You’ve found the perfect place to call home, but do you know all the extra costs you’ll have to pay to make it yours? It’s not uncommon for first-time buyers to blow out their budget, simply because they aren’t aware of the hidden costs of purchasing property.
To ensure you avoid any unwelcome surprises, a general rule of thumb is to allocate an extra 5% of the property’s purchase price to buying costs.
Here are the costs you can expect to pay when purchasing a home.
Transfer duty (stamp duty)
Formerly known as stamp duty, transfer duty is one of the largest costs you’ll have to pay when purchasing property. It is a one-off state government tax that is generally paid prior to settlement.
Transfer duty is calculated as a percentage of the sale, but how much you will have to pay will depend upon whether you intend to live in the property or rent it out as an investment. First home buyers may be exempt from paying transfer duty.
For a mortgage of $450,000 on a property you wish to live in, your total transfer duty cost will be $8,027.20 (including the property transfer fee). This was calculated on the Mortgage Choice stamp duty calculator, which you can use to find out how much stamp duty is likely to cost you.
Lenders may charge you a number of fees when you apply for your mortgage, including:
- Loan application fee: This is approximately $700, but can vary depending on the lender and type of loan.
- Valuation fee: This may be included in your loan application fee, but if it isn’t or an additional valuation is required, you can expect to pay approximately $150–300.
- Lenders mortgage insurance: This is a fee you’ll need to pay if you don’t have a 20% deposit saved. It is calculated as a percentage of your loan.
Speak to your broker about these fees, because in some cases the broker may be able to negotiate lower fees or have them waived altogether.
Pest and building inspections
Unlike stamp duty and borrowing costs, inspections are not mandatory fees, but smart buyers will arrange these, as they can save you from purchasing a property with significant issues.
Note that a building inspection is just as important for a new property as it is for an old one, in order to ensure that all work has been properly completed. A pest and building inspection generally costs between $300–500, depending on the type of property you are purchasing.
Mortgage registration fee
This is an administrative fee imposed by the Titles Registry office. It covers the cost of assigning the mortgage to the title of the property. In Queensland, mortgage registration currently costs $168.60.
The cost of legal fees varies depending upon the complexity of the purchase. When you are enquiring about legal fees, check whether the costs of searches, settlements and disbursements are included.
As a condition of loan settlement, lenders will require you to take out a building insurance policy for security properties. In Queensland, insurance is necessary from 5:00 pm on the day following the signing of the contract, but is generally not required for strata properties where body corporate has a policy for the entire block. This condition exists to protect you and the lender should the property be damaged by an event such as a flood or fire.
The cost of building insurance will vary depending upon the property.
Once you own a property, you may also want to take out other levels of insurance, such as contents, mortgage protection and income protection. Review your insurance policies regularly to ensure you have adequate cover.
Many first home buyers forget that rates must be paid every quarter. You will be responsible for this from the date of settlement.