Forgetting to factor in the added costs of buying a property can be one of the biggest mistakes investors can make.
Following these tips will help ensure you avoid any nasty surprises.
Loan fees
There are a number of fees associated with taking out a home loan so it’s essential that you gain a clear picture of what you’re facing before you sign.
Loan establishment fees can range from zero to $1000 so make sure you check with your broker or lender.
Valuation
Every lender will require a valuation of your property 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
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 on your loan.
The cost of LMI will vary depending on the amount of money you borrow, the size of your deposit and the type of loan you select but around $10,000 is not a bad estimation.
If you’re short on cash, some lenders will allow you to combine the LMI fee into your overall home loan.
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 hit by 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 while 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 determined by the properties sale price. Expect to pay anywhere between $500 and a couple of thousand dollars, depending on the depth of services you require.
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’ll find a stamp duty calculator at www.stampdutycalculator.com.au
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.
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 safeguarding against buying a lemon.
Expect to pay around $400 for a building or pest inspection and around $200 for a strata report.
Council rates and strata fees
Once a seller hands their property over, you immediately inherit all of the attached council and strata fees.
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 incur strata fees.
Strata fees cover the property’s grouped maintenance and building insurance fees and are collected by the building’s owners’ or manager. These fees are ongoing costs that will continue to absorb your finances, generally quarterly, even after your initial property purchase payment, so it’s important to incorporate these into your ongoing budget.
The scope of strata fees will vary considerably 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.
But wait there’s 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
Failing to account for these extra costs can make settlement time an extremely stressful experience rather than the exciting time it should be.
When it comes to organising your purchase, a good rule of thumb is to budget in roughly five to seven per cent of the purchase price, on top of your deposit, to cover the fees and charges associated with your property purchase.
Source: Smart Property Investment