If you’re in the process of buying your first property, it’s crucial to focus not only on building your home loan deposit but also to consider various other costs associated with the purchase. Understanding these upfront expenses can help you avoid any unpleasant surprises on your home buying journey. Here’s a breakdown of some fees and expenses you might encounter along the way.
Lenders Mortgage Insurance
Lenders Mortgage Insurance (LMI) is a fee imposed by lenders to safeguard themselves in case a borrower defaults on their home loan payments. Typically applied when the Loan to Value Ratio (LVR) exceeds 80%, LMI differs from mortgage protection insurance, which shields the borrower in situations like illness, injury, or unemployment hindering their ability to make monthly repayments.
Certain circumstances may allow you to bypass LMI fees. For instance, professional home loans often waive this fee for specific professions such as doctors, dentists, accountants, and engineers. First home buyers might benefit from government schemes like the First Home Guarantee, which eliminates LMI charges for those with a deposit as low as 5%, as the government guarantees up to 15% of the purchase price.
Moreover, some lenders may forgo LMI fees for borrowers with a deposit as minimal as 15% of the property value. It’s crucial to explore and compare different home loan options to find the most suitable one. If LMI concerns you, consulting with a broker can help determine if you qualify for an exemption.
Stamp duty
Stamp duty is likely to stand out as one of the most significant expenses in the process of purchasing a home, ranking second only to your home loan deposit. Also referred to as land transfer duty or property transfer duty, stamp duty is a one-time government tax levied each time legal ownership of a property is transferred, and it must be paid upfront.
The rates and regulations for stamp duty vary across different states and territories. The amount you’ll be required to pay hinges on factors such as the property’s location, type, and value. As a general guideline, the fee typically falls within the range of 3-4% of the property’s value.
Some borrowers might qualify for stamp duty concessions or complete exemptions, particularly first home buyers who may benefit from concessions. Utilizing our Stamp Duty Calculator can provide you with an estimate of the anticipated amount you might need to pay.
Engaging the services of a conveyancer or solicitor is a crucial step in the property purchase process. These professionals handle all the necessary legal aspects involved in acquiring a property, including reviewing the contract of sale, conducting title searches, and preparing documentation required by the lender for settlement.
Since October 2018, it has been a requirement in Australia that all residential property transactions must be facilitated by someone possessing the appropriate legal qualifications. Therefore, hiring either a conveyancer or solicitor is essential when buying a home.
Hiring a conveyancer or solicitor
Before they commence their work, it is customary to receive an estimate of the costs from your chosen conveyancer or solicitor. The expenses incurred will depend on various factors, such as the complexity of the terms of sale for your specific property. It’s important to factor in these costs and obtain a clear understanding of the services provided by the conveyancer or solicitor to ensure a smooth and legally sound property transaction.
Conducting several property inspections before finalizing the purchase of your new home is a prudent step. These inspections serve to unveil whether you’re entering into a fair deal, offering peace of mind and providing a basis for negotiating the purchase price if necessary.
Property inspections
Typically, there are three key inspections to consider:
- Building Inspections: These inspections cover a spectrum of issues, ranging from major structural faults to minor concerns and safety hazards. The cost of a building inspection can vary widely, falling within the range of $200 to $1,000, contingent on factors such as the size and location of the property.
- Pest Inspections: Focused on identifying potential pest infestations, these inspections come with costs that fluctuate based on the size of the property and the extent of the inspection needed. On average, pest inspections usually range from $150 to $300.