November 24, 2015
Purchasing your first property can be a scary (but exciting) milestone. One thing that is often overlooked during this process are the additional costs involved. It pays to be well informed to ensure you are not taken by surprise!
Many lenders will charge loan establishment, settlement and/or valuation fees. An establishment fee could be as much as $600, however varies from lender to lender. A broker will be able to give you a full break down of these fees.
Stamp Duty on Transfer of Ownership
This is a one-off tax payable to the State Government (usually prior to settlement) and is the largest fee involved in the purchasing process. Stamp Duty is calculated on the purchase price of the property and the higher the purchase price, the greater the Stamp Duty. As an example, the Stamp Duty on a NSW purchase of $500,000 is $17,990. First Home Buyers may be eligible for a concession on the Stamp Duty and your broker can certainly provide guidance on this.
LMI (Lenders Mortgage Insurance)
LMI is insurance to protect the lender, not the borrower. It generally applies whenever you borrow more than 80% of the value of the property. The greater the lending ratio and the higher the loan amount, the more expensive the LMI becomes. Many lenders will let you 'capitalise' or add the LMI premium to the loan amount. A small number of lenders will also waive the LMI premium for selected professional borrowers (ie. doctors, dentists etc) up to 90% of the property value. It's difficult to quantify the cost of LMI as it is wholly dependant upon the loan amount and lending ratio, however, I have seen premiums as low as $1,000 and as high as $100,000!
It is essential you secure the services of a good solicitor or conveyancer to handle all the legal aspects relating to the transfer of ownership of the property. The average cost is generally in the order of $1,500 to $2,000.
If you are buying a house it is very important you obtain a pest and building inspection as the last thing you want is for your dream home to develop into a termite nightmare! Most solicitors or conveyancers can arrange this for you and the cost is generally around $400 to $600. If you are buying a strata title unit, you should obtain a strata report and the fee
Many lenders require borrowers to provide evidence of building insurance for the property prior to settlement. The lender is simply seeking to protect its' interest by ensuring the building can be rebuilt it is damaged/destroyed by fire or some other event. It is surprising how many Australian's fail to insure their home and then seek to blame others when the worst case scenario occurs. It really isn't a huge cost, perhaps $1,500 pa for an average sized building, so don't take the risk, get it insured even it the lenders doesn't require evidence of this.