Costs to be Aware of When Buying a Property
Sep 14, 2021
We all know that buying a house in Australia is incredibly expensive, but have you factored in the hidden costs involved in property transactions? Accurate budgeting is an important part of buying a home, so it’s important to be thorough and to ensure that you have accounted for all the expenses that you might incur during a real estate transaction. Here are 8 costs to be aware of when buying a property.
So, you’ve fallen in love with your dream home. Now you just have to work out whether you can stretch your budget to cover purchasing it! Unfortunately, beyond the purchase price, it’s easy to overlook some of the expenses that are part and parcel of buying a property such as legal fees, mortgage insurance and mandatory government taxes. These unavoidable costs can add up to be thousands of dollars, which can put considerable pressure on a budget that is already at breaking point. To avoid financial stress, it’s best to go into the process of buying real estate fully aware of these hidden expenses. Here are 8 additional costs to be aware of when purchasing a property.
- Building inspection or/and pest inspection
If you don’t have a background in construction, it can be a wise move to get a building inspection done if you are seriously considering buying a property. This is a simple transaction that simply involves hiring a qualified building professional to inspect the property and assess whether the structure is sound and whether there are any building works that might need to be completed in the near future. This is worth doing to avoid discovering after you have bought a property that it needs significant and costly building work to be carried out.
Organising a pest inspection can be a worthwhile expense if you suspect that there might be an infestation of some kind that could end up being costly to rectify if you purchase the property concerned.
You might think that a pest infestation or building issues would be obvious, but this is definitely not always the case. Unfortunately, fresh paint, carpeting or other simple efforts can conceal evidence that someone without the necessary expertise would easily miss, so it’s best to seek the advice of professionals.
- Property valuation
Property valuations are sometimes included through your chosen lender when you organise your mortgage. In most cases the lender will need a property valuation to ensure that if you default on your loan, the value of the property will cover what you owe on your mortgage.
As the potential buyer of a property, getting a professional and unbiased property valuation can lower your risk of paying above market value for a property. This can also assist you to decide whether you will be able to significantly increase the value of the property by making any improvements or whether it’s not necessarily a good investment.
- Stamp duty
Stamp duty, also known as land transfer duty, is a fee charged by the state government to cover the cost of transferring ownership of land. Stamp duty costs vary depending on what Australian state or territory the property is located in, as well as its value and the type of property it is. In some areas of Australia, stamp duty will be waived for first home buyers or in other specific cases, but generally any property purchase will incur stamp duty. Stamp duty is usually quite substantial, so it’s important not to overlook this expense when you are calculating your budget.
Stamp duty is usually required to be paid to the State Revenue Office within 30 days of the real estate transaction, or within 30 days of settlement of the property. Stamp duty is usually calculated as a percentage of the value of the property you have bought, so the higher the market value of your property, the higher the stamp duty that you will have to pay.
- Loan application fees and ongoing loan fees
It’s important to note that there may be set-up fees as well as ongoing fees associated with your mortgage. Banks and financial institutions might charge a loan application fee or establishment fee. There may also be monthly or annual ongoing costs to cover administration and servicing of your loan.
- Mortgage insurance
Your lender or bank may request that you take out mortgage insurance, particularly if you have less than a 20 per cent cash deposit. Mortgage insurance, also known as lender’s mortgage insurance, will protect the lender if you are unable to settle your loan. So, with mortgage insurance, despite the fact that you’re paying the fees, the bank owns the policy and is protected by it in case you find yourself in a situation where you are unable to afford to continue paying off your loan. Mortgage insurance can unfortunately end up being quite expensive, but if you don’t have enough funds to cover the 20% deposit for your property you may not have any choice but to take out a mortgage insurance policy.
- Mortgage registration fee
A mortgage registration fee is paid to the Land Titles Office in the relevant Australian state or territory by the borrower when a mortgage is established or discharged against a property. This is a set fee that must be paid when you register a property as security on a home loan. Fees vary depending on what Australian state or territory your property is located in. For example, if your property is located in Queensland you will be required to pay $195 as a mortgage registration fee, while in Victoria you will have to pay $119.70.
- Building insurance and contents insurance
It’s important to take out building and contents insurance as soon as possible when you take over ownership of a property, preferably the insurance policy should be activated the day that you sign the Contract of Sale.
It’s possible to take out separate policies to cover your home and contents insurance, but it’s usually much cheaper to opt for a combined policy so most homeowners bundle them together. Don’t forget to shop around to ensure that you are getting the best deal.
- Property conveyancing fees
It’s important to hire an experienced property conveyancer to assist you with all the complex legal aspects of transferring property ownership as soon as you’ve had an offer to buy accepted. There is a raft of complex legal and administrative requirements involved in any real estate transaction and any errors or oversights could end up being costly or causing delays. A skilled property conveyancer can alleviate the stress of navigating the legal requirements and provide you with any necessary advice or guidance, as well as assisting you with any negotiations that are necessary during the settlement period and handover process.