Purchasing property is an exciting step but finding out there are ‘hidden’ costs you may not have accounted for can cause a lot of stress!
Here is a list of the ‘hidden’ costs you should be aware of.
1. Stamp Duty
Stamp duty is a charge that is applied to the sale of residential property by state governments. It is not a fixed cost across the country and differs in each state and territory. In Victoria, Stamp Duty concessions are given to first home buyers. The rate applicable also differs depending on a variety of factors including if the home is your primary place of residence or if it is a vacant block of land.
The state revenue office has put together an excellent calculator to assist in working out what stamp duty you may need to pay. See http://www.sro.vic.gov.au/calculators/land-transfer-calculator for more information. If you are looking to buy your first home in Victoria, check out our article Great News for First Home Buyers
3. Lenders Mortgage Insurance (LMI)
If you do not have a 20% deposit to purchase your home, you may be charged Lenders Mortgage Insurance. The purpose of this insurance is to cover the lender in the event that you default on the loan. Some lenders allow you to include the LMI as part of your mortgage, whereas others require you to pay it upfront.
4. Legal fees and conveyancing
The process of buying a home can be a complex legal minefield. It is critical that you have the assistance of legal experts such as a conveyancer and solicitor. Unfortunately, their assistance comes with a fee. Some legal services charge a flat fee whilst others charge a fee based on the price of your purchase. It is important to discuss fees and charges prior to engaging their services. Most purchasers have selected their legal team prior to commencing their search, as it is a good idea to get the section 32 and sales contract reviewed prior to signing it.
5. Building Insurance
When you are making a purchase as expensive as a home it makes sense to protect it. All lenders require you to take out a building insurance policy prior to settlement. Most insurance companies allow you to pay it monthly, however the premium is usually higher than paying 12 months in advance.
6. Council Rates and Body Corporate Fees
Upon settlement of your property, you immediately inherit all of the council rate and body corporate fees that are applicable. Whilst every owner is required to pay council rates, owners of a unit or an apartment are also required to pay body corporate fees. These fees are to cover the maintenance of common property and building insurance for the entire complex. Body corporate fees are an ongoing cost, but be aware that you may be required to pay an installment on or soon after settlement. If you are looking at purchasing a home within a unit or apartment complex, make sure that you are aware of the ongoing body corporate fees before placing an offer.
7. Building and Pest Inspections
No one like nasty surprises, especially ones that may be costly. Obtaining a building and pest inspection on the home you are looking to purchase is a must! Some lenders require a building and pest inspection to be carried out on the property, however if it is not complusary they are well worth investing in.
The inspections will highlight any major defects of the home and outline possible improvement or issues that may arise in the near future. The last thing you want to do it purchase a home only to find out that there are major structural defects or severe termite damage.
8. Mortgage fees
When it comes to establishing a mortgage and transferring a title there are various fees which may be applied to you. Some lenders choose to waive certain fees depending on your loan arrangement. These fees may include a loan establishment fee, finance package fee, document preparation fee, bank valuation, title insurance, registration of title and the cost of any other disbursements associated with establishment your mortgage.
It is important to sit down with your bank or broker and understand exactly what fees will apply to you prior to commencing your property search.
9. The ‘extra’ expenses
Whilst you may have accounted for all the major expenses mentioned about, there are always extra costs that you may have to pay on or around the time of settlement. These may include moving expenses, utilities connections, and mail redirection. Make sure you allow some budget to accommodate for these.
Buying a home can be a really exciting time, whether you are a first home buyer, seasoned investor or purchasing your forever home. However, it is really important to consider all the costs involved, not just the sale price. If left to the last minute, these additional costs can make an exciting time extremely stressful.
As a general rule, it is said that you should factor in an additional 5-7% of the purchase price of your home on top of your deposit to cover the ‘hidden extras’.
The earliest you can establish an estimate of the additional costs you may be liable for the better. These costs will directly impact the price you can pay for a home. Although most of the ‘hidden’ costs are not a huge amount they can quickly add up to a sizeable sum.
The team at KR Peters Real Estate are here to assist you through every step in your real estate journey. If you have any questions please contact us below.