Buying a Property - The Hidden Extras
Buying an home especially for the first time can be overwhelming, not only do you need to save for the deposit but you also need to factor in the added costs of buying a property, ones you may not be aware of.
Failing to account for these extra costs can make settlement time an extremely stressful experience rather than the exciting time it should be. Here is a list of expenses you need to be aware of so and plan for so you can avoid any nasty surprises.
Loan Application Fees
Loan application or establishment fees can range from zero to $1000. This is a one off charge by the bank when you apply for a loan. Sometimes banks decide not to charge this, but not always so make sure you check with your lender.
Independent Valuer Fees
Every lender will require an independent valuer to assess the value of the property you are planning to buy before they are willing to lend to ensure that the property is worth the asking price. A standard valuation generally costs between $300 to $500. Some banks waive this.
Lenders Mortgage Insurance (LMI)
If you’re looking at borrowing more than 80 per cent of the property’s purchase price you’ll need to factor in Lenders Mortgage Insurance (LMI).This one off premium provides coverage for the lender, should you default (be unable to pay) on your loan.
The cost of LMI will vary depending on the amount of money you borrow, how much deposit you have and the type of loan you select, but allow around $10,000 for this.
If you’re short on cash, some lenders will allow you to combine the LMI fee into your overall home loan.
If you want to avoid paying this you will need to save more for your deposit.
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 involved in an accident, major trauma or illness.
Given the numerous legalities tied up in property transfer and purchase, the help of legal experts, namely conveyancers and solicitors, is a must.
A conveyancer specialises in the legal aspects of transferring property while you might need to enlist the services of a solicitor for any other legal issues you encounter.
Some conveyancers will charge a flat fee while others will charge a sliding fee based on the value of the property sale price. Expect to pay anywhere between $1000 and $3000, depending on the complexity of the structure.
This is insurance to protect you from any claims against the title of your property. Expect to pay around $350.
Registration of Title
You are required to register the title with your state government, all for $75.
Stamp duty can be one of the biggest expenses property buyers may have to bear so it is crucial that you include these in your buying estimations.
Since stamp duty is charged by state and territory governments, the amount you will be charged will be determined by the state you buy the property in.
How much you pay will also depend on the price of your property with the levy generally charged on a sliding scale, with more expensive properties being charged at a higher rate. You can get an ideas of how much stamp duty is by using online calculators
Building, Pest and Strata
Having a building and pest inspection carried out on any property is usually required by the lender but they are well worth investing in regardless of whether you are buying a new property or not, as trained specialists can often spot things other cannot.
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 $300- $400 for a building or pest inspection and around $200 for a strata report.
Council Rates and Strata Fees
When you buy a property, you will also be expected to pay the remaining yearly or quarterly council rates. These commence from settlement date so make sure you know what they are as each property is different. Allow for an extra $500-800.
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 pay strata fees.
Strata fees cover the property’s grouped maintenance and building insurance fees and are collected by the building's owners' or manager.
Strata fees will vary depending on the age of the building, facilities, and location but you should expect to pay around $70 to $80 for the lodgement of application. As these are ongoing fees make sure you are aware of what they are so you can budget accordingly.
Allowing for a Bit More
Even though you may have done your research and restructured your finances to include all the major additional costs, you should always set aside a little extra for miscellaneous expenses that haven’t been prepared for but creep in.
Expenses, such as moving, connecting water and electricity and even mail redirection, can seem irrelevant when compared to the large fees but they still have the ability to place unnecessary strain on your finances if not taken into consideration.
Everything Adds Up
Buying a home is an exciting time but make sure you factor in approximately an extra five to seven per cent of the purchase price, on top of your deposit, to cover fees and charges. It will help make the process enjoyable rather than stressful.