The costs of buying a property
There are many associated costs with buying a property, above and beyond the purchase price. And as a potential purchaser, you need to take these into account when you consider your budget and finance options.
So, what type of costs are we talking here? Well some are minor, but together they can add up, so here’s a quick guide to the costs of buying a property.
When most of us consider purchasing a property, it’s the deposit that is front of mind. This is the sum you need to come up with before a lender will consider you for a mortgage.
A deposit can be as little as five per cent of the property’s purchase price, but if you are looking to avoid lenders mortgage insurance (which we’ll come to shortly) it will need to be at least 20 per cent.
Therefore, if you are buying a $500,000 property, the minimum deposit you need to save is $25,000 (plus LMI) and the sweet spot of 20 per cent would be $100,000 (no LMI required).
Lenders mortgage insurance
If your deposit does not meet the 20 per cent threshold, most lenders will consider you for a loan provided you take out lenders mortgage insurance, which is an additional cost you pay back on top of your loan.
Lenders mortgage insurance protects your lender should you be unable to repay a mortgage and the value of the property falls below its initial valuation.
First home buyers now also have the option of applying for the First Home Loan Deposit Scheme, which sees the Federal Government guarantee the deposit (without requiring LMI) provided you have saved the required five per cent.
Stamp duty is charged by state and territory governments when a property changes hands, with the costs borne by the purchaser.
It varies from state to state, and can also vary depending on whether the property is vacant land or an established house, and whether you intend to use it as your primary place of residence or as an investment property.
If you’re looking for a guide on how much stamp duty might cost you in your relevant state or territory, ASIC’s MoneySmart website has a list of relevant calculators here.
Pest and building inspections
As the saying goes, buyer beware. Every purchaser should undertake the required inspections prior to buying a property.
As a minimum for an established home, these include a comprehensive pest report and a building inspection. Prices vary, but you can expect to pay around $500. Meanwhile, if you’re purchasing a unit, a strata inspection is also recommended.
Purchasing a property comes with a lot of legal paperwork, which is where the insight of a lawyer or conveyancer is imperative.
Your legal representative will check things like titles, look at relevant clauses in the sales contract, alter any required conditions and purchase timeframes, and liaise with the vendor’s legal team to organise the contract exchange.
The price of legal advice will come down to who you engage, and how they charge for their fees and services.
Council rates and strata charges
Once the property changes hands and is officially in your name, you become the person responsible for paying council rates or strata charges. You should check with your local council or the strata body to gain an insight into how much these are likely to be, and when they fall due.
Once the property is in your name, you are also responsible for its insurance. This should be organised in advance of the contract exchange so that your contents and building insurance, or landlord insurance kicks in the moment you take possession of the property.
Again, these charges vary, but your insurance company will be more than willing to offer a quote for what you require.
The final word
There’s no mistaking the fact that now is a great time to get into or continue your journey in the property market. After all, interest rates are at an all-time low, access to finance has improved, and many people are seeking to make a property shift.
But to do that, you need to be fully aware of the additional costs involved and how that might impact your potential budget. Then it’s time to start that exciting property search.
Ready to find your new property? You can view the properties we currently have available here.