If you’re a first home buyer, you already know it’s going to be the most significant purchase of your life. You already know you need to save up some kind of deposit for it – it’s likely you already have it. The property market is big business – millions of dollars changing hands at any given time. Regulations and other safeguards also means compliance – which means costs in attaining this compliance.
That’s why you should be prepared for the little known costs of home ownership. Here are some of the most common ones:
Lenders Mortgage Insurance
LMI, or Lender’s Mortgage Insurance is something you must purchase if you do not have a large enough deposit (<20%.) LMI insures the bank – not you – against default. If you have only $50,000 saved for a $750,000 home, LMI may set you back around $29,000-30,000. Saving more of a deposit could mean avoiding LMI and more equity.
Fees and Charges
Fees are a fact of life, and banks or lenders charge account keeping fees, establishment fees, application fees, and other fees. This can run you back around $5-600.
Legal compliance is another cost you will have to bear to ensure a smooth purchase. Lawyers will generally charge a document preparation fee of about $200-300 and another $100 or so for legal searches and inquiries, to make sure your home has no other claims on it. In Western Australia, you’ll likely pay a Settlement Agent upwards of $600-650 for this service. This is critical in the home buying process.
Taxes and Duty
Stamp duty is a type of tax levied by your State or Territory government. Using our 750K property as the example, the WA State Government charge an estimated $29,740 in stamp duty; NSW State Government will ask for $29,240. Victoria will ask for $40,070; Queensland about $19,600.
Then, your local council will ask for their rates and water service, which is calculated based on the potential rental value of your property. For our 750K example, if your council charges a nominal rate based on their revenue target (usually in the vicinity of 0.0042 cents in the dollar), you are up for $3,150 in rates. These fluctuate according to council or shire area.
Property and Structural Inspections
To make sure your dream home isn’t riddled with pests, mould, structural issues, or other nasties, you’ll need to hire a property inspector to make sure it’s fit for living in. Pre-purchase inspections can cost anywhere from $300 to $1,000 in metropolitan areas.
The Cost of Buying
Looking at WA, you’ve almost spent about $63,490 just to grant yourself the right to buy the house in the first place. This can catch a lot of home buyers out if they are unprepared.