The Costs of Buying A Home
You’ve done the hard yards and saved a deposit, hunted down the right property and bartered a better price. The Sold sticker is all but slapped on the for sale sign. But have you considered the additional costs that come with a property purchase? If a car has on-road costs, then you might say property comes with on-street costs. Here’s a snapshot of what additional expenses you can expect when you buy a home.
Transfer Duty
Next to your deposit, this is usually the biggest outlay. Transfer duty, more commonly know as Stamp duty is a tax charged by the state government on the purchase of property.
There is a concessions for first-home buyers (nothing for purchases $430k and below, a discount from $430k to $530k, and full duty for anything above $530k). A good rule of thumb is to tuck away an extra five per cent on your deposit to cover stamp duty, plus some additional purchase costs.
Settlement Fees
You will need a conveyancer or settlement agent to handle the legal transfer of the property title and make the necessary searches. Settlement fees can vary widely.
You are entitled to a quote up front, and should always ask for one. The more complex the transaction, the higher the fee. But don’t be tempted to cut corners, a cheap service is often that.
The single biggest impact on settlement costs is council rates. Local governments require full rates to be paid upfront when a property is sold. So depending on the time of year, this amount can be significant – eg: Buying in July means 12 months of up front rates for the financial year.
If there’s something you want to investigate about the property you are buying – compliance with development approvals, a heritage listing, potential flood levels, a shared driveway, proposed road corridors or rezoning (just to name a few) – this is your chance before your cooling-off period ends. Just remember your solicitor has probably not seen the property. While most will undertake thorough searches on your behalf, they won’t know your plans for the property. Speak up if there’s something specific you want to know.
Mortgage Registration Fee
This is a charge by the state land titles office to register the lender’s mortgage on the property’s title record. It’s paid by the borrower and is about $135. Often it will be included in the conveyancer settlement costs.
Lending Fees
Your loan itself may come with additional costs, including application fees, solicitor or documentation fees, and a property valuation. Depending on the type of loan, there may also be monthly account fees.
Local Mortgage Specialists always favour lenders who don't charge application and valuation fees. But you need to be aware that some lenders will charge these.
Lenders Mortgage Insurance (LMI)
LMI or low deposit fee as it's know with some lenders is a tough thing to take. It's payable on any loan that's more than 80% of the value of the home. But it's name can be deceptive. It insures the mortgage risk, not for you but for the lender – with the lender getting you to foot the bill.
It can be significant, depending on the amount you're borrowing and the value of the property. But thankfully, it's not something you have to pay for up front. The lender will add it on top of your loan.
While it's a tough cost to take, in almost every circumstance it's more cost affective and beneficial to pay it, rather than try and save an additional sum to get your deposit to 20%
Pest & Building Inspections
Often lumped in together, these inspections provide very different information and are worth every cent. Don’t think you need one or the other. You need both, and each should be carried out by a suitably qualified and licensed expert. Often a building inspector is also qualified for pest inspections.
A pest inspection costs about $100-150 and primarily checks for signs of damage caused by white-ants (termites) and borers. It can also shed light on rodent and cockroach infestations, which shouldn’t affect the structure of a property but may give you some bargaining chips on the price! A building inspection, at about $300, will report on the condition and structural integrity of the home, internally and externally, and flag any potential issues.
It's also a good idea to make sure the contract you sign is subject to both inspection reports being clear or any problems.If buying a property at auction, get these inspections beforehand.
Home Insurance
Your home is likely to be your biggest ever purchase, so it’s well worth protecting with insurance. There are a number of factors that will affect the size of your home insurance premium, including location, the home’s age and building material, the rebuilding value and the size of the excess you choose. Your lender will require you to take out and show proof of home building insurance to cover replacement rebuild of the property. However, this amount may leave you underinsured and, if the worst happens and you lose your home to a fire or severe weather, out of pocket.
Most insurers offer home building calculators online so you can estimate your sum insured to replace your entire home. Make sure you also factor in fences, swimming pools and any expensive building materials or fittings. Although not required by lenders, you should also take out contents insurance for your household items.