It’s easy for first-time home buyers to begin the home buying journey only considering the cost of a home’s purchase price in their calculations. There are, however, more costs than just the property’s price tag that buyers should be aware of.
Hidden Costs of Home Buying
The deposit you’ve saved to put down on your house is just the first of many other costs you’ll have to make note of. Some of these costs include: stamp duty, lender’s mortgage insurance, legal fees, building inspection, bank valuation fee, and more. Let’s look at an example and break down all of the costs, so you have a complete picture of what to anticipate.
For this example, let’s say that you are purchasing a property worth $500,000 that you will be living in. Your mortgage rate is 5% and you’ve saved a deposit of $50,000 (10%). Using this example, here are some estimated costs.
Stamp duty: This fee varies from state to state, but you can estimate this fee by using an online calculator.
Legal Fees: Legal fees also vary, but a good estimate is between $1,500-$3,000, depending on the structure. If your ownership structure is straight-forward, it’ll be less, but if you’re purchasing through a company or trust, you’ll likely pay a higher amount.
Pest and building inspection: It’s important to have a building inspection done on all properties, but especially if you’re buying a second-hand property. A professional will be able to spot things you can’t and pinpoint issues the seller(s) didn’t mention. The fee for this is typically between $300-$400.
Establishment fee: This is the once-off fee the bank charges when you apply for a loan. Sometimes banks will waive this fee, but they don’t always do so. For our example, this fee is $600
Lender’s mortgage insurance: For our example, this fee is $7,920. This is insurance required since the lender is lending you more than 80% of your home’s value.
Document prep fee: The bank may determine that they want an independent valuer to determine the value of your property. Some banks will waive this fee, but others won’t and it’s approximately $200-$300.
Title insurance: This provides additional risk coverage. If anyone has a claim against the title of your property, this insurance protects you. This is a one-time premium and estimated at $360 for our example.
Registration of title: Anticipate $75 for this fee, which covers the cost of registering the title of your property with your state government.
Council and water rates: Estimated between $500-$700, this is the amount you owe for the remaining quarterly or yearly rates for the property. The costs will start from the date of settlement and will vary by individual property.
Legal searches: Estimated at $250, this takes into account the legal searches and enquiries required to ensure there are no encumbrances on the property you’re purchasing.
Using this example, our estimated total costs are as follows:
Estimated costs: $11,705 + stamp duty (using the low end of our estimates)
Total Costs: $61,705
When purchasing a property, it’s important to look into all of the additional costs that aren’t always discussed. These “hidden” costs can catch you by surprise if you’re not prepared.
For additional resources, read our post “5 Proven Tips to Make a Good Property Purchase in 2016.”
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