially passes from the buyer to the seller
- The buyer picks up the keys!
Often on the morning of or day before settlement date, the buyer does a final inspection of the property. While you can't renege on the deal because of something you missed initially, the seller does have a responsibility to keep the property in the same condition as it was when the sale was agreed. If there's a new hole in the wall or similar issue, you might have grounds for legal action against the seller.
Refinancing settlement day
If you're refinancing, settlement day is the day your new home loan is used to pay off your existing home loan. Typically, your new lender will do all the leg work for you. This includes:
Liaising with your previous lender to pay out and discharge your previous home loan as well as registering a new mortgage for your property.
Making sure your accounts are set up correctly and all funds go where they need to.
Informing you of when your first loan repayment is due and what the repayment amount and frequency will be.
As there has been no exchange of property, there’s not a great deal for you to do other than enjoy the benefits of your new home loan and ensure you’re making your repayments.
Savings.com.au's two cents
Some homebuyers use DIY conveyancing kits rather than hire a professional to take care of the settlement process. If you know what you're doing and are prepared to put in the work, this might be a good cost cutting measure, but in general its recommended to hire a professional. An experienced conveyancer should do most of the work required during the settlement period, and can advise you on other things including inspections and finance.
What happens after settlement day?
Your loan account goes live
After settlement, your lender will draw down on your loan, which means debiting the amount you borrowed from your account. You'll usually have a home loan account set up, where your repayments will come out of.
You should also receive confirmation from your lender, including details on your loan amount and repayments.
Paying adjustments
In some instances a buyer might need to pay the seller a little extra for expenses like council rates.
The seller normally has pay all the property’s bills right up until the buyer takes possession on settlement day, but sometimes bills are paid in advance. That means the seller may have paid for services that extend beyond settlement day. If this happens, the seller is generally compensated via an adjustment to the purchase price that the buyer will then have to pay. This is sometimes called a 'Statement of Adjustments'.
Receiving the keys
Once the funds have been transferred and the paperwork sent off to the titles office to register you as the new owner of the property, you're ready to collect the keys, unload couches and begin settling into your new home.