By Greg Carroll
In addition to saving a deposit or using equity in an existing home you also need to allow a range of costs when purchasing a property. When added up these costs can range between 5% to 7% of the purchase price.
For all our clients we provide an estimate of likely costs associated with a property purchase so you have all your bases covered.We've covered some of the typical costs below.
Stamp Duty — This is the big one. All other costs are relatively small by comparison. Stamp duty rates vary between state and territory governments and also depend on the value of the property you buy. You may also have to pay stamp duty on the mortgage itself.
Generally around $1,000 – $1500, these fees cover all the legal rigour around your property purchase, including title searches.
This should be carried out by a qualified expert, before you purchase the property. It is quite commen to make your contract subject to a building inspection, so if there are any structural problems you have the option to withdraw from the purchase without any significant financial penalties. A building inspection and report will usually start at around $400 - $500.
Pest inspection — Also to be carried out before purchase to ensure the property is free of problems, such as white ants. Allow up to $500 depending on the size of the property.
Don’t forget to factor in the cost of a removalist if you plan on using one.
Most lenders will charge some form of application fee or establishment fee to set up the loan. This can vary from lender to lender but is usually around the $600 mark. This is an area where you need to exercise a bit of caution. For some lenders this will be an all up fee covering loan set up, valuation, and legals, but for others it will be one of a range of other fees. So it’s worth having a close look over a lenders complete list of charges so you know the total cost you are up for.
A number of lenders will promote no application fee, but will then charge for valuations and settlement that can end up costing more than $600.
IMPORTANT NOTE – I often come across people who get very hung up on paying fees particularly application fees. Certainly you don’t want to pay more than you have to but your priority should be selecting the right loan and structure. Basing your decision on a $600 fee when you are planning to borrow a couple hundred thousand dollars is fairly short-sighted given that making the wrong selection could cost you thousands.
Many lenders will include one valuation as part of their application fee. They may however, charge additional fees for additional properties, properties over a certain value, properties in certain locations, and properties that are unique in some way. Again some lenders will have this as an additional charge to their application fee.
Some lenders may charge a separate fee for preparation of loan documents, particularly if they are outsourcing their legal work. This can vary from a few hundred dollars to over $1,000.
Most lenders will charge an additional fee to attend settlement, of around $150 - $250. If there is more than one settlement involved then you will be charged for each settlement.
Lenders mortgage insurance (LMI)
The amount charged is based on both the amount borrowed and the Loan to Valuation Ratio (LVR), and can range between 0.5 to 3.0% or more, of the loan amount. Importantly mortgage insurance can vary greatly from lender to lender. Again you might get a great rate but a higher premium might actually see your real rate being much higher.
Lenders may charge ongoing service fees. This could range from $8 a month up to $400-$500 a year
Some lenders will charge extra to set up an offset account and may also charge an ongoing fee for this facility
If you want to change your loan down the track like switching from variable to fixed your lender may charge a switch fee which could be $500 - $600.
Just another reason why it's important to have your situation properly assessed. Contact us to discuss your home loan requirements or a for a review of your current lending.