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How to Guides | 20.09.18

Beware the Hidden Costs when Buying a Home.

The most obvious cost of buying a home is its purchase price. All of us of naturally factor that in when we’re deciding what we can afford and how much deposit we need to save to get a home loan. But there are a lot of additional hidden costs that you also need to consider. We’ve outlined the most common one’s for you in this article.

Will I have to pay a real estate agent?

First, the good news. If you’re buying a home, you won’t pay fees to a real estate agent. This is because they are paid a commission by the seller. But obviously if you’re selling your home to buy another one, you’ll also be in the seller’s shoes and will need to factor in agent fees. You may be able to vary these fees by negotiating with your agent, but they typically average around 2.5% of the selling price of a home.

What legal and conveyancing fees will I have to pay?

A conveyancer arranges the legal transfer of the title of a home between the buyer and the seller. They prepare all the legal documentation so that the contract settles smoothly. Both home buyers and sellers incur legal conveyancing costs. These may be either a fixed fee or a percentage of the selling price. As a guide, budget for between $1,000 and $2,000 for conveyancing when buying your home.

What is stamp duty?

Stamp duty is a government tax charged by all Australian States and Territories on all property purchases. The rate charged varies by state and depending on factors such as the home’s location, value and whether it’s an investment property. Typically stamp duty costs around 2 to 5% of the purchase price.

How much does a building and pest inspection cost?

A building and pest inspection will typically cost you a few hundred dollars. Although it’s optional, this is one expense you don’t want to avoid, just to save yourself a bit of money. It will help you identify any issues with your home that could cost you a lot of money later on. Any issues discovered during the inspection may affect your decision to buy the home, or you could use them to negotiate a better price with the real estate agent.

Will I need Lender’s Mortgage Insurance?

If you have a deposit of less than 20% of the purchase price of your home (i.e. a LVR greater than 80%), most lenders will require you to take out Lenders Mortgage Insurance (LMI). This protects the lender if you are unable to make your loan repayments. LMI can be paid upfront or if required, can usually be included (capitalised) into your home loan. LMI can be expensive. The amount of your premium depends on the size of your deposit and your LVR.

How much will it cost to insure my home?

Lenders typically require you to have adequate home insurance cover as a condition of providing you with a home loan. Home insurance is usually bundled with contents insurance as a package. How much you pay for your home and contents insurance will depend on a number of factors, like the location of your home, size and its value (including your contents). But as a guide, budget at least $2,000 for your annual home and contents insurance premiums.

What bank fees will I be charged for my home loan?

Many banks charge application, annual and other fees on their home loans. There may be fees related to additional home loan features such as redraw facilities, lines of credit and mortgage offset accounts. Legally, all lenders are required to display comparison rates beside any loan interest rates they advertise. The comparison rate is sometimes called the ‘true’ cost of a loan, because it includes any associated loan fees and charges. Comparing home loan comparison rates can often enable you to determine which lender charges higher home loan fees.

How much does it cost to get utilities connected?

Utilities include services like electricity, gas, phone and internet connections. Depending on your service provider, you may be charged a connection/disconnection fee when moving into your new home. This won’t be a major expense compared to the ongoing charges for these services that you’ll be required to pay, but you still need to allow for them when buying your home.

How much are council and water rates?

When you purchase a home, you are required to pay the local council rates and charges for the use and maintenance of community infrastructure and services such as waste collection and building approvals. You also need to pay the water company for the connection and supply of water to your property. Combined, council and water rates will generally cost $1,000 to $3,000 per year.

How much should I allow for moving costs?

Moving costs depend on how much you want to move, how far you need to move and whether you pack yourself or want the moving company to pack for you. As a guide, budget between $1,000 and $4,000. Heavy items such as pianos and pool tables will cost extra. As you can see, budgeting for the ‘hidden’ costs associated with buying a home is crucial when buying a home. Your finance needs will certainly extend beyond the purchase price.

Tomorrow Finance is Australia’s leading home loan comparison and referral service. Working with Australia’s leading banks, we are committed to helping Australians find the right home loan.

To speak with our experts, phone 1300 754 562 or contact us online. There’s no obligation and our service is 100% free!

Back « Tips for Negotiating When Buying a House.
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