Are you looking to purchase a property? Is this your first time purchasing a property? Have you considered all the costs associated with the purchase of a property?
Many buyers, particularly first home buyers are so focused on the price of a property, that they overlook other costs involved in purchasing a property. It is important to factor in these additional costs as this may impact if you can afford to purchase the property in the first place.
This article is aimed at providing you with a breakdown of these hidden costs.
- Building and pest inspections
It is highly recommended that every purchaser arranges for a qualified inspector to conduct building and pest inspections. The cost of arranging an inspection will vary depending on the company or business you engage to undertake the inspection. The fee associated with obtaining these reports should be considered as a good investment as it would help you to avoid purchasing a property with structural faults or pest infestations which may cost you a lot more to rectify had you not obtained the reports prior to purchasing.
- Stamp duty
When you purchase a property, you will most likely have to pay stamp duty. The amount of duty you pay will depend on the value of the property and whether you are eligible for any exemptions or concessions or if you are a foreign purchaser. Duty is charged based on dutiable value. This is the higher of:
– The price you paid for the property; or
– The price for which it may be reasonably sold on the open market.
Stamp duty in Victoria is usually paid on the day of settlement either by your bank if you are obtaining a loan or your conveyancer/solicitor.
- Land Registration Fees
This is a government charge payable by you in order to register your name on the title of the property. The fee will depend on the value of the property.
- Mortgage registration fee
If you obtain a loan to complete the purchase of the property, the bank will register a mortgage on the title of the property until such time that the loan has been repaid. This is a one off mortgage registration fee which you will be liable for and is usually paid on the day of settlement. Please note that once the loan has been repaid, you would have to arrange with your lender to discharge the mortgage. A one off discharge of mortgage fee is payable then.
- Loan application fees
Many banks will charge a loan application or establishment fee when you apply for a loan. This fee is to cover the cost of administration or processing of the loan. The fee will vary depending on the provider. In some instances, you may be able to negotiate a waiver with your lender.
- Ongoing loan fees
In addition to the establishment fee, some lenders may charge a monthly or annual fee to cover the administration and servicing of loan. This fee will vary depending on the provider and the type of the loan.
- Lenders mortgage insurance (LMI)
If your deposit is less than 20%, then Lenders Mortgage Insurance is usually required. LMI protects the lenders in the event that you are unable to meet mortgage repayments. Depending on the provider, this fee can be paid as a one-off sum or added to your loan.
- Property valuation fee
Prior to a loan being approved, lenders often engage an independent valuer to visit the property to value the property. The purpose of this is to assess whether or not you are paying a reasonable price for the property. The cost of this will vary but can amount to several hundred dollars.
- Building insurance
It is vital to for you to take out building insurance from the day you sign the contract. If the property was substantially destroyed prior to settlement, you may want to have the option of proceeding by relying on your insurance to reinstate the improvements, as opposed to merely withdrawing from the contract.
- Contents insurance
You should arrange for contents insurance once you move into the property. The fee would depend on the cover obtained and the provider.
- Legal fees or conveyancing fees
Property transfers can only be completed by licensed conveyancers or legal practitioners as transfers are now completed electronically. The fee may vary depending on the complexity of the purchase, but expert legal advice can definitely help you avoid any unexpected costs or pitfalls.