What additional costs are involved in buying property?

Let’s be honest – saving for a home loan deposit is hard work. After skimping on those fancy dinners and Friday drinks, you think you’ve saved enough only to be hit with a bunch of extra costs that weren’t factored into your budget.

Buying a property isn’t just about paying what’s on the price tag. There are some extra costs all buyers should be aware of. To help avoid unwelcome surprises, here are the additional expenses you’ll need to factor in (apart from your deposit).

Home loan application fees

This is a one-off upfront cost to set up your loan. It is sometimes called a loan establishment fee and can often cover the cost for bank legal fees and settlement attendance fees for the bank. These fees can vary anywhere from $0 to $1000.

Lenders Mortgage Insurance

Lenders’ Mortgage Insurance (LMI) can help you buy a home when you have less than a 20% deposit of the purchase price. It is a one-off cost that’s added to your home loan (so you don’t have to pay anything upfront) and allows you to borrow more than 80% of the property value for standard home loans. If you don’t have a 20% deposit, LMI can be avoided by having a family member guarantor for your loan. The price of LMI will vary on the property price and the deposit you have.

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Valuation fee

Before buying, the lender will get a formal valuation of the property. This can cost anywhere from $0 to $300. Speak with your mortgage broker to find out which lenders offer a free valuation as part of the loan.

Stamp duty

Apart from the deposit, this’ll be your biggest upfront cost. Stamp duty is a government cost and each state has its own levy calculated differently. For example, a home with $450,000 in NSW requires around $16,000 stamp duty, whereas a similarly priced home in WA will require only $4500. First-home buyers may be eligible for stamp duty exemptions or concessions under certain conditions, to find out more, it’s best to speak to a broker or learn about government grants and the home buying process.

Strata Report

Commissioning a strata report before you buy can tell you that the building you’re buying into is well-run, well-maintained, adequately financed, and planned well into the future. These reports can cost up to $250-$300 in total so it’s important to discuss these reports with your Solicitor and Mortgage Broker to see if they’re actually required.

Pest and building inspections

Building and pest inspections can protect buyers from fault-ridden properties, as the reports reveal any hidden problems a property may have. They are carried out by a qualified person (such as a licensed builder, a surveyor or an architect) and fees will depend on the size of the property but averages around $500.

Legal / Conveyance fees

These fees are for a licensed lawyer or conveyancer to review and negotiate your contract, perform checks on the title, and draft the settlement documents. They basically do the paperwork for you. Depending on complexity, it’ll cost between $1,500 ­- $2,500.

Buyers agent fees

Buyers Agents are licensed professionals that specialise in searching, evaluating, negotiating and securing the purchase of property on behalf of a buyer. While Buyer’s Agents aren’t a mandatory cost, having someone do all the hard work, saving time money and stress makes sense, especially if you’re a first home buyer. Most Buyers’ Agents charge between 1.5% and 2.5% of the purchase price of the property. We recommend finding a Buyer’s Agent that will charge a fixed price. This ensures their remuneration isn’t directly linked to the price you pay.

Council / Water / Strata adjustment

If you are buying a lot in a strata scheme, the quarterly strata levy, water and council rates will need to be adjusted between the vendor and purchaser at settlement date. The costs associated with rates and taxes adjustment will fluctuate depending on what time of the year you settle and the value of the property but it averages around $1,500.

If you are buying or thinking of buying your first property and want to get a better understanding of the home loan process and property market, attend a First Home Buyers Courses in Sydney.

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