Upfront and Hidden Costs of Buying a Home

Being a first home buyer or first-time investor can be an exciting but also overwhelming time! It can be a challenge not only to understand industry jargon, but also all the costs and fees that come with buying a home.

For this article, I’ve interviewed Property Expert Nidal Rasheed, Founder and Managing Director of Silvertail Property Group. To explain the upfront and hidden costs of buying a property. Fees in addition to your deposit include stamp duty, mortgage fees and council rates just to name a few.

The Deposit

The deposit is one of the biggest upfront costs to purchase a home. Banks and lenders typically require a 20% deposit of the property’s value to approve a loan. For example, an application for a $500,000 property, would require a $100,000 deposit.

For applications with less than 20% deposit, there are other ways to get a loan approved. Banks and lenders require Lenders Mortgage Insurance or a guarantor for this. Applications with as little as 5% deposit can get a loan. We’ll cover Lenders Mortgage Insurance further in another point.

“Many first home buyers and investors don’t realise lenders mortgage insurance is an option. Along with how they can use it to their advantage. LMI can help buyers get into the market sooner, rather than spending more time saving”, says Mr Rasheed.

Buyers may also be eligible for a first homeowner’s government grant. This grant differs in each state, so be sure to check the requirements in your state.

Stamp Duty

As defined by Business.gov.au, stamp duty is a tax that state and territory governments charge for certain documents and transactions. This tax is paid by the purchaser. The amount of stamp duty a buyer is required to pay is determined by the property’s value.

Stamp duty is the next biggest upfront cost after the deposit. Please note, in some states, first home buyers are exempt from stamp duty. So be sure to double check stamp duty requirements in your state.

Transfer Fee

Transfer fees are charged by the government to cover the cost of officially transferring the land titles into a person’s name. This fee differs state to state, so be sure to check the fee for your state.

Mortgage Registration Fee

Mortgage registration fee is when the lender officially registers a mortgage. Along with shifting the ownership into the new buyer’s name. This fee differs state to state, so be sure to check the fee for your state.

Lenders Mortgage insurance (LMI)

As mentioned earlier, LMI is required for home loan applications with less than 20% deposit. This insurance is paid for by the borrower, but only insures the lender. LMI is a one-off payment. Smaller deposits mean bigger risk, this is why lenders get it to safeguard themselves if you default on your loan.

Everyone’s situation is different, so therefore everyone’s LMI is too. Although there are a few common key factors that determine the price of LMI. These are your lender, the size of your deposit and size of your loan. There are several online LMI calculators you can use to find an estimate of how much LMI is going to cost.

Legal and Conveyancer Fees

Legal and conveyancing fees are calculated by the conveyancer when transferring the ownership of the land into the new purchases name. These fees apply when a person is selling or buying a property. 

Building and Pest Inspections

Inspection fees apply when the purchaser requests a pest and building inspection prior to settlement. This is to ensure the property complies with the building code and requirements. An inspection is important to do when purchasing an older or established home.

“When purchasing an older or existing home, it’s recommended to get a building and pest inspection. Not only does it show if the property complies with building codes. It additionally gives the purchaser insights for future problems, for example termites”, says Mr Rasheed.

Valuation Fee

Valuation fee covers the time of the valuer to assess the property. A valuation reassures the lender the amount the purchaser is borrowing and that the size of their deposit, is suitable for the property.

Council Rates

Council rates are fees that the owner of the property pays quarterly, which are charged by their local council. This fee goes towards services provided by the council such as roadworks and community events. Keep in mind each council charges a different amount.

To Conclude

As you can see, there are many upfront costs when purchasing a home. The biggest costs are the deposit and stamp duty. The amount of both is determined by the value of the property.

Other upfront costs include transfer fee, mortgage registration fee, lenders mortgage insurance (LMI), legal and conveyancer fees, building and pest inspections, valuation fee and council rates.

Many of these fees differ in each state, so be sure to check the fee in your state. First home buyers can also be eligible for government grants, and in some states exempt from stamp duty.

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