When it comes to buying property - whether it's your own home or an investment - there are plenty of upfront costs you need to factor in.
So before you begin shopping for your first home or next investment property, it makes good money sense to get a handle on the buying costs you’ll be required to pay.
According to the ANZ, the deposit for your home loan – which is usually 10% of the purchase price – will be one of your biggest initial outlays. However, they recommend that you also allow at least an additional 5% “for taxes, legal costs and insurance associated with buying a property”.
Buying cost #1: Stamp Duty
Stamp duty is a charge levied by each state government. It is calculated based on the purchase price of a property, and the amount payable varies depending on the location. You can check the amount you’ll be required to pay by visiting the relevant website:
Buying cost #2: Lenders Mortgage Insurance (LMI)
If you borrow more than 80% of the value of a property, you will generally be required to pay LMI. This is an insurance premium that protects your lender, not you, in the event that you default on your loan. This one-off premium is determined based on the amount of the loan and the loan to valuation ratio (LVR); it can be anything from 0.5%-4% of the purchase price.
Buying cost #3: Legal fees
Legal fees – also known as conveyancing fees – can cost anything from $800 up to several thousand dollars, depending on your state and the complexity of your transaction. This will cover your solicitor’s professional fees, and legal transactions such as lodging a Transfer of Land notice with the appropriate State Titles Office.
Buying cost #4: Bank fees
You may be required to pay loan application fees, set-up fees and other bank charges, along with your lender's valuation fee and their legal fees. These will vary depending on your bank or lender, so check their fee schedule upfront. You’ll also need to pay a government charge of a few hundred dollars to register the mortgage document; this is usually lodged with the applicable state authority on your behalf by your lender.
Buying cost #5: Inspections and valuations
Unsure if you’re paying the right price? A professional valuer can inspect the property on your behalf and provide you with a realistic market valuation of what the property is actually worth. You may also want to engage a professional building and/or pest inspector to view the property prior to purchase, to make sure you’re not buying a property riddled with defects. And, if you’re planning on renovating or embarking on a development, then it might pay to have an architect, builder or surveyor review the site.
All of these buying costs can add up quickly, so it pays to do your research, so there are no nasty surprises on settlement day. Your lender or mortgage broker should be able to walk you through the borrowing costs that apply to your situation.
“One advantage of purchasing property as an investor is that many of these costs can be used to offset or reduce the taxable income generated by the property,” explains a spokesperson for Citibank.
“For example, borrowing costs can be claimed as a tax deduction over a period of five years. Other costs, like legal fees, are added to the cost of the property and used to reduce the tax you may pay on any capital gains.”
Also keep in mind that as a first homebuyer, you may be eligible for the various first homeowner schemes and grants offered in each state. For more information visit www.firsthome.gov.au
It can be confusing to know whether to get a variable rate or fixed rate mortgage, and what features are important. That's why it's important to not only check the right rates, but make sure that you're getting the right features in your home loan. Get help choosing the right home loan