However, when you’re trying to purchase a property, and you’re already stretched with what you can borrow, it’s essential to have a clear idea of what you will have to pay on top of the cost of the property itself.
Stamp Duty
While it could be argued that stamp duty is not a hidden cost, you certainly have to factor it in, as it adds significantly to the price you’re paying for a property. Generally, stamp duty will be around 4% of the property’s value, typically paid around the time of settlement. However, the actual period when it needs to be paid varies for each state, as stamp duty is a state-based tax. The exact rate is also different for each state. Fortunately, first-home buyers can often avoid this cost as they are exempt from meeting specific criteria.
Conveyancing and legal fees
The process of finalizing all the paperwork and facilitating the final transfer of funds is known as conveyancing. When you buy a property, you usually hire a conveyancer (a settlement agent) to help with that process. Hiring a professional is generally around $1,000, but this number will vary. It is possible to do this yourself in some instances. However, it can be risky as you don’t want to make any mistakes or delay the process to incur further costs.
LMI
When borrowing money from a bank, they usually like to see that you can provide a minimum 20% deposit. This shows them you can handle money well, and it also provides a buffer in the event of a house price fall or if you default on your repayments. It is possible to borrow more than 80% from a bank. However, you will be forced to pay Lenders Mortgage Insurance (LMI), a one-off insurance premium to protect the lender. This can be upward of $10,000 and varies depending on how much you want to borrow, where the property is located, and the LVR.
Loan Application Costs
Several bank/lender fees come with taking out a loan. Not only will you have to pay interest, but there will be things like loan application/setup fees or transfer fees. In a competitive lending environment, these fees can sometimes be reduced, but you should expect to pay around $500 for a standard type of loan.
Valuation Fees
When applying for a loan, getting approval usually is subject to a satisfactory bank valuation of the property. Here, an independent valuer will value your property to ensure the price you paid for it is reasonable. The cost to you is the price of the valuation, which is usually around $400.
Building and Pest Inspection
In most states, a standard clause in the offer and acceptance form is subject to a satisfactory building and pest inspection. This is a check by a licensed professional that tells you that the property is structurally sound without any issues. These reports will cost around $500.
Insurance
After you’ve purchased a property, you will almost certainly want to take out various types of insurance. If you own a freestanding home, you would like home insurance. If you are buying into a strata complex, this might be covered under the strata fees. If you are renting the property out, you might want rental insurance. Otherwise, you might need contents insurance as an owner-occupier. You can also look at income insurance, which would assist you if you lost your income and could not repay.
Council rates and other levies
One cost that will continue to hit you every year is from the council. There are instances where a panel will issue a special levy in some major works that need doing. You are also forced to pay for water and the associated sewerage costs. Before buying a property, you should always check with the local council to see if any upcoming special levies have not been mentioned.
