The deal is done, a property is bought, and it’s smiles and handshakes all round. But the agreed purchase price is just the beginning. The happy purchaser must cover a number of other costs, and failure to take these extras into account could take the gloss off this exciting time.
Whether you are buying a home to live in or an investment property, it’s important to identify and estimate all the associated costs. Only then can you work out the absolute maximum amount you can offer on your dream home or investment gem.
The following list will get you started.
Borrowing costs
In addition to interest, lenders may charge a range of fees. These include:
- Loan application or establishment fee.
- Document preparation fee.
- Bank valuation fee.
- Title insurance.
- Registration of title.
- Lenders mortgage insurance, if your deposit is less than 20% of the property value.
Some of these fees may be waived, and with a bit of negotiation you may be able to drive a good bargain.
Legal fees
It’s best to get expert help with transferring legal title of the property. This is a competitive area, so get itemised quotes from reputable legal or specialist conveyancing firms.
Stamp duty
Stamp duty (or transfer duty in some states) is usually the biggest extra and varies widely between jurisdictions. Aside from the value of the property, the level of stamp duty may also depend on whether you are a first homebuyer and if it is a primary residence or investment property.
Duty can vary from less than 2% to more than 5% of the purchase price. Most state and territory government revenue offices provide online calculators, and an estate agent should be able to give you a table of duty payable for different property values and usages.
Transfer fee
This also varies from state to state, anything from a few hundred to a few thousand dollars.
Building and pest inspection
This is a relatively small investment that could potentially save thousands of dollars in the long run. Make sure you organise your own inspection using an independent service; don’t rely on a report provided by the vendor.
Council and water rates
You must reimburse the vendor for their unused portion of prepaid council and water rates that apply at the date of settlement. The amount will depend on the property value and the length of time to the end of the current rates period.
Running costs
Ongoing running costs include council rates, repairs and insurances, and maybe body corporate fees. Factoring these in from the beginning will help you better manage your mortgage repayments.
Homework pays
If ever there was a case of ‘buyer beware’ it’s when buying a property. It is well worth doing your homework to uncover these hidden costs so you can work out exactly what you can afford to pay when it’s time to make an offer. Then you can break open the bubbly with confidence!