The hidden costs of purchasing property

While some may say “ignorance is bliss”, it’s not a winning strategy when it comes to property.

The last thing you want is to be ‘pipped at the post’ and miss out on that dream property because your finance didn’t quite cover you for those ‘unexpected’ costs.

The reality is that buying a property, whether it be a home, or an investment isn’t as easy as saving up your deposit then waiting by the phone to see if your offer was accepted. That’s the easy bit.

Being smart is about ensuring you’ve got enough reserves to cover for all the unexpected costs that crop up.

And I it’s wise to be aware that the deposit you’ve saved is only part of the cost of buying.

The reality is, if you only tally up the costs of stamp duty and LMI you may have already dropped a big chunk of change.

To help you go in prepared – we’ve put together a list of things to be aware of.

So what costs are involved in buying a home?

Let’s assume that the property is worth $500,000, that you will live in it for at least the first year, you can get a mortgage of 5% for round figures, and you have a 10% deposit saved up.

If we take this example – here some estimated costs which vary depending on the lender and the state you’re buying in obviously.

1 – Legal fees: Approx. $1,500–$3,000, depending on how complex your structure is.

For example, if you’re buying in a company or trust structure, you could pay significantly more. The simpler the ownership structure, the lower your legal fees.

2 – Stamp duty varies from state to state. You can get an idea of how much stamp duty is by using online calculators. But for example, the  estimated stamp duty is approx $17,990 if you’re buying in NSW.

3 – A pest and building inspection will set you back $300–$400 and you’ll want to get this done, in particular if you’re buying established property. Even newer properties sometimes have defects that only a trained specialist can spot.

Unseen issues could cost you an arm and a leg – this is where a building inspection could save you tens of thousands.

4 – A document preparation fee/legal charges $200–$300 may be charged by the lender.

5 – Title insurance: $360 to protect you from any claims against the title of your property.

6 – A registration of title will be $75 – it’s the cost of registering the title with your state government.

7 – A loan application sometimes called establishment fee is approx $600. It’s a one-off cost charged by your lender when you apply for the loan. Occasionally you can get this waived – if you know how.

8 – A Legal searches and enquiries fee to ensure there are no encumbrances on the property will set you back $285.

9 – Lenders mortgage insurance will set you back $7,920 in this example. LMI is the premium you pay to insure the lender for lending you more than 80% of the value of the property.

I would highly recommend avoiding this if at all possibly by staying below 80% with your borrowing. It’s a safer strategy too protecting you against any unforeseen downturns in the market.

The final amount will depend on the insurer, but this is a good indication of how much you should budget for.

10 – A bank valuation fee of up to $300–$400 may be charged to arrange an independent valuation. Some lenders waive this but some include it in costs. It’s best to make sure you review all your options.

11 – Council and water rates will usually be between $500–$700

Not many people know but when you purchase a property, you must by law pay the vendor the remaining yearly or quarterly rates, like water and land. These will begin from the date of settlement and will be individual to the property and area.

          Total estimated costs: $11,540–$14,050

          Plus deposit: $50,000

          Total estimated cost of buying: $61,540–$64,050

So all in all the expenses of purchasing a property are nominal in comparison to what you’re getting. But they need to be accounted for all the same, so make sure you take all these costs into account when searching for your next home or investment property.

My advice? Enlist an expert…

With the right education and a little expert guidance you’ll drastically reduce the chance of any nasty surprises and be well on the way to a building a healthy property portfolio.

Call us today on 1300 878 898 to find out how one of our expert team can walk you through step by step what’s involved in your next big purchase or investment.

Call 1300 878 898

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