Buying a Property – The Hidden Extras

Buying a home especially for the first time can be overwhelming, not only do you need to save for the deposit but you also need to factor in the added costs of buying a property, ones you may not be aware of.

Failing to account for these extra costs can make settlement time an extremely stressful experience rather than the exciting time it should be. Here is a list of expenses you need to prepare for so you can avoid any nasty surprises:

Loan Application Fees

Loan application or establishment fees can range from zero to $1000. This is a one off charge by the bank when you apply for a loan. Sometimes banks decide not to charge this, although not always so make sure you check with your lender.

Independent Valuer Fees

Every lender will require an independent valuer to assess the value of the property you are planning to buy before they are willing to lend to ensure that the property is worth the asking price. A standard valuation generally costs between $300 to $500. Some banks waive this.

Lenders Mortgage Insurance (LMI)

If you’re looking at borrowing more than 80 per cent of the property’s purchase price you’ll need to factor in Lenders Mortgage Insurance (LMI). This one off premium provides coverage for the lender, should you default (be unable to pay) on your loan.

The cost of LMI will vary depending on the amount of money you borrow, size of the deposit you put down and the type of loan you select, but allow around $10,000 for this.

If you’re short on cash, some lenders will allow you to combine the LMI fee into your overall home loan.

If you want to avoid paying this you will need to save more for your deposit.

Protect Yourself

When you’re spending your life savings on purchasing property it makes sense to protect it. While building insurance is a compulsory requirement from your lender, there are other insurance policies that you should consider.

For example mortgage protection insurance will ensure your mortgage repayments are met should you fall seriously ill. Income protection insurance will also help pay the bills should you be involved in an accident, major trauma or illness.

Legal Help

Given the numerous legalities tied up in property transfer and purchase, the help of legal experts, namely conveyancers and solicitors, is a must.

A conveyancer specialises in the legal aspects of transferring property although it is worth noting you might need to enlist the services of a solicitor for any other legal issues you encounter.

Some conveyancers will charge a flat fee while others will charge a sliding fee based on the value of the property sale price. Expect to pay anywhere between $1000 and $3000, depending on the complexity of the structure.

Title insurance is essential to protect you from any claims against the title of your property. Expect to pay around $350.

Registration of Title is another necessary document which requires you to register the title with your state government, all for $75.

Stamp Duty

Stamp duty can be one of the biggest expenses property buyers may have to bear so it is crucial that you include these in your buying estimations.

Since stamp duty is charged by state and territory governments, the amount you will be charged will be determined by the state you buy the property in.

How much you pay will also depend on the price of your property with the levy generally charged on a sliding scale, with more expensive properties being charged at a higher rate. You can get an ideas of how much stamp duty is by using online calculators.

Building, Pest and Strata

Having a building and pest inspection carried out on any property is usually required by the lender but they are well worth investing in regardless of whether you are buying a new property or not, as trained specialists can often spot things other cannot.

If you are considering purchasing a unit or apartment, it is also in your best interest to have a strata inspection conducted – that is a report on the assets, liabilities and financial position of the apartment complex.

While having a building, pest or strata inspection completed on the potential property will cost you initially, it could be an invaluable safeguard against buying a lemon.

Expect to pay around $300- $400 for a building or pest inspection and around $200 for a strata report.

Council Rates and Strata Fees

When you buy a property, you will also be expected to pay the remaining yearly or quarterly council rates. These commence from settlement date so make sure you know what they are as each property is different. Allow for an extra $500-800.

While both owners of houses and units are obliged to pay council rates, it is only owners of units or apartments that will have to pay strata fees.

Strata fees cover the property’s grouped maintenance and building insurance fees and are collected by the building’s owners’ or manager.

Strata fees will vary depending on the age of the building, facilities, and location but you should expect to pay around $70 to $80 for the lodgement of application. As these are ongoing fees make sure you are aware of what they are so you can budget accordingly.

Allowing for a Bit More

Even though you may have done your research and restructured your finances to include all the major additional costs, you should always set aside a little extra for miscellaneous expenses that haven’t been prepared for but creep in.

Expenses, such as moving, connecting water and electricity and even mail redirection, can seem irrelevant when compared to the large fees but they still have the ability to place unnecessary strain on your finances if not taken into consideration.

Everything Adds Up

Buying a home is an exciting time but make sure you factor in approximately an extra five to seven per cent of the purchase price, on top of your deposit, to cover fees and charges. It will help make the process enjoyable rather than stressful.

What’s your insurance responsibility when buying a home?

If you’re looking to buy a home or have just bought one, you’ve undoubtedly spent hours doing your due diligence; analysing the location, reviewing the local market, visiting copious open homes and liaising with your bank and lawyer…. but the big decisions aren’t over yet. Having spent a chunk of your life savings and most probably carrying a home loan, making sure you protect your asset is critical for your long term financial security.

Here’s a look into when you assume responsibility for damage to a property you’re buying, what insurance policies you normally need to take out and given the significance of this purchase, other policies you may want to consider to protect you and your loved ones.

When are you responsible for damage to a property you are buying?

Of course when you buy a property there comes a time when you as the buyer become responsible for damage, or the time when the seller hands over responsibility to the new owner. Generally, the standard contract of sale will detail when the risk of damage to the property passes over to the new buyer, however here is the standard position in each state and territory.

Keep in mind that all contracts are different so make sure your lawyer or conveyancer has checked the contract and determined when you, as the new buyer, assume ownership of damage. We buy houses in Greensboro! There have been many cases when exchange has happened on a property and then the property has been severely damaged in massive storms causing issues to both the new buyer and the seller. It is best to know your responsibilities here.

Do banks require insurance before approving a home loan?

A condition of many lender home loan products is that there is a building insurance policy for the property equal to the amount stated in the recommendation on the property valuation. This usually needs to be organised before the loan is settled.

If the property is on a strata title, the building itself is considered common property, so the owner’s corporation will normally handle the insurance. However, lenders will often require a certificate of currency that can be provided by the body corporate.

The reason lenders require this insurance is they have an interest in your property as well and they want to ensure their asset is protected against damage and destruction.

Lenders Mortgage Insurance (LMI)

Not everyone needs to pay this. If you want to borrow more than 80% of the property purchase price you will normally be charged Lenders Mortgage Insurance. This insurance payment covers the lender in the event that you can’t pay the home loan back.

The cost of LMI will vary depending on how much you borrow and the type of loan you select. It’s best to get your budget and savings in order well before you buy to avoid this hurdle!

What if I am buying into a strata?

In most strata schemes the buyer of a lot isn’t usually responsible for purchasing building insurance because the building itself is considered common property so the owner’s corporation will organize this. Owners of strata units typically share the premium costs of strata insurance as part of their strata fees and liabilities. Strata insurance is compulsory and must also include public liability insurance to protect people who may be injured on common property.

Life insurance

When buying a new property or accessing your first home loan, you may like to consider the importance of not leaving yourself and your family unprotected. Who would pay the mortgage if something happens to you or your partner? Would your loved ones have the finances to be able to maintain their lifestyle if you were unable to work, or worse still, if you were no longer around?

Home contents insurance

You’re not legally obliged to organise contents insurance; it’s up to you to decide if you want it.

Contents insurance covers the personal possessions you have in your home if they are damaged or stolen. It can include things like furniture, clothes, computers, electrical equipment, tools and jewelry. When determining how much content insurance you need, write a list of all your belongings and work out what it would cost to replace them.