Most people dream of buying their own homes at one stage or another. You work hard and save up the deposit and then put an offer in on your dream home. If you are not prepared for the extra costs that will crop up, your dream could turn into a nightmare.
On a property deal of $500,000, for example, the additional costs could be as much as $15,000, excluding stamp duty, and this amount will vary depending on the state that you are buying in. You need to budget for these costs over and above the deposit saved so that you do not get caught off-guard.
Here is a basic break-down of what fees you can expect to pay:
Stamp Duty and Other Government Costs
Stamp duty is often one of the most expensive fees and how much you pay varies from state to state. It is a good idea to find out what you can expect to pay in your state before you start looking for the home.
If you are a first time home owner, there are grants and concessions available to you and these will often cover the cost of the stamp duty.
If you do not qualify for any concessions, you are looking at a minimum fee of around $10,200 in Victoria right up to around $24 000 in the Northern Territories. It is a good idea to consult your Melbourne Property Managers or to consult one of the many online calculators to determine what this fee will be.
You will also need to pay to have the title registered with the state.
You will be required to pay the town council pro-rata rates calculated from the time of purchase to the end of that year.
Lenders Mortgage Insurance and Other Lender’s Fees
This is a fee that catches most people by surprise and it can be quite a chunk of money. This is a fee that is charged when you are borrowing more than 80% of the purchase price of the home.
Loans of more than 80% of the purchase price are considered to be higher risk – not only are your monthly repayments going to be higher, but there is a greater chance of the lender losing out if the property is repossessed and has to be sold urgently to defray costs.
If you are buying a house for $500 000, and only paying a $50 000 deposit, this fee is going to be around $8000. You will normally not have to pay this upfront – the lender will usually add it onto your mortgage.
Your lender sometimes charges a fee of a few hundred dollars to prepare the lending contract. They might also charge a loan establishment fee of around $600 and a valuation fee of around $400.
These costs will vary depending on the type of property you are buying and how complex the transfer will be. These are attorney’s costs and could set you back as much as $3000.
Costs Involved in Protecting Yourself
These additional costs can total around about $1000 but help to protect you as a home buyer.
A pest and building inspection is usually optional but is always a good idea. Considering the value of the investment that you are making, a fee of a few hundred dollars is not much at all. This can save you a lot of headaches in the long run – the inspector will check for structural issues and will confirm that there are no pests.
Title insurance may seem like a bit of a waste but it protects you should anyone make a claim against your property’s title. Say, for example, that the council wishes to sell your property due to unpaid rates and taxes. This insurance protects against such claims.
There are also various searches that need to be conducted in order to make sure that the property is unencumbered. Once again, this is a necessary fee to protect you.
These fees can total a pretty penny so it is a good idea to understand what extras you will be paying before you sign on the dotted line.