When I first got started with buying a property… I didn’t have a huge deposit.
In fact, I had less than 5%, so I could only just afford the property and definitely couldn’t afford any unexpected costs.
So what’s the problem with this? I almost got caught out.
After months of searching, I had found my perfect first home, it was in the right suburb and the right price I was ready to pull the trigger and sign my life away…..but there was just one problem.
The place was a dud.
Without the strategies, I’m about to cover I would have gone ahead with the purchase, and it would have literally cost me over $9,000 in special levies and additional costs IN THE FIRST YEAR ALONE – money just didn’t have.
In fact I’ve used the fact techniques in this video to grow my property portfolio from one to six properties in just a few short years.
Let’s get started!
Hidden Costs when Buying a Home in Brisbane
- Lenders Mortgage Insurance
- Costs of Borrowing (Home Loans)
- Government Fees in Brisbane
- Stamp Duty in Brisbane
- Council & Water Rates
- Strata (Body corporate) Fees
- Home & Contents Insurance
- Legal Costs (Solicitor/Conveyancer Fees)
- Building & Pest Reports
- Moving + Connection Costs
- Home Loan Deposit need in Brisbane
- BONUS TIP: Changes to monthly repayments
1. Lenders Mortgage Insurance (LMI)
First up let’s talk about everyone’s favourite topic insurance, but specifically Lenders Mortgage Insurance.
Now, this is a type of insurance for your loan, but this isn’t an insurance that will protect you….
According to a recent survey, around 70% of households think lenders mortgage insurance protects them, rather than the bank.
But that simply not true.
Lenders mortgage insurance allows the bank to lend to people with less than 20% deposit, and the insurance is to cover the bank if your loan goes in default.
So while it benefits you from being able to buy a home with less than 20% deposit (and as little as 5% deposit) it doesn’t cover you and is just for the bank.
Now we have cleared that up, how much does LMI cost?
This cost is a sliding scale – the smaller your deposit, the more insurance you’ll pay. On a $600,000 home with a 10% deposit ($60,000), you’ll be asked to pay insurance of around $10,000.
You might know this, but did you know the LMI amount changes a lot between different banks?
This can actually cost you a bucket extra depending, in this example Lender A costs $10,301 in Lenders mortgage insurance compared to Lender G who costs $16,121 for the exact same borrower, and same purchase amount!
That’s almost $6,000 in extra costs!
The best way to get around this is to look at different lenders or ask your mortgage broker to compare not only the rate but the limit amount.
The cheapest rate doesn’t always mean the cheapest loan!
Paying an extra $6,000 in lenders mortgage insurance will actually cost you an extra $27,976 in interest over the 30-year life of the loan!
2. The costs of Borrowing in Brisbane
Our second tip on hidden costs is borrowing costs.
With loans, lots of small things become big things and in my case, I got to settlement assuming that the bank was happy to charge me just a fat interest rate and no other fees…
But that just wasn’t the case.
I had to scramble to find an extra $1,200 on settlement to cover my bank and settlement fees which was money I just simply didn’t have – In the end, I had to stick it on my credit card.
But this could have all been avoided if I had factored it in up front.
Now it might seem illogical, but some lenders may charge you a fee for the privilege of applying for a loan but banks have to pay processors and lawyers to do the loan so even for so-called ‘fee-free loans’ there are sometimes settlement and documentation fees.
When you take out a home loan, you won’t just be paying off the loan – you’ll also have to pay to apply for and set up the loan in the first place.
The application fees are generally around $500-600, though they can be more than $1000, depending on the loan and lender.
Borrowing Fees can include:
- Loan application/Establishment Fees – some lenders charge on the initial draw down of your loan
- Document Preparation fees – Lenders may charge this to prepare your home loan contracts before approval
- Bank valuation fees – usually waived but if you need a valuation they may charge you
- Other fees – Annual fees! – sneaky annual fees can cost up to $400 per year.
Estimated costs: At least $500-600
Fortunately it super easy to manage these fees, and in most cases, you can get them waived.
Talk to your broker and make sure they take you through all the upfront borrowing costs to make sure your budget works.
3. Government Fees in Brisbane
Let the good times roll, with our third tip being government fees.
This, I think is the secret sting out of everything and different to stamp duty – which we will talk about in a minute.
These fees can add up to a few hundred dollars, so make sure you take note of it.
Government Fees when buying a home in Brisbane include:
- Registration on mortgage: Typically $187 in Queensland
- Registration of discharge of mortgage: $187 in Queensland
- Registration of transfer: Range from a few hundred, to a few thousand dollars.
You’ll pay for the privilege of formally registering your mortgage, while the cost of transferring the property into your ownership will also fall to you, as the new owner.
Registration of transfer fee is the biggest string.
For example, if you are a first home buyer in Queensland purchasing a brand new home for $400,000 – where the stamp duty is being waved – you will still need to pay $957 in transfer duty!
Think of transfer duty as just another tax when buying a home – you can calculate your own transfer duty estimate here.
Unlike bank fees, there isn’t any way around these and no discounts to be had.
4. Stamp Duty in Brisbane
Tip number 4, is Stamp Duty – And I’ve finally got some good news on this one.
..but I’ll start with the bad news first.
This is one of the few non-optional upfront costs for buying a house.
Stamp duty on property purchase is a state government tax. As such, the amount that is payable will vary from state to state. The dollar amount payable also depends on the value of your property – but it can be many (or tens of) thousands of dollars.
The good news is that first home buyers in Brisbane get some relief provided you are living in the property.
On a $500,000 house, first home buyers will pay nothing in Queensland and for those buying their second or third home, you can expect to pay around $8750 on a Brisbane home of the same price.
|Dutiable value||Duty rate|
|Not more than $5,000||Nil|
|More than $5,000 up to $75,000||$1.50 for each $100, or part of $100, over $5,000|
|$75,000 to $540,000||$1,050 plus $3.50 for each $100, or part of $100, over $75,000|
|$540,000 to $1,000,000||$17,325 plus $4.50 for each $100, or part of $100, over $540,000|
|More than $1,000,000||$38,025 plus $5.75 for each $100, or part of $100, over $1,000,000|
For example, see below or refer to the Queensland Office of State Revenue website.
The more expensive the home, the more you’ll pay, with a $1 million purchase attracting stamp duty as high as $55,000.
Estimated costs: Use this stamp duty calculator to work out the likely cost for you Stamp duty can cost tens of thousands of dollars, depending on your state and the price of the home.
5. Council & Water Rates
Tip number 5 is Council and Water Rates.
Haha, yep another government fee – not like there isn’t already enough!
Councils need to charge rates to raise revenue so they can provide services and infrastructure to their communities.
Each year, as part of the budget process councils, decide the rates and charges for the financial year. The level of rates that landowners must pay is at the sole discretion of their council.
You may need to pay the person you’re buying the property from the remaining yearly/quarterly rates – e.g. if you are settling in June, but the previous owner has paid until July you need to pay them for that one month – and this is payable on settlement!
- The person selling the property will have paid any rates owing to the council – generally to the end of the quarter.
- After purchasing the property, you’ll need to pay the vendor for council or water rates.
- The person selling the property will have paid any rates owing to the council – generally to the end of the quarter.
Again this is another cost that isn’t negotiable, but worth being aware of to budget into the costs of owning your home.
To give you a bit of an idea, here are a few suburb examples: Source.
|Suburb||2016 Average Rates||2017 Average Rates|
6. Strata (or bodycorporate) Fees
Our next hidden cost tip is Strata, or body corporate Fees.
Now I have another good news story on this – you won’t pay strata fees if you are buying a stand-alone house, but you will have to pay home insurance – which we covered above.
If you are buying a unit, apartment or townhouse in a complex you will need to pay strata fees.
Strata fees, also called levies, are contributions generally paid quarterly into the strata (or body corporates) bank account. These fees are used to fund the ongoing expenses of your building complex for things like cleaning, gardening, electricity and building maintenance, and plumbing.
Knowing the strata fees is critically important because once you buy the place, you are responsible to make these contributions every 3 months until you sell the place.
But there is another thing you need to know before buying your home: And that’s getting a copy of the strata reports.
Believe me, if you are a first home buyer like me, you don’t have heaps of savings or don’t really want to waste money on these reports.
want NEED to get these reports.
When I was buying my first home almost cheaping out on these reports nearly cost me $9,000 in special levies in the first year of owning my property.
Yeah, it would have cost me over $9,000.
I was buying into a building that had massive water leaking issues, and serious concrete cancer – all stuff that you couldn’t see from the outside or in a building and pest report.
But the strata report detailed this, and also went on to explain the strata (or body corporate) was needing to raise additional contributions from the unit owners.
So if the strata fees are really high, or they are getting raised up – you can bet your bottom dollar they will be coming out of your pocket.
Importance of getting strata report, because the building could have structural issues and they sometimes ask for special levies, or contributions – but only applies on existing properties.
7. Home & Contents Insurance
And you thought we were finished with insurance?
Good news is that this is insurance that will protect you and not the bank.
So you wanna keep reading.
Because a lot of buyers think that they don’t need home and contents insurance, but that’s just not true.
A vitally important cost that you should have in place as soon as (or slightly before) settlement occurs. The cost of home and contents insurance varies from property to property.
- Building Insurance – structure, etc. if not don’t need to pay.
- Contents Insurance – if you turned the house upside and anything fell out.
- Property Insurance – Who is responsible for what and when?
There is often confusion about who is responsible for the property insurance for the period from the signing of a contract to settlement.
According to FindLaw:
In Queensland, contrary to the practice adopted in some other States and sometimes assumed by parties to the property transaction, the standard terms of contract usually provide for the risk in a property to pass from the seller to the buyer, not from the settlement date, but from 5pm on the first business day after the date that the seller signs the contract.
So you need to make sure you have insurance from 5pm of signing the contract of sale, it’s incredibly important.
The good news is you can go online to source or speak with your mortgage broker to arrange. At Hunter Galloway we work with Allianz and can help arrange Home & Contents Insurance for you – Allianz gives our clients 90 days free cover until settlement.
8. Legal Costs (Solicitor/Conveyancer fees) in Brisbane
Our next tip along is legal costs, sometimes called solicitor or conveyancer fees.
You’ll need to pay a legal professional or conveyancer to conduct title searches, make a strata report (if you are buying a townhouse or unit), review a contract of sale (not always required in Queensland) and arrange settlement details.
Why aren’t a review of contracts required in Queensland?
Because we have standardised contracts of sale with standard terms & conditions, compared to other states like New South Wales where contract terms and conditions vary from contract to contract.
Anyway, the reality is if you are buying at auction you need to engage a solicitor or conveyancer before you bid.
Whereas if purchasing by private treaty (i.e. a normal purchase) you can engage a solicitor or conveyancer during the cooling off period.
In general, conveyancers charge a flat fee, while solicitors commonly charge by the hour – with the amount being paid depending on how complex your purchase is.
Approximate cost is $1,000 to $2,000 depending on the searches conducted.
A few tips we give our Hunter Galloway Mortgage Broker Brisbane clients on Legal Costs are:
- Obtain the searches recommended by the solicitor
- We don’t recommend one person operations – if the solicitor/conveyancer is away or sick there is no one to attend settlement for you!
9. Building & Pest Reports
Building & Pest reports are what I would consider the most common, and almost mandatory cost when buying a house.
These reports look at the building (structural soundness) and pest – to check you aren’t flatting with termites or white ants.
A typical building inspection for a 4 bedroom home can cost $400-500 and pest inspection $200-300 – the good news is you can save a few hundred dollars by getting a combined building and pest report for around $500-600.
I can say that Building & Pest reports have saved me over 5 times from buying complete dumps of properties.
With white ants, termites or even damp you can’t physically see it from the outside.
Building & Pest Inspectors (who in Queensland are generally licenced builders) will inspect under the house, in the roof and use their own technical equipment to check for damp and other issues.
I’m not kidding when I say these reports have saved me over 5 times.
In one year I literally spent over $2,000 on reports for different properties before finding the right place but I’m glad I did!
One of the properties had concrete cancer, another had issues with flooding and water leaking through the walls which was going to cost the new owner $9,000 to fix, another had termites in a tree in the backyard, and evidence of old damage in the roof.
This was all stuff they I wouldn’t have found out without using a building & pest inspector.
A further word of warning
One thing you need to be wary of is when the real estate agent selling the property is pushing their own building and pest inspector.
You want to maintain your independence and get your own team to look after this. Make sure you use a certified Building & Pest Inspector, and if there are a few small issues in the report that are fixable – that’s great, you can use this to negotiate discounts from the vendor!
10. Moving & Connection Costs
Moving costs might seem like an obvious one, but have you budgeted for it?
Ok wise guy, if you have then have you also factored in connection costs?
Depending on how far you are moving (and how much stuff you have to move) removalist fees can also add a few thousand dollars to your upfront costs when buying a home.
For a local move (i.e. within the same city), Home Improvement Pages recommends you set aside anywhere from $300 to $3,500. For an interstate move, removalist costs can be several thousand dollars more than this.
Backloading is great for moving interstate, I used it when moving from Sydney to Brisbane and it was under $1,000 move a bunch of stuff.
The downside of backloading is it takes ages for your stuff to arrive.
One thing you probably didn’t know is when moving into an apartment you need to organise with the building manager beforehand to book out lift/elevators – And be aware of where you can, and can’t park.
Another good news story is on Connection Costs.
With the increase in competition in the energy market in Brisbane, I have found you can get any connection costs waived provided you sign up for a 12 month contract. Phone around and see what you can do, but companies like Origin make this pretty easy when moving into a new home.
11. Deposit needed in Brisbane
We’re nearly there with tip 11, the deposit needed to buy a home.
We deep dived into this in our First Home Buyers Guide for Brisbane but being such an important tip, and something home buyers get caught up on every day we need to look at it again.
How much deposit you need, and when you need to pay this deposit.
When I talk about deposit I am talking about how much you are putting towards owning your home upfront (with your lender loaning you the rest).
In general, people say 20% is the benchmark for deposit, but at Hunter Galloway Mortgage Broker Brisbane we find for creditworthy borrowers with good income a 5% to 8% deposit can work.
How do home buyers have problems with their deposit?
The main issues with deposit run into timing, and when the deposit is needing to be paid.
For example, its easy if you are providing the deposit from your own account – but if you are relying on a deposit being gifted from your parents, getting a guarantor loan or relying on the first home owners grant it can be a bit of back and forth to have the funds available and ready in time for settlement.
Talk to your mortgage broker Brisbane up front about this, they will let you know exactly how much and when the deposit funds are needed.
The Deposit Process for buying a home in Brisbane is
- Your deposit is generally payable in 2 parts
- $1,000 to $5,000 payable immediately (when the contract is signed) called the holding deposit
- The balance of the deposit usually 5-10%, is then payable on finance approval. This is called the bank deposit.
- Real estate agents can’t charge your credit card, so you’ll need to have this as cash money paid by bank transfer, or bank cheque
For example, if you were buying a property that cost $500,000 in Queensland your deposit would look like this:
- Holding Deposit: $1,000 paid to the real estate agents trust account when signing the contract of sale
- Bank Deposit: 5%, or $25,000 (minus $1,000) = $24,000 paid to the real estate agent’s trust account when finance is approved
The good news when buying a house in Brisbane is that the initial deposit is refundable if you have signed your contract subject to building and pest, or finance and can’t go ahead due to one of these clauses.
A cheeky deposit hack that I use all the time…
Not paying 5% deposit as my bank deposit.
Realistically the bank deposit is an amount specified by you, and its just to show you are serious about the contract.
You don’t need to make this amount 5%, in fact, I generally just make it total to $15,000 or $20,000.
BONUS: Changes to Repayments
What goes down must go up, and interest rates are no different. it’s easy to assume interest rates will stay low forever.
Remember the average mortgage term is 30 years, and it was only in the early 1990’s (less than 20 years ago) interest rates were at 17%!
So it’s worth thinking about how even a small increase will affect your lifestyle.
The reality is if interest rates go up, and you’re currently only making the minimum required repayments on your home loan you will need to pay more.
So for example, if rates increase 1% you’ll need to pay around $200 extra per month on an average home loan of $300,000. You are going to need to find this extra $200 per month, meaning you’ll need to cut back in other areas like eating out, travelling or socialising.
We’ve included a few examples below, as you can see with a larger loan the increases are considerably higher.
|$ 350,000.00||$ 400,000.00||$ 500,000.00||$ 600,000.00|
A way to protect yourself from interest rate shock is to look at fixed rates. With fixed interest rates you can lock in your home loan interest rate for 1 to 5 years.
The downside is that there are generally fees for repaying the fixed rate early, or before the end of the term.
So if for example you fixed your home loan for 5 years, and wanted to sell the property after 3 years there would be a penalty from the bank.
Again its worth chatting to your Mortgage Broker Brisbane, Hunter Galloway to see what your options are.