A lot of people, especially first home buyers, are naïve to these costs and feel very deflated when they realise their deposit doesn’t go as far as they thought it would.
At Better Choice, our mortgage brokers are manic in being open and upfront with the various costs their clients will incur buying their home.
Let’s take a moment to highlight the costs you will probably encounter, i.e.
Stamp duty is probably the greatest expense you will encounter buying a home. Stamp duty is a state government levied tax.
If you are a first home buyer then you may avoid paying stamp duty on your first home. For example, in WA, first home buyers pay $0 stamp duty on established home purchases up to $430,000.
Just to give you an indication, stamp duty for non-first home buyers on a property purchase of $500,000 will set you back $17,765. Real Estate Stamp duty is a massive ‘cash cow’ for state governments around the country.
Thinking that state governments will massively reduce stamp duty for non-first home buyers may be wishful thinking.
This is another state based charge, this is what the state government charges to process the transfer to change the property into your name. On a $500,000 home purchase, the transfer fee is approximately $265.
Technically purchasers (and sellers) could manage the settlement of their purchase themselves. Due to the complexity of a settlement, 99% of people engage the services of a settlement agent or conveyancer. They get everything ready for the day of settlement, e.g. prepare the transfer, apportion rates, liaise with lenders and liaise with the other party’s settlement agent.
Always ask a settlement agent for a discount as they will probably give you one. Working on a 25% discount, the approximate settlement cost of a $500,000 purchase is $1,350.
Remember rates are payable in advance and the rates year runs from July to June. If for example you buy in August, you may be up for almost a full year’s rates. Conversely if you buy in say May, you could only be up for approximately two months rates.
Water and shire rates on a $500,000 home would approximate at $2500 per annum.
For peace of mind, many people engage the services of a structural inspector to assess the integrity of the home. At Better Choice we believe that this is a smart idea.
Depending upon the extent to which you want the house inspected will determine what you pay for a structural inspection.
Prices start from approximately $350 for a basic inspection and the fee goes up from there.
Every home purchase contract in WA is subject to a pest inspection, i.e. termites etc. A termite inspection will cost you somewhere in the region of $200.
If you purchase a free-standing home where there is no strata involved, your home loan lender will require confirmation that the building is insured against damage (fire, flood, wind, earthquake, etc).
For your protection we also strongly advise that you have contents insurance to protect your fixtures/fittings and belongings within the home.
It is difficult for us to estimate the cost of home and contents insurance given the variables that make up the cost. The internet is a great place to start for an insurance quote, or your Better Choice Mortgage Broker can also give you a quote.
In the vast majority of cases the home loan application fee charged by your lender is relatively minimal. For mainstream home loans for applications with relatively good credit, the application fee will range from $0 – $850.
Generally, any fee charged would include the cost of a valuation and any expense in preparing the home loan legal documents. If your home loan requires your lender to take a mortgage over more than one home, the lender may charge you an additional valuation fee, (approx. $200) and an additional legal fee of approximately the same amount.
You need to take into account your interest rate, lender set up costs, loan features and your financial situation when assessing your lending options.
Another government fee of approximately $175 per property the lender places a mortgage on.
Together with any stamp duty you may pay, LMI is the major cost you may have to allow for. A lender will insure your home loan against loss to themselves if you are unable to contribute a deposit of 20% of the purchase price plus purchasing costs.
The vast majority of first home buyers do not have a 20% deposit and hence are charged an LMI fee.
If the lender approves your loan they will finance the home with as little as a 2% deposit plus fees contribution from the purchaser, but you will pay a substantial LMI fee. The less deposit you have, the more the lender has to lend, the higher the insurance premium. That is, the higher the risk to the lender, the higher the LMI premium.
Remember, if you do have a 20% deposit plus costs, or if you have another property with equity the lender can access, or if you have a close family member who is prepared to guarantee your loan, (legal advice should be sort), then you are highly unlikely to pay LMI.
An LMI premium can range from anywhere from $2,00 to close to $40,000!!!
It all depends upon:
Well that’s about it… … it can be a minefield!
Rest assured, an initial interview with a Better Choice Mortgage Broker will give you an excellent idea as to what associated costs your will be up for.