First Home Buyers often get a rude shock when they realise the hidden costs associated with buying a home. Saving for a home deposit is the key expense, but what other hidden costs need to be considered?
Stamp duty
Outside of your deposit, stamp duty is likely to be your biggest upfront cost. Stamp duty refers to the tax that you usually need to pay when you are buying a home. The amount that you need will depend on the value of your purchase and the location.
Remember to keep an eye out for any concessions that your state government has on offer such as First Home Buyer concessions for stamp duty.
When you are calculating how much you will need to save for your home deposit, we recommend using a stamp duty calculator so that you can estimate what will be required. This will help when you start to map out your savings roadmap!
Other State Government fees
Aside from stamp duty, there are a few other government fees that you need to know. A property transfer fee is a charge to register your name on the title of the property. This fee will vary depending on your state, some are set fees and others operate on a sliding scale.
A mortgage registration fee is a charge for registering your mortgage on the title of your property. Again, this will vary depending on your location. Make sure that you are well researched on these fees so that you are prepared for the cost when the time arises.
Conveyancing and Legal fees
When purchasing property, you will need to work with a conveyancer or solicitor in the process. This includes all paperwork including the review of your contract, checks on the title, and the drafting of settlement documents. Conveyancing and legal fees will differ depending on the complexity of your purchase but usually sit between $700 and $2500.
Lender’s Mortgage Insurance
If you don’t have a deposit of 20 per cent or more of the purchase price of a property, most lenders will require you to pay Lenders’ Mortgage Insurance. Lender’s Mortgage Insurance protects banks if a customer can’t make their home loan repayments. (Please note: There is no protection afforded to the borrowers). It is a one-off, non-refundable, non-transferrable premium that is added to your home loan and is calculated based on a sliding scale depending on your level of deposit and the loan to property value percentage (LVR) above 80%.
We recommend avoiding Lender’s Mortgage Insurance if you can as it can be quite costly and also adds some extra loan qualifying criteria. This may mean waiting until you have the savings ready before making your purchase or potentially borrowing money from ‘the bank of mum and dad’ to make up the difference if that is a realistic option.
Building Inspections
When you’re spending big dollars on a new home, you want to make sure it is in good condition. You may wish to consider getting the property inspected by a qualified building inspector to ensure there are no hidden problems underneath the surface. A professional building assessment will check for signs of defects, safety hazards, structural problems, hidden moisture issues and the presence of termites.
A building inspection isn’t a significant cost in the scheme of things compared to your home purchase price, but one that should be accounted for in your budget. If you uncover serious issues after purchase and need to pay a big bill to rectify these problems, you may find yourself in a sticky financial situation.
Account for these hidden costs when buying a home
Purchasing a home is an expensive exercise in more ways than one. We recommend reviewing all of these hidden costs and making sure they are accounted for in your savings plan. If you need support during the home buying process, the APS team are here to support you, all the way from savings account, to home loans and conveyancing.
Written by APS Manager of Home Finance, Tony Calder.
Tony has over 30 years of experience in lending and finance. His focus over the past 20 years has been in residential property lending, initially at Westpac and for the past 6 years at APS Benefits Group. Tony enjoys helping APS members and clients get the right loan to meet their specific needs and one of the advantages of working at APS is that he has access to a great range of lenders. APS is a residential property lender, so if someone finds it difficult to get a loan through the banks, Tony can on most occasions fund the loan through APS, which is a great outcome for members and clients. When Tony isn’t working, he enjoys travelling, dining out with family and friends and playing golf.
To learn more about APS Home Loans and Mortgage Broking, or to chat with Tony, click here.