First home buyers feel nervous enough venturing into the property market. They have a gut feeling they need to save a deposit for their home – but what else is involved? Property is big business, which means big regulations. Big regulations means paying someone – or a team of people – to navigate the delicate and often frustrating paperwork to get your first home purchase across the line. So what are these “hidden” costs? Here is a primer to help you on your way.
More deposit saved up means no LMI
LMI, or Lender’s Mortgage Insurance is a cost you incur if you do not have an adequate deposit. LMI insures the bank – not you – against default. Typically, you incur LMI if you have less than 20% of the home’s value saved as a deposit. If you have only $50,000 saved for a $750,000 home, LMI may equate to $29,000-30,000. Most lenders will allow you to incorporate this cost with your loan however, saving more of a deposit could mean avoiding LMI. Of course, it gives you more equity in your home from the beginning.
Making sure your dream house isn’t a nightmare
Houses may look great on the outside, but what lurks beneath? You should get a pest and building inspection done to make sure you’re not about to buy a death trap. Pre-purchase inspections can cost anywhere from $300 to $1,000 in metropolitan areas.
Fees at the bank
Banks will charge you fees through the lifetime of your loan and at the start. It’s likely your bank or lender will charge you a loan application or establishment fee, which can cost about $500-600. Other banks and lenders might not charge anything.
Lawyers and red tape fees
Conveyancing and solicitor’s fees are an unavoidable part of home buying. Lawyers will generally charge a document preparation fee of about $200-300 and another $100 or so for legal searches and inquiries, to make sure your home has no other claims to the property or assets. In total, most conveyancing transactions cost an average of $1,500 to $2,000.
The government’s take
The government will want its share of the purchase in the form of stamp duty. Using our $750K property as the example, the NSW State Government will ask for an estimated $29,240 in stamp duty. Victoria will ask for $40,070; Queensland about $19,600. Once that’s out of the way, your local council will ask for their rates and water service, which costs about $500-$1,500, depending on where you live. This is all based on owner-occupation; investment properties may cost more! Your state or territory Revenue Office will have more information and exact figures.
Money spent on everything but the house
Adding all this up (in NSW) and you’ve spent about $60,640 on your house just to buy it! These costs can all add up. Keeping them in mind can help you out of trouble before you buy.