Prices associated with buying a property have reached an all-time high in recent years, and it’s becoming harder and harder to meet the 20% deposit threshold first-home buyers need to get into the property market to begin with.
But it’s not just the deposit buyers need to consider. There are a bunch of other upfront fees buyers are expected to pay that can rack up into the thousands that should be factored into your budget.
Here are the five main upfront costs to keep in mind when saving for your new home, or investment property, so you don’t get caught out at crunch time!
We’ve all heard of this term, but what is it, how much is it, and why must we pay it?!
In short, stamp duty is a mandatory tax buyers must pay when making a property purchase. You may be familiar with the term if you’ve ever needed to transfer a mortgage or car into another name. It’s the upfront fee most people forget exists (or are just completely unaware of) until it’s time to transfer the details of your purchase. And dum-dum-dummm! Then comes the worry of being able to afford the added cost.
Each state and territory decides it’s own stamp duty, and working out the amount you need to pay can be confusing. Luckily, first-home buyers in certain states are able to claim a concession on property stamp duty fees, or even opt into a new annual stamp duty tax scheme, so keep that in mind when talking to your broker.
Wouldn’t it be awful to buy a home thinking it’s in tip top condition, only to learn it is infested with termites, has received severe water damage, or is suffering from other structural problems? Thank goodness there is a way to avoid this horror from happening to you!
Ordering a professional building and pest inspection costs approximately $300-$500, but can save you thousands in the short and long term. Some vendors will offer to provide your inspection report for free, while others take on the responsibility of arranging the inspection, allowing you to purchase the report at a discounted rate.
Whatever your inspector discovers, make sure you discuss the findings with them at length to properly understand the severity of the defects, so you can get an estimate for the cost of repairs.
Conveyancing and contract reviews
Be prepared to fork out an extra $1200 to $2500 for the transfer of property ownership through the conveyancers or solicitors who represent both the buyer and seller during the transaction.
Your conveyancer will review the contracts before your purchase is approved, and explain to you any zoning concerns, issues with inclusions, easements and special conditions. The conveyancer will also request any amendments to contentious terms on your behalf.
Each contract will likely set you back approximately $250, though if you choose wisely, your conveyancer may waive these fees if your property purchase is successful.
Upfront home loan fees
Thought that was the last of the upfront fees? Think again. Buyers are often surprised to find there is a fee of $400 to $1400 for a one-off application or ‘establishment fee’ that is required by the lender to set up the home loan.
Then there is a valuation fee of approximately $300 that some lenders charge to assess the property to confirm its value matches the price you’re about to pay.
Oh, and don’t forget the mortgage registration fee, which ranges from $120 to $190, depending on the state…
It’s good practise that most home loans include building insurance within the conditions, so while it is not something you necessarily need to worry about, it will cost you at least $1000 annually on top of all your other fees and charges.
Fortunately, most building insurance policies cover damage caused by natural disaster (which, in Australia is kind of important… am I right?). They also typically cover fire damage and vandalism among other risks.
Also good to know is that combined building and contents policies cover the owner-occupiers’ personal possessions, while landlord insurance covers investors for the risks involved with renting a property out to tenants.
Remember to check the details of your building insurance with your broker or buyer before going ahead with your purchase, so you know what you’re covered for and what else you need to do to ensure your property, belongings and your person are covered after purchase.
If you’re on the hunt for a property but need a little guidance with the above, give our team at Kitty & Miles a call, and we’ll walk you through the finer details with clarity so you can budget well in advance of your purchase.