Buying a property involves more than finding a home you love and paying the asking price. There’s a host of other additional costs and fees to factor in. Unfortunately, these costs can take you by surprise, eating into a significant portion of your home deposit.
Here are the fees every savvy first home buyer will include in their property-buying budget, listed here in alphabetical order.
Whether you find a home loan via a mortgage broker or a bank, you will probably encounter your fair share of banking fees. Bank fees, also known as loan establishment fees or mortgage application fees, should be budgeted for your first home. Other bank fees you may encounter range from property valuation fees, settlement fees, lenders’ mortgage insurance, ongoing administrative fees.
Fees can really add up across the lifespan of a 25-year loan. So ask your mortgage broker or lender to itemise all additional costs. And an important note: it pays not to accept all of these fees at face value. In many instances, banks can reduce or waive fees. So ask for the best deal before you sign the dotted line.
TIP: You cannot be charged more than 48% in fees on your home loan annually, by law. https://www.moneysmart.gov.au/borrowing-and-credit/home-loans/fees
A potential misstep that buyers can make is to forgo a building inspection. According to HiPages, a building inspection will cost anywhere from $200 to $600, while a pest inspection will cost about $100 to $150. These are small prices to pay for services that could end up saving you thousands in repairs and even … the overall cost of your home.
Savvy property investors know that building inspections and pest inspections not only ensure that your home is structurally sound and pest-free. In addition, they are a chance to negotiate the final sale price of your home. If the seller is motivated (hoping for a quick sale), they may be willing to reduce the sale price. This price reduction would account for the cost of defects and repair works you will have to undertake after purchase.
The last stage of the purchase is to conduct a final handover inspection or pre-settlement inspection.
A professional building inspector can do this job for you. They’ll ensure all inclusions listed in your contract are present and identify any defects in the finished product. Minor defects can be easily rectified by the builder or developer.
A home is often the most expensive asset you’ll ever own, which is why it’s so important to protect it with insurance. Many lenders make home insurance a loan condition. But, again, depending on your state – either the on the exchange of contracts or on the settlement date.
However, taking out home and contents insurance isn’t the only type of insurance you’ll be expected to pay during your home buying journey. You may need to look out for Lenders Mortgage Insurance (LMI) and Home Owners Warranty Insurance (should you choose to undertake building works).
TIP: LMI is designed to protect the lender if you are unable to re-pay. It will not protect you if you default on your loan. Contact a licensed financial advisor or a specialist insurance broker for personalised advice.
DID YOU KNOW?
Your job could save you thousands of dollars on LMI. However, some occupations, such as medical professionals, veterinarians, and engineers, are exempt from paying it. Contact your mortgage broker to find out if you qualify.
Legal and conveyancing fees
Although not mandatory, hiring a solicitor or conveyancer is highly recommended. According to Open Agent,the fee for a conveyancer and lawyer can range from $500 – $2200, depending on the type of property you’re purchasing.
Conveyancers are licensed professionals who are trained in property law. They can obtain information about a property that the average buyer won’t have access to, such as plans for future development, planning restrictions, outstanding land taxes.
Conveyancers usually charge a set fee for their services or charge a sliding fee based on the property’s final sale price. If you decide to hire a conveyancer, make sure they are licensed with Fair Trading. You can check this information at: https://www.onegov.nsw.gov.au/publicregister/#/publicregister/search/Conveyancer
A solicitor is another type of legal professional you may encounter on the property-buying journey. Unlike conveyancers, who work only within property law, a solicitor will have a more comprehensive knowledge of property and business law (including property transfer). For this reason, solicitors are better equipped to handle complex legal matters. In addition, solicitors usually charge by the hour.
So the agent has handed you the keys to your first property; now it’s time to move in. But don’t underestimate the costs involved in setting up your new home. Between hiring removalists, cleaners and ordering new furniture, there’ll be plenty to pay for. So factor these costs into your budget.
TIP: There aren’t many parts of the home buying journey that are DIY- friendly. Reducing your moving costs, however, is one place you can save. Hire a van or a ute, rope in a mate and, do the heavy lifting yourself. Also, save money by opting to do any cleaning work yourself, rather than calling in a professional. Short on time? Check out sites like Air Tasker for a competitive quote.
You may need some minor renovations. It could be replacing a dated bathroom vanity or giving the walls a fresh coat of paint. Or maybe the light fittings are just not ‘you’. Also, be aware that you may need some extra cash to make the house feel like a home.
According to Service Seeking, even something as simple as painting a room can cost anywhere from $250-$400, so it all adds up! Other things you might like to update when moving into a new home are: fixtures and fittings, installing new appliances, or giving the exterior façade a facelift with paint. The critical thing when renovating is to set a realistic budget and stick to it.
Stamp duty, known officially as transfer duty, is a type of government tax. Thanks to a government initiative known as the First Home Buyers Assistance Scheme, you may be able to purchase a home with zero, or reduced, stamp duty on new and existing homes valued at less than $700,000. Don’t forget to apply for the FHBAS.
TIP: For more information about the First Home Buyers Assistance Scheme and eligibility requirements, visit https://www.revenue.nsw.gov.au/grants-schemes/first-home-buyer/assistance-scheme
If you are not eligible for the First Home Buyers Assistance Scheme, find a Stamp Duty calculator online. Stamp duty is an upfront cost that will need to be paid at the time of settlement.
Strata Fees and Council Rates
Strata Fees If you are buying into a strata building, there are some additional costs you’ll need to account for. Some of these costs include strata levies (a regular contribution to the upkeep
and repair of common areas such as hallways, foyers, gyms, barbecue areas, etc.). You may also need to contribute to special levies, which arise when significant, unforeseen work needs to be done.
Suppose you’re considering buying into an older or well-established strata building. In that case, it’s a good idea to ask the owners’ corporation whether there are any upcoming works you will be liable to pay for. Then, factor these fees into your purchasing decision.
In an off-the-plan building, a strata scheme will not yet be registered. This means any information about initial strata fees will be set by the developer until a strata scheme is established. Research the running costs of established buildings comparable in size and facilities. This will give a more accurate idea of how much you will likely have to pay in strata fees each year.
Council rates vary but are usually calculated upon the value of the land in the area. These funds are used by the LGA to maintain public spaces and infrastructure. Visit the Your Council website at https://yourcouncil.nsw.gov.au/ to determine how council rates in your prospective Local Government Area stack up against surrounding neighbours.
Unexpected Repair Works
The difference between unexpected repair works and renovations is that renovations are planned. In contrast, repair works crop up out of the blue. Therefore, it’s essential to have savings set aside expressly for emergency repair works.
Some experts recommend putting away a total of 1% of the property’s value each year. For a $500,000 property, for example, your yearly savings for repairs would be $5000 a year, or $417 a month.
Utilities and Household Bills
Now you’re settled in your new home, it’s time to run it. First, you’ll need to set up an account for essentials such as electricity, gas, water, as well as other optional creature comforts like the internet, entertainment subscriptions, and more.
Comparison sites are a handy resource for finding the best deals. Keep in mind that they often only compare a reduced range of products, so you still may need to hunt around to get the complete picture.
At the end of the day, buying a home is one of the most exciting purchases you’ll ever make. Being prepared by doing your research and creating a realistic budget will allow you to enjoy the property-buying journey.
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