Do you know what you are really paying for your new home?
The asking price you will see on a real estate ad is unfortunately not the only cost involved in buying a home, so do not get caught out unawares partway through the buying process. Below we have included a short list of some of the additional fees and costs that will make up part of the final price tag, so be sure to account for all of these when budgeting for your property purchase.
The Hidden Costs Checklist
Home buyers often neglect to account for the legal costs associated with the conveyance, that is, the legal process of the property transfer.
These costs can range from anywhere between $1000 and $3000 depending on where you live, the conveyancer you choose, and the complexity of the transfer. While there are ways to mitigate this cost, such as by using an online DIY conveyancing service, you will normally get what you pay for. Trying to cut corners when it comes to the legal transfer of the single largest purchase you will ever make is usually inadvisable, so it is recommended you work with the professionals on this matter.
Stamp duty is a tax that is attached to real estate purchases. This tax needs to be paid within 30 days of a property being settled and increases with the price of the property.
Stamp duty varies from state, but on a $600,000 property in NSW, your stamp duty will be around $22,000. You can find a more specific estimate for your property with this useful online stamp duty calculator.
There has even been some discussion in the ACT recently about abolishing stamp duty, but it is hard to see this catching on elsewhere any time soon. As it stands, stamp duty is a cost that cannot be avoided, so make sure that it is properly accounted for in your budgeting.
Lenders Mortgage Insurance
Lenders mortgage insurance is a safety net for the banks for lending more than 80% of the purchase price of a home, just in case a borrower fails to repay the full amount.
This is the cost that takes the most homebuyers by surprise. Remember that while banks are interested in helping you purchase a home by lending you funds, they are more interested in not losing their money.
This means that if you manage to save more than 20% of the deposit price (well done!) you will not have to pay lenders mortgage insurance. For the $600,000 home in our example, it is reasonable to expect around $10,000 for your mortgage insurance, which is usually added to the total home loan value.
The Added Extras…
In addition to the above, fees for the building and pest inspection, bank loan application, document preparation, bank valuation, and registration of title, as well as remaining council and water rates must all be considered when purchasing a property.
An estimate of these costs added together is $2000 - $2500, and will often need to be accounted for at short notice.
More Than Meets the Eye
While saving for a deposit consumes the thoughts of many homebuyers, it is also wise to factor in these additional costs into your plans.
Home buying is an immensely rewarding process, but you can reduce the associated stress by being prepared for any hidden costs, so take the time to talk to your local Richardson & Wrench real estate agent and ready yourself in advance.