Buying a property isn’t as simple as simply paying what’s being advertised on the price tag. There are a variety of extra costs that are incurred throughout the purchasing process. It’s essential to be aware of these, so you can factor them into your budget rather than suddenly being shocked at the additional bills being sent your way.
Here’s a breakdown of some of the common costs associated with a property transaction:
The property’s value is the obvious major cost, and that’s what you see advertised and is the number you’re negotiating when you’re trying to buy. Application fees (also known as establishment or settlement fees) is the fee paid to set up the loan in the first place with the lender. This can vary between lenders, and some even waive it under particular circumstances.
Stamp duty can be $0 for first home buyers and varies by purchase price and state, but for anyone else, it’s an additional cost that’s calculated as a percentage of the main purchase price. Also known as transfer duty, it’s a state government tax required when property ownership is transferred.
If you need to borrow more than 80% of the property’s purchase price, you’ll also need to pay Lenders Mortgage Insurance (LMI), which is generally 1-3% of the loan amount. A common alternative to the LMI is to have a guarantor put up a security towards your home loan, but this will also incur a fee around $200 per borrower on the loan account.
Alongside the legal and financing fees involved with a property transaction, there are also one-off property costs that you’ll need to save for. These include getting an official valuation of the property, as well as conveyancer or solicitor fees since it’s best to let a professional handle the legal documents and process. Additionally, paying for building and pest inspections are highly recommended so you can ensure there are no hidden problems that could potentially cost you tens of thousands of dollars when discovered later.
If a mortgage broker is helping you through the process of purchasing a property, they should be able to give you a comprehensive list of the costs involved. Make sure you save extra money for these costs, alongside whatever deposit you need for the property you want!