The decision of buying a property is not as easy as just saving money. In fact, saving your deposit is the relatively easier part. What many people don’t realise however is that, on many occasions, the money you saved up over the previous period only covers a part of the overall costs. Normally, there are extra costs involved when you purchase a property. For example, you might have to spend half of your savings on costs, such as
- Lender’s mortgage insurance
- Renovation cost
- Appliances and furniture cost,
- Stamp duty and many others
The cost can be as high as 11% of the purchase price for some individuals. However, it varies from one state to another. We’ve done up a bit of a summary to help you understand the extra payments in addition to the original property value, so you can devise an effective financial plan, and not be left suprised.
Suppose, you wish to buy a house worth $500,000. It’s going to be an owner occupied property that you will live in it for at least one year. The mortgage rate is 5% and the initial deposit is 10% of the purchase price, i.e., 50,000. In this case, your legal fee will most likely be between $1,500 and $3,000 based on how complex the structure is going to be.
For instance, if you purchase a house through a trust ownership, you might have to pay a lot more. On the other hand, the cost will be lower with simpler ownership structure.
Every state has its own criteria of charging stamp duty. Therefore, this cost varies from one state to another.
Building and Pest Inspection Cost
This is an unavoidable cost. You must take this into consideration, especially if you are buying a second-hand property. But it doesn’t mean that new properties do not need an inspection either. Sometimes a new property also has defects that can only be spotted by a specialist. Building and pest inspection can also identify unseen issues. Based on the above hypothetical scenario, this cost can be between $300 and $400.
Establishment fee, also known as the loan application fee, is a one-off cost. It is charged by a lender when you apply for a loan. However, if you are taking a packaged loan, banks might may waive it, but this might not always be the case.
Given the above scenario, establishment fee might be around $600.
Lender’s Mortgage Insurance
Lender’s mortgage insurance or LMI is a premium amount paid by an individual to ensure a bank. This amount is paid when the loan amount is more than 80% of the property price. If you wish to avoid this cost, save a the full deposit. It is the insurer who determines the amount of LMI.
Loan Documentation Charges
It is also possible that a lender may take additional charges for preparing your loan documents before a loan application is approved. The cost may vary between $200 and $300 depending on the lending institution.
Bank Valuation Fee
If a bank takes the services of an independent valuer to find the estimated value of your property, they might charge you for it. The valuation fee will range from $300 to $400. There are some banks who waive it, but often, it is included in the overall cost.
Title Insurance and Registration
Title insurance is another essential cost that protects you from claims made against the title of your home ownership. Moreover, title registration is charged to register the title with the state government.
The insurance cost can be around $360, whereas, the registration cost is usually $75.
Water and Council Rate
When you purchase a house, you need to pay the remaining quarterly or yearly rates to the vendor. It includes charges related to water and land. It is usually individual to the area and property in question and charged near the date of settlement.
Legal Enquiries and Search
It is very important to make enquiries and carry out a number of searches to make sure there is no other claim on the property. This cost will be around $285.
All in all, each and every cost involved in buying a house is crucial. Therefore, always take these charges into consideration while making a financial plan.
Chat to our team of mortgage brokers in Brisbane about the extra costs involved when buying a home on 1300 088 065 or email Joshua at [email protected]way.com.au