The Hidden Cost of Buying a House
The cost of buying a home extends beyond the initial price tag – whether you’re getting ready to buy your first home or you’re an avid investor - understanding your financial position and the fees involved that extend beyond the actual purchase price from the get-go will ensure there are no surprises.
The hidden fees of buying a house affect everyone, but most importantly, they can affect your purchasing power. In the current competitive market, this will put space between you and fellow buyers.
- Stamp duty and Lenders Mortgage Insurance
In addition to the minimum 10 to 20 per cent deposit you save to buy your home, you will need to add stamp duty. According to Finder.com.au, stamp duty varies from state to state, and while it is costly (often thousands of dollars), most states offer exemptions and concessions for first home buyers, so do your research.
If your deposit is less than 20 per cent, you will also have to pay Lenders Mortgage Insurance (LMI). It’s a payment that protects the lender if you fail to make your loan repayments. LMI varies in terms of cost and can be in the form of a one-off payment or it can be rolled into your monthly mortgage repayments.
- Loan application and establishment fees
When taking out a home loan, some lenders will also charge you to apply for the loan and to have it set up.
According to Canstar, the application fees can be up to $1,300, but they can be waived under certain conditions, so it’s worth asking your lender about your options.
- Legal and conveyancer fees
The legal fees associated with buying a house vary - depending on the complexity of the ownership structure of the property you’re buying. Although some experienced investors may decide to manage the sale documents personally, where possible it is recommended to engaging a professional to complete the process on your behalf.
If everything is straight forward with your purchase, according to realestate.com.au you should expect to pay around $1,800-$2,000 in legal fees but prepare yourself for more in case.
- Pest and building inspections
Building and pest inspections offer invaluable insights into the condition of the property you’re looking to buy. The report looks for possible structural, drainage, plumbing, termite and roof damage (just to name a few); but it doesn’t come free.
According to Realestate.com.au you can add around $300 – $600 to your budget for an inspection. Arguably, this is the most valuable additional cost you’ll have. If your pest and building inspection show issues that will save you time and money in the future, it’s money well spent.
- Registration of title and title insurance
Once you are approved for your mortgage, you’ll also need to pay to have it registered. As the new owner of the property, you must have the property transferred to your name for a fee. According to realestate.com.au, both mortgage registration fees and property transfer fees vary between the states from around $100 at their lowest to a few thousand at their highest.
While all these hidden costs can seem overwhelming, according to Nick Boyd, Hockingstuart’s Head of Growth, there are a few ways you can lower these added expenses.
“Firstly, when it comes it to legal fees, the simpler and more straightforward the ownership structure is, the lower the cost will be. Ensure you ask your lender about any considerations that may apply to you in terms of application fees or first homeowner grants. If you want to avoid paying lenders mortgage insurance, ensure your deposit is 20 per cent or more,” Nick says.
“It’s also important to work with the experts and let them guide you. You can get a clear understanding of the exact fees involved when you speak with your bank or broker.”
For more advice about buying, read our blog How to Get a Home Loan While Interest Rates Are Low, or speak to one of our real estate experts.