Mortgages, Money and Me

Count your property costs

When looking at house prices it’s also important to consider your TOTAL costs, including any hidden fees.

In addition to the actual purchase price, costs associated with buying a house may be split between upfront and ongoing costs. There can also be hidden fees when buying a property, and these can be fairly negligible (such as a home loan application fee), to quite significant with Lenders Mortgage Insurance.

Generally speaking, if you are not eligible for the First Home Owners Grant then allow 5% of your purchase price to cover average conveyancing fees and government costs.  This does not include lenders mortgage insurance, but if it is applicable it can often be added to the loan amount.

It is important for you to find out all fees associated with buying a house in Australia to make sure that you have enough cash to complete your purchase.

Upfront Buying Costs

The upfront costs are the costs you will need to cover before or at the time of settlement (transfer of ownership) of your purchase and they include;

Land Transfer Stamp Duty and Government Costs

Stamp duty is a state tax on property purchases and typically runs into many thousands of dollars unless you have an exemption under the First Home Owner Grant. The amount of stamp duty that is payable varies state by state, so be sure to use a stamp duty calculator to estimate what yours will be. This is potentially the largest hidden cost of buying a property in Australia.

You will also have minor government fees to register the transfer of land and registration of mortgage. These fees vary from State to State but in most cases are just a few hundred dollars.  Your conveyancer and mortgage broker will help identify these for you.

Lenders Mortgage Insurance

Lenders Mortgage Insurance (LMI) is another significant hidden cost of buying a home in Australia and is likely to be applicable if you need to borrow more than 80% of the total value of the property.

This is a single upfront premium that insures your lender against possible loss should your property need to be repossessed and sold due to loan default. It can be quite a significant cost and varies depending on the lender, loan amount and ratio to property value.  Be aware that this insurance only covers the lender, not yourself. If there is a loss then you are still liable for the debt to the mortgage insurer. For the loan to proceed, the insurer will need to approve the application and be willing to provide the lender with insurance.

However, if you do not have the full 20% deposit then Lenders Mortgage Insurance may help you enter the market sooner. The cost of the insurance can be substantial and is calculated on a sliding scale, so the more deposit you have the cheaper this premium will become.

NOTE:  Special Niche for doctors, engineers and other professionals:  Certain lenders will allow a loan up to 90% of property value without mortgage insurance.  This can be a significant saving, so see if you are eligible for this special treatment.

Home loan application fee

A loan application or establishment fee can be as much as $1,000 or more. That said, most loan packages tend to have lower if not negligible upfront costs – but include an annual fee that is typically just under $400. These loans normally have interest rate discounts and added services that make the cost viable, but they are not suitable for everyone. Other loans have the higher upfront costs, and may then be fee free for the life of the loan, but have limited other benefits. Your broker or lender should fully discuss your options as they apply to your own circumstances.

Valuation and lenders legal fees

The lender is likely to require the property you are buying in Australia to be valued by a registered valuer to ensure you are paying what it is worth. The valuation fee, usually about $300 will normally be incorporated into the application costs. Some lenders may also charge a separate fee for their legal costs – up to $500 generally.  Once again, your broker or lender can discuss your options and explain what is covered under the bank’s fee structure.

Conveyancing costs in Australia

The process of transferring the property you buy into your name legally is called conveyancing. Your legal representative may be a solicitor, a conveyancer or a settlement agent.  House conveyancing fees vary depending on location, type of property, and even between different legal representatives. You should obtain quotes as conveyancing and solicitors fees for buying a house in Australia can vary considerably.

Building, pest and strata reports

It is wise but not compulsory to do a pest and building report on the property to check for structural faults or pest infestations which may not be visible or evident on the surface. Allow approximately $200 to $500 for each report.  Termites are a common pest, especially in houses for sale in Perth Australia, but can be easily identified and damage can be treated.

If buying a unit, townhouse or villa you should look at the records of the body corporate or arrange for your conveyancer/solicitor to do this for you. For example, you can discover whether all owners get along, whether there any special levies due or being discussed which could cost you sometimes thousands of dollars, are you allowed to keep pets etc.

Ongoing Costs

These extra costs to buying property in Australia are ones you may have encountered before if you had previously owned or have been renting.  Otherwise, make sure you include these costs in your monthly budget!

Phone, electricity and internet

You may have to pay a bond to have these services connected, as well as paying for your ongoing usage.

Water rates

This is payable to your local water authority. You will pay for the water service and for the water consumption.

Council rates

The rates will vary depending on your council area and property.

Insurance – building and contents

If your new home is part of a body corporate (strata titled property), the premium for building insurance may be incorporated with your strata levies. You should think about adding home and contents insurance as well through private insurance.

Ongoing repairs

You will have to pay for any ongoing maintenance on the property.

Strata or Body Corporate fees

Strata titled properties typically relate to apartment and unit developments.  The fees will vary depending on the building complex. Things which can impact on the strata levies can be the age of the building, whether it has a lift, swimming pool or other such facilities, the number of units in the block, the size of your unit etc.

Check also to see if a special levy is scheduled for a future date.  These typically cover major repair costs in apartment and unit complexes.

In closing

As you can see, the advertised house prices in Australia are just the starting point and it is critical to consider the additional and hidden costs to buying your new home.

Please don’t be overwhelmed by what seems to be a costly or complicated process.  Finding and owning your new home should be an exciting journey, so please feel free to contact me if you have any questions!