The 10 hidden costs of buying a home
By Paul Dillon
29 September 2015
Buying a new property is an exciting moment in anyone’s life. We all want a piece of the great Australian dream and with bank lending rates at historic lows there have been fewer better times to get on, or climb further up, the property ladder.
Tired of renting other peoples’ properties for the past 20 years, that’s exactly what we did earlier this year when we moved back to Swan Hill with our young family.
While researching we quickly realised there would be numerous expenses that would eat into our purchasing power and overall budget. For instance, a $50,000 deposit combined with a $300,000 loan does not necessarily mean a buyer can afford a $350,000 property!
Here are 10 of the extra costs we discovered along the way:
1. Land Transfer Duty (also known as Stamp Duty)
According to the State Revenue Office (SRO), around 250,000 properties change hands in Victoria each year, with each buyer required to pay land transfer duty for the transfer of the land from one individual to another.
In our case, while we weren’t eligible for the First Home Owner Grant (FHOG) due to our purchase of an established property, we were still entitled to a 50% reduction on stamp duty.
Taking the example above, stamp duty on a $350,000 property comes up at $13,780 so any reduction on this is welcome news for any first-time buyer.
See the Land Transfer Duty calculator on the SRO website to calculate the duty on your next purchase.
- Extra cost: If you don't pay your duty within 30 days of settlement, penalty tax and interest may apply.
2. Loan application fee
Unless you have a pile of cash under your bed you’ll probably need assistance with a home loan from a bank or credit union. What we found out is that most will charge an application fee for the privilege.
In our case, our lender charged us an application fee of around $600. Some clever buyers might be able to play banks off against each other and get the application fee dropped but this wasn’t the case for us.Extra costs:
- Registration of mortgage – There is a $114 state government charge to register a mortgage.
- If you have saved less than 20% of the value of the property, your lender may be required to take out Lenders Mortgage Insurance (LMI) to protect them in the unfortunate event that you default on your home loan, and pass on the premium to you, the borrower, as a cost of providing the loan. Using the example of a $50,000 deposit on a $350,000 property, a buyer would require a once-off insurance costing $2,580 (first home buyer) to $2,850 (non- first home buyer) according to this online calculator.
- Mortgage protection insurance – this optional insurance will cover some or all of your monthly mortgage repayments if you lose your job or become disabled.
3. Property insurance
Your lender will usually recommend you take out building and contents insurance effective from the date the seller signs the contract. This is to safeguard their interest in the property, as well as your own.
In our situation, we took out home insurance only on the new property because our contents were still insured at our previously house. It still meant, however, that we had to find roughly $800 extra for the new property that we were still weeks away from moving in to.
4. Valuation fees
Your bank may charge you to arrange an independent valuer to assess the value of the property you’re planning to buy. Some banks waive this, some include it in the cost.
This is a “double whammy” expense if your bank requests this after you have organised and completed your own independent valuation!
5. Inspection reports (building and pest)
If you are going to spend hundreds of thousands of dollars on a property, it makes sense to have a building and pest (termite) inspection. This is considered by most buyers as cheap insurance against the possibility of buying a house with structural issues or white ant infestation.
Both inspections are imperative for such a large financial transaction but will set you back at least $600 for both.
6. Legal fees and disbursements
It is recommended that a property buyer engage a solicitor/conveyancer to oversee the legal aspects of the contract and lodgement of legal documents, liaison with your lender and the seller’s solicitor, to research the property and its certificate of title, calculate the adjustments of rates and taxes and advise relevant authorities of your purchase.
In our situation our costs were around $1,500 but it can vary according to your situation.
7. Electricity disconnection and reconnection
Your energy provider may charge you anything between $5 and $45 to disconnect you (or “de-energisation”) from your previous address. The price varies depending on smart meter and whether provider can disconnect remotely or sends a technician.
You should also budget for a reconnection fee of around $40 at your new address.
8. Telephone and ADSL internet reconnection
You should also anticipate to pay a reconnection fee for your landline telephone and ADSL internet services. In our case, we paid $59 with Telstra to reconnect. If a technician needs to visit your premises, expect an additional $160 fee.
9. Council rates
When you buy a property, you become responsible for the payment of local council and water/sewerage fees from the date of settlement (when you pay the balance of the contract price and take possession).
If the seller has paid these charges in advance of the settlement date, you will be required to reimburse the seller for that portion of the rates paid beyond the settlement date (see "6. Legal fees and disbursements"). Similarly, if the seller has not paid the rates, he will have to reimburse you for the period before settlement and then you will need to pay the local authorities.
10. Everything else
- Real estate agent fees – If you are selling a property to buy another, you’ll need to factor in the selling commission and marketing costs.
- Removalists – If you don’t have an army of friends to help you move, then you’d better budget for professional removalists.
- Settling in costs like steam cleaning carpets before moving in, buying new white goods, furniture and establishing a garden or even a couple of repairs and an unplanned visit from a plumber can all add up in your first month.
At the end of the day
These were the additional or "hidden" costs we encountered during our house purchase this year. We anticipated some of them, some we didn't, but importantly our budget allowed us to absorb these costs without putting too big a strain on our finances and mortgage repayments.
For more specific information about a future property purchase, make sure you do your research or give the Wood & Co team a call.
Written by Digital54.com.au