If you’ve bought and sold multiple properties over the years then you will be all too well aware of the costs involved in buying a property, over and above the actual purchase price. If you’re new to the property game, however, and saving for the deposit on a first home or investment property, these might come as a bit of a shock.
While saving for a deposit may seem like an immense task in itself, it’s important to know about all the costs of buying a home in order to be well prepared for that first step into the property market.
There are two main categories of fees – those that a lender may charge you, and the charges the government will charge you, plus some expenses you will incur yourself.
Let’s take a look at them.
This is a list of all the potential fees a lender may charge you.
Remember that in the very competitive lending environment and, with an expert broker to assist you it may be possible to avoid some of these charges
Home Loan Application Fee
The cost of an application fee for a home loan, or loan establishment fee, varies from lender to lender. Allow for anywhere up to $1000.
Once you have negotiated a price on the property you want to buy, your lender will require an independent property valuation. This will cost around $200-300. Check with a valuer in the properties area to determine a more exact fee.
Lenders Legal Fees
Your lender may also charge legal fees for preparing your loan documents (around $200-300) and for a solicitor to be present at settlement ($100-300). If there are multiple properties being offered as security these fees will probably also increase.
Lenders Mortgage Insurance (LMI)
If you borrow more than 80 per cent of the value of a property, you may be liable for Lenders Mortgage Insurance, which insures your lender against loss should you default on your home loan. This can be anywhere from 1-3 per cent of the loan amount.
Stamp Duty or Land Transfer Duty
Stamp duty, also known as land transfer duty, is a state government tax based on a percentage of the purchase price of the property. This tax will be your biggest upfront cost and varies from state to state. A first homebuyer may be eligible for stamp duty concessions, but again this will vary from state to state.
Below are links to stamp or land transfer duty online calculators for each state and territory. Explore the same sites for details on any first homeowner grants or concessions you may be eligible to receive.
Mortgage Registration Fee
This is an administrative charge, imposed by the Land Titles Office or equivalent in each state or territory for entering the lender’s mortgage onto the title deed for the property. Cost ranges from around $85 to $125.
When buying a property, you will need to engage a solicitor or conveyancer to conduct searches, arrange the settlement on the property and arrange disbursements. Fees for conveyancing range from $500 upwards and can go above $2000. Choose a solicitor or conveyancer who provides a fixed price service if you want to be sure upfront of the cost involved.
It’s highly advisable to have pest and building inspections conducted on any property before finalising the purchase price. You don’t want to buy your dream home only to discover it is riddled with termites! Any faults uncovered by the inspections can also be used as leverage in negotiating the final price.
Inspections cost around $200-300 each. Shop around in your local area to determine the exact cost.
Once you have purchased the property, keep in mind that you will need additional funds to cover moving costs, installation of the phone and Internet, and building and home contents insurance. You may also wish to consider taking out income protection insurance.
On top of the deposit, these costs can add up to another seven per cent or more of the purchase price of a property.
Don’t be daunted, but do be prepared so you can cover all of the costs comfortably.
Building a relationship with a mortgage broker early (before you are ready to purchase) can be a good strategy to ensure you are prepared and haven’t forgotten anything. It will also make the purchase and subsequent paperwork all that much easier!