The agreed property purchase cost is just one of many expenses you can expect when buying and financing a new property. To provide you with a budgeting guide, I've put together a list of some of the less explicit costs involved in buying a property.
Let's use an example scenario with some assumptions to assist in highlighting the potential costs:
- Property purchase price of $400,000.
- $40,000 deposit.
- Not a first home buyer.
- No existing home loan.
- Standard Single story house.
Government Related Costs
Stamp Duty - $13,015 (correct as of March 2016)
Stamp duty must be paid for mortgage documents to be legal. It’s essentially a tax levied by the WA government on the purchase value of the property. First home buyers may qualify for the WA reduced rate of Stamp Duty - see here.
Mortgage registration fee - $164 (correct as of March 2016)
In Western Australia, all mortgages are registered with Landgate, and they charge a fee for registering the mortgage.
Land transfer fee - $234 (correct as of March 2016)
Certificates of Title, otherwise known as Title Deeds, are issued by Landgate with one original and one duplicate copy. When purchasing property, the transfer of land must be recorded, which Landgate charge accordingly.
One Off Financing Costs
Loan application fee - Anywhere from $0 to $700.
The loan application fees are commonly charged by a lender for the costs involved in setting up a new home loan. These are also known as “establishment”, “up-front”, “start-up” or “set-up” fees. These fees are commonly waived as part of a lender promotion.
Lenders mortgage insurance (LMI) - $7,668 (based on example LVR of 90% ($360k/$400k) - this will vary depending on your individual circumstances.)
Based on your loan-to-valuation ratio (LVR), you may be required to take out lenders mortgage insurance (LMI). This typically occurs when you borrow more than 80% of the value of the property (can be less depending on property location, employment types, etc...). Although you pay for it, LMI is not insurance for you; it protects the lender should you default on the loan. This can be avoided by saving enough funds to cover 20% of the purchase price + expected costs prior to purchasing.
Valuation fee -Typically from $300 to $400.
Your lender will pass on the cost of getting an independent valuation of the property you wish to purchase. It is not uncommon for a lender to waive this fee as part of a promotion.
Lender's legal fee -Typically from $200 to $300.
Your lender may charge a fee for preparing the documentation associated with the home loan.
Rate lock fee - Typically from $300 to $600.
A rate lock fee is an optional fee only available to Fixed Rate borrowers. Home loan settlements can take many months, and the fixed rate only comes into effect on the date of settlement. A rate lock enables you to lock in a fixed rate from the date of application, which is especially useful if you feel there is a strong chance of an interest rate increase in the coming months. A lender will charge you a one-off fee for this feature.
Legal Fees - Typically from $1000 to $2500.
The legal transfer of ownership of the property will require a solicitor, conveyancer or settlement agent. He or she will perform property and title searches to ensure the seller is entitled to release the property, for instance, by checking the strata body corporate records.
Building Inspections - Typically from $400 to $800.
Building inspections are an option added cost, but they can save you from dealing with a major building problem after the purchase is complete. The amount is often dependent on the size of the property.
Pest Inspections - Typically from $150 to $400.
Pest inspections assess property for damage caused by pests such as termites, rodents, and other little critters. Like building inspections, they are optional, but could potentially save you thousands of dollars.
Council and water rates - Anywhere from $0 to $2000+
When you purchase a property, you are required to pay the seller/vendor the remaining council and water rates from the date of settlement through to the end of the financial year.
Agent fees - Typically 1-3% of the selling price.
First-home buyers don’t have to worry about paying commission, since it is charged to the vendor of the property, most often as a percentage of the sale price. However if you’re selling your current home to buy another, you’ll probably have to take these fees into account.
Building Insurance - Typically from $50 to $200 per month.
If you’re not buying a strata property, your lender will ask you to take out building insurance dated from the time of settlement.
Overall the extra costs on this example purchase could range from $23481 to $28981.
Excluding LMI, its is wise to assume that the extra purchase costs on a property will add approximately 5% of the agreed purchase price to your total funds required to buy the property.
For example, on a $500,000 property purchase (with no need for LMI) you can roughly expect $25,000 in extra costs, meaning you will need $525,000 in total funds to buy the property.
Want to talk more about your home loan options?
If yes, then please get in touch with me today and I'll be happy to help. All my home loan and mortgage services (from the initial meeting, right through to home loan settlement) are completely free to you.