You won’t find this in the fine print

The hidden costs of buying a home

By Tom Haggie, YBR Home Loans North Sydney

Buying property is more than a transaction; it’s a leap towards a milestone filled with possibilities. However, many know that calculating the cost of buying a home goes way beyond its advertised price. And even if you’ve just begun to budget for that first property purchase, the costs add up.

I’ve been in financial services for over 15 years, and as a broker, particularly when it comes to first home buyers, I see many applicants who have finally saved that big deposit, only to stumble when they realise the extra costs of purchasing a home.

Recently I had a client who was looking at buying her first property. When she contacted me, she let me know that she had her deposit saved and had started researching loans and properties. This was great but, like with many others, I had to walk her through the extra costs involved in buying a home and how much they really add up to. Everyone knows there are other costs involved, but they’re usually just so happy to have reached their deposit goal they don’t take it into account – and it can make a really big difference.

There are obvious fees, e.g stamp duty and legal fees, but there are some lesser-known ones that first home buyers should be aware of.

Let’s take a look at some of the associated costs of purchasing a home.

Transfer or Stamp duty

This is a government tax paid by the buyer. Stamp duty is calculated based on the value of the property and amount can vary state to state. it usually falls between 3-4% of the property value.

For example in NSW on a $1,000,000 purchase, the stamp duty applicable is around $40,061.

LMI

This stands for Lenders Mortgage Insurance. It is usually required where deposits are under 20% of the property’s value although lenders may require it for a variety of reasons.

The cost of LMI depends on the lender, the value of the property, and the size of the. It can be paid upfront at settlement or may be included in the loan.

Building or strata reports

Picture this: you purchase your first home, a dream 1 bedroom apartment in a building near your work and family. It’s your 4th week in the property, the sun’s shining, but you see an email come through. Subject: Special Levy.

From time to time, buildings need maintenance or repairs, and as an owner of an apartment in a complex, you will have to pay your part for those repairs. Sometimes these are minor costs, other times it can be a nightmare scenario and you’re on the hook for tens of thousands of dollars for repairs. This is why it’s so important to A) not overextend yourself on a property purchase, and B) do the due diligence before a purchase. 

As well as inspecting the property yourself, it is a good idea to get building or strata reports before purchasing a property.

The building inspection report is a written account of the property’s condition. It will include any significant building defects or problems such as rising damp, movement in the walls (cracking), safety hazards or a faulty roof. It is usually carried out before you exchange sale contracts so you can identify problems which, if left unchecked, could prove costly to repair.

A strata report includes a history of the building, along with important information about living in a strata property. This includes the financial status, any pending building works, special levies, past works history and all expenses for the past two years. These let you know about the condition of the property, any ongoing costs or cost to fix current issues.

These reports (‘standard property report’) give you information to help negotiate, especially if you have to repair some of the problems.

Pest inspections 

It’s a must with any property purchase. You need to do the due diligence on the property. These vary in cost depending on the property and provider. While some lenders may require them, such inspections are not usually compulsory. They are, however, an important pre-purchase step as such inspections allow you to be fully aware of any risks or upcoming costs involved in purchasing and maintaining the property.

It is best to do them before signing any contract and remember to check for any previous reports when asking for the contract of sale; agents are obliged to inform you of any previous reports.

Legal or conveyancing fees

A solicitor or conveyancer will usually be required to purchase a property. They are not compulsory in all states but, unless you have experience in property law yourself, they carry out important and often complex steps in the purchasing process for you.

Their fees vary state to state and between providers, as well as depending on the nature of the property to be purchased.

What’s the difference between the two? Essentially a conveyancer is not a solicitor, but they spend each and everyday focused on property transactions and contracts for sale. They live and breathe property. Conveyancers are generally less expensive.

Depending on your level of experience, it can be a daunting prospect to have a massive property contract tabled in front of you, so finding the right solicitor and conveyancer to guide you through the legal details of a transaction can remove a lot of the stress or angst that may go along with this period.

Mortgage registration fees

This is a fee charged by the government. It is usually up to $200 and is payable at settlement. It covers the cost of adding your mortgage to the property title at the land titles office in your state or territory.

Land tax and Registration of title

Land tax is an annual tax payable on any property you own that is above the land tax threshold. If the property you buy is your home, then you may be exempt.

The costs vary state to state and due to the nature of your property, so make sure you check the regulations around your area. This can all be handled by your conveyancer or solicitor so you just need to be ready to pay the fees.

Loan application fees and valuation fees

With certain lenders, your loan may come with various fees such as an application fee, settlement fee or annual fees.

Some of the smaller lenders don’t necessarily have an in-house settlement team, rather there’s a third party who the lender outsources the legal aspect of finalising your loan to. Hence why there’s a fee charged on top. The cost varies from lender to lender and depending on loan type but can range from $150-700.

Your lender may also require an independent valuation, which can cost several hundred dollars. This is typically seen in the commercial real estate sector. However, most major lenders cover the cost of the independent valuation of your property.

Careful consideration and planning

No one wants to put in the effort of saving a big deposit, only to stumble at the point of applying for your home loan simply because there was a lack of planning. When you work with an experienced mortgage broker, the question of associated costs will generally come up in that initial consulting process, whereby you as a borrower will come to me as a mortgage broker and we will go through a borrowing capacity analysis.

We will look at your financials, your living expenses and so on, to figure out what loan size you could manage.

Crucially, we will talk about what you’re looking to buy, where, what kind of lifestyle you want to have and how much extra cash you will need to live your life. Yes, you may be able to afford an $800,000 loan, but when you factor in the associated fees and your weekly living expenses, are you going to have enough left over for rainy-day savings, or enough to enjoy the lifestyle you want to have? We will have that conversation to determine what the right loan will be for your circumstances and the lifestyle you want to have.

We will also have to consider the ongoing costs of your property when planning for your first purchase. There are ongoing costs to owning a property that tally up each year. These vary significantly between the states and territories and according to the type and location of your property, but here are a few to keep in mind:

• Council rates
• Utilities
• Insurance
• Property Maintenance

The costs associated with purchasing a home don’t have to be a stumbling block, but you do need to be aware, and include them in your calculations before you move forward.

It’s what I’m so passionate about as a mortgage broker: looking beyond the black and white numbers to help our clients make informed decisions for their financial future. So when you’re ready to take that next step, don’t hesitate to reach out and let us help guide you through the process. We’ll be here to support you every step of the way, from finding the right loan for your needs to making sure all the associated costs are accounted for in your budget.