8 Expenses to Budget for Before you Buy a Home
Buying your dream home can come with a list of costs that do not have to be a nightmare if you plan in advance and budget for them.
These expenses can amount up to 10% of a property’s value. Sometimes, it can feel like someone always has a hand in your pocket. Some costs, such as stamp duty, are unavoidable, but don’t resist paying for legal advice and building inspections. Mistakes in these areas can cost far more than you’ll save.
Below are some expenses to budget for:
These are not mandatory unless your lender insists on them. However, you’d be crazy not to undertake building and pest inspections to ensure you’re not buying the neighbourhood money pit. The foundations and structure must be sound and free of termites. Typically, building inspections cost $500 each.
2. Loan application fee
Good mortgage brokers will try to get this waived. A bank wants a 25- or 30-year relationship with you, so you’d not be the first to object to this fee. Some will charge more than $1000, while others will drop it.
3. Additional bank fees
These add up. Lenders will charge you for items such as bank cheques and a so-called rate lock-in fee, which protects you from any increase in charges during the transaction. What does this mean? If rates rise during your application process, it might need re-evaluation. Document preparation and legal fees also incur lender charges. If your loan is being guaranteed, there’ll be a fee for that, too.
4. Lenders Mortgage Insurance
Banks insist on it for their protection – and it can be a heavy slug. Effectively, you’re insuring the lender against you defaulting on your loan. This charge can be waived, but usually only for those with a 20% deposit and other collateral. Some banks will want you to buy Income Protection Insurance. It’s expensive but heaven-sent if you lose your job or become ill.
5. Legal fees
Conveyancing and legal costs are avoidable if you use so-called DIY contracts. But you need to know what you’re doing as the slightest error could cost you heavily so a conveyancer or solicitor is a good investment.
6. Stamp duty
State governments currently offer discounts for first-time buyers. The levy is based on the purchase price. Otherwise, expect your stamp duty to be a hefty fee. Your lender will most likely have a stamp duty calculator online to help you work out how much you’re up for.
7. More insurance
The moment the house becomes your property, the pre-existing insurance cover will cease. So, make sure you have arranged for insurance before the exchange of contracts.
8. Additional costs
Moving and connecting your home to services such as gas, electricity and the internet also hit the bottom line. Ask your real estate agent if they offer a connection service, or use an online site to get everything sorted at once and see if you can get a good deal.