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The hidden costs of buying your first home

The hidden costs of buying your first home

By Sarah Lefebvre on Apr 17 2018


Congratulations – you’re looking to buy your first home. This is an exciting milestone in your life and one you undoubtedly have worked hard to achieve.

This article is in no way meant to scare you off buying, we are all for jumping onto the property ladder, but rather it is aimed at giving you a clear understanding of the different fees and charges associated with buying property.  The real cost of buying a home is more than the actual sale price and being prepared for the additional fees and charges is critical to ensure you aren’t hit with any nasty surprises.

As a general rule if you factor in an additional 5-7% of the purchase price, on top of your deposit it should be approximately enough to help you cover the hidden extras.

Here is a look at the most common extra expenses you should expect to pay when buying a property for the first time.

The deposit

Deposits can be as low as 5 per cent, but preferably they are more around the 10%-20% of the home’s overall cost, depending on the type of loan you obtain.
 
To determine how much your deposit will be, consider:
  • The average home price of the area in which you wish to buy.
  • The type of loan you wish to get.
  • The amount you wish to borrow through your loan.

Stamp duty

Stamp duty is a charge that is applied to the sale of residential property by state governments and is likely to be one of the greatest financial hurdles to buying your first home. The amount you have to pay depends on the area you live in, so check in with your local authorities. As a first home buyer, you may also be entitled to state-specific concessions, which can be around $10,000 according to First Home Owner Grant Online.

Lenders Mortgage Insurance (LMI)

If you want to borrow more than 80% of the property purchase price you will normally be charged Lenders Mortgage Insurance.  This insurance payment covers the lender in the event that you can’t pay the home loan back.
 
Get your budget and savings in order well before you buy to avoid this hurdle! The cost of LMI will vary depending on how much you borrow and the type of loan you select but it will be approximately $10,000.

Building Insurance

When you’re spending your life savings on purchasing property it makes sense to protect it. While building insurance is a compulsory requirement from your lender, there are other insurance policies that you should consider.
 
For example, mortgage protection insurance will ensure your mortgage repayments are met should you fall seriously ill. Income protection insurance will also help pay the bills should you be unable to due to an accident, major trauma or illness.

Legal Help

Buying a home is fundamentally a legal process so the help of legal experts, namely conveyancers and solicitors is critical. They will be an invaluable part of property negotiations and can help you through the paperwork.  However, remember they will charge a fee so make sure you factor this in.  Some conveyancers will charge a flat fee while others will charge a sliding fee based on the properties sale price.  Make sure you discuss fees and charges before you engage their services.

Building, Pest and Strata

Having a building and pest inspection carried out on any property is usually a requirement by the lender but they are well worth investing in regardless.
 
If you are considering purchasing a unit or apartment, it is also in your best interest to have a strata inspection conducted - that is a report on the assets, liabilities and financial position of the apartment complex.
 
While having a building, pest or strata inspection completed on the potential property will cost you initially, it could be an invaluable safeguarding against buying a lemon.
 
Expect to pay around $400 for a building or pest inspection and around $200 for a strata report.

Council Rates and Strata Fees

Once a seller hands their property over, you immediately inherit all of the attached council and strata fees.
 
While both owners of houses and units are obliged to pay council rates, it is only owners of units or apartments that will have to incur strata fees.
 
Strata fees cover the property’s grouped maintenance and building insurance fees and are collected by the building's owners' or manager. These fees are ongoing costs that will continue to absorb your finances, generally quarterly, even after your initial property purchase payment, so it’s important to incorporate these into your ongoing budget.
 
The scope of strata fees will vary considerably depending on the age of the building, facilities, and location but you should expect to pay around $70 to $80 for the lodgment of application.

Having a Little Bit Extra

You may have done all your research and been prepared for all the major hidden extras, but you should always set aside a little bit extra for those expenses you are not expecting.  Expenses like:
  • Loan establishment fee
  • Pre-inspection costs.
  • Legal services.
  • A valuation of the home.
  • Moving costs
  • Utility connections
  • Mail redirection
To fully understand the costs associated with buying a property in your state make sure you read our articles on buying real estate in your state or territory.

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