What are the costs involved with buying a home?
If you’re about to get in to the market for a new home then you need to be aware of the potential costs before you sign on the dotted line. It important to ensure you have a good idea of these costs well in advance in order to ensure you are not short on funds at settlement and give yourself ample time to come up with the cash.
Deposit on your mortgage
The first and more important piece of the puzzle is having your deposit and savings in order. Savings and deposit do differ and the amount you need can range from 2% – 20% depending on the lender, some may even require a higher amount. It’s a smart idea to chat with a mortgage broker about what different lenders offers so that you can set a plan to hit your savings goals. You can check out our articles on savings and deposits here for further information;
There was time when you could borrow virtually 100% using your first home buyers grant as a deposit, but these days even those lenders will still want to see at least some amount of genuine savings.
For first home buyers you may be exempt or entitled to a discount if you qualify for the first home buyer stamp duty discounts, however limits do apply so you will need to check the current rates with the office of state revenue or just visit firsthome.gov.au.
Buying your second home is often where most home buyers get stuck – having likely not paid stamp duty the first time around it can be easy to overlook this expense and it can be a lot to swallow once you receive a quote. Your mortgage broker or settlement agent should be able to help obtain a quote on this for you.
Want to know your true borrowing power? Check out our True Borrowing Power Calculator
Lenders mortgage insurance
Most lenders will require mortgage insurance if your loan is above 80%, some may even require it below that – such as low doc loans or unusual applications. Premiums are calculated as a percentage of the loan and that percentage increases the higher about 80% you go, so it increases exponentially – the more funds you can come up with the more you will save in mortgage insurance.
There are a few lenders that don’t need it above 80%. These self-insurance lenders tend to assist with slightly more risky applications so may attract a higher rate and fees than traditional lenders, but are able to consider applications that would usually be turned away by mortgage insurers.
They are also some options available up to 85% with no mortgage insurance and even up to 90% for certain professions, such as doctors.
Some lenders may have application fees, valuation fees, fees to cover the cost of their legal and settlement processes. They are generally low with most regular banks, although some of the competitive lenders with really low rates will require you to pay for your own valuation costs and application fees, where-as some other lenders may wear the cost of these. Consider the lifetime cost as paying $500-1,000 upfront Vs having a lower rate over 30 years may stack up – so don’t be afraid of up front fee’s if it makes the overall loan cheaper.
Pest and building inspections
A voluntary expense, but a small cost that can save you from buying a property that requires a great deal of maintenance, or worse has a white ant infestation. Generally all up for both it could be around $400-$800 depending on where you go. It pays to shop around, or just ask us at Emanate Finance as we know a few good ones!
A settlement agent will help ensure your property settlement goes through smoothly and will complete all the necessary title searches, transfers and any other requirements for your new home. Settlement agents can also come in very handy if there is a dispute with the contact or if you need help with setting out conditions on your offer. These are often in the range of $800-$1,500 depending on the work involved. Hint – do go for the cheapest quote you find as our experience has shown that quality of price really matters when choosing a settlement agent to assist with such a large purchase.
Typically a lender will ask for proof you have taken adequate home building insurance on the property before settlement, so make sure this is sorted between the time your loan is approved and settled. You can shop around for quotes, but be sure to ask if anything unique to your property is covered, such as if you are in a flood prone area.
Once you move you may need to get services connected if they are not already, things such as phones, internet, electricity, gas and so on all have potential connection fees associated with them, be be sure to keep some funds handy for after settlement.
Things sometimes don’t go to plan. Hot water systems die of old age, solar panels fail, old plumbing can leek. So it’s a good idea to keep some funds aside for any emergencies that may come up in the future. A great way to do this is to put some funds in to your home loan redraw facility. That way you’ve paid your home loan down a little faster, and should you ever need the funds in a hurry they are available when you need them.
How much your new home is going to cost is not always the most exciting topic to think about, but with some forethought and careful planning it shouldn’t set you back a great deal. Besides, the alternative is continuing to rent or live in a smaller home that may not be suited to your lifestyle any longer. So consider the costs of not taking action. Paying off someone else’s mortgage through rent is just wasted money, living in a home without room for your new family is never easy and driving long distances to work is just going to increase travel expenses, shorten the life of your car and eat in to your personal time.
Be prepared in advance an understand what you’re up for and you’ll be fine. If you need any help, get in touch with Emanate Finance today and we can help to get you started.