A dream home comes with a list of costs that do not have to be a nightmare if you budget for them.
Sometimes these can amount to around 10% of the value of your desired property. That means they actually eat up the entire value of an average deposit. That’s a sobering thought and sometimes it does feel like someone always has a hand in your pocket.
Some costs, such as stamp duty, are unavoidable. Do not take short-cuts with other expenses, such using legal advice and undertaking a building inspection, as mistakes in these areas can cost you far more in the long run.
Here are the key costs to budget for:
Inspections
These are not mandatory unless your lender insists on them. However, you’d be crazy to not undertake building and pest inspections to ensure you’re not buying the neighbourhood money pit. You want to make sure the foundations and structure are sound and that termites are not munching on your dream home. Typically, these cost $500 each.
Loan application fee
Try to get this waived. A bank wants a 25- or 30-year relationship with you, so you’d not be the first to object to this fee. Some will charge more than $1000, while others will drop it. Leverage lenders against each other to get the best outcome. Your mortgage broker can assist with this.
Additional banks fees
These add up. Lenders will charge you for items such as bank cheques and a so-called rate lock-in fee, which protects you from any increase in charges during the time of the transaction. What does this mean? If interest rates rise during the time your application is being processed, then it might have to be evaluated all over again (sigh!). Document preparation and legal fees also incur a charge from the lender. If your loan is being guaranteed, there’ll be a fee for that, too.
Lenders mortgage insurance
This can be a heavy slug and banks will usually insist on it for their own protection. Effectively, you are insuring against the lender making a mistake by giving you a loan. This charge can be waived but usually only with those who have at least a 20 per cent deposit and other collateral. Some banks will insist on Income Protection Insurance in case of periods of unemployment. This can be expensive but heaven-sent if it is ever needed, as it should protect you from losing your home.
Legal fees
Conveyancing and legal work is not cheap and only avoidable if you wish to use so-called DIY contracts. If that’s a path worth considering, then you need to know what you’re doing or the smallest error could cost you heavily. All state-based Offices of Fair Trading will offer advice on how and why you should engage a solicitor to help with a purchase.
Stamp duty
There’s no escaping this. Each state government will calculate the monies owed based on the sale price, applying their tax percentage.
Insurance
The moment the house becomes your property, the pre-existing insurance cover will cease. So, make sure you have arranged for insurance before the exchange of contracts.
Additional costs
The expense of moving and connecting your home to services such as gas, electricity and the internet all come with a cost and require your attention. Obviously, each charge is dependent on your circumstances and the size and position of your property.