By Gillian Bullock
Buying a property is not just a question of paying the price agreed. There are a whole host of other costs involved that you need to allow for when budgeting for your purchase. And these costs can run into thousands of dollars.
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When you're buying your Saturday paper and spending the day driving from one open house to another, you can be fairly dismissive of the associated costs. But repeat those Saturdays some 10 times or even more and you've probably already run up a bill of a few hundred dollars in just petrol and papers.
And at this stage you haven't even found the property you want to buy!
When you start honing in on your chosen property the next round of costs start to kick in. It is madness to buy a property without conducting both a building and a pest inspection, and an apartment without conducting a strata search. Collectively, these inspections could add up to $1000 depending on the size of the property. But if you choose to ignore them you could end up much more seriously in debt to fix problems that you might have been able to allow for when negotiating the purchase price.
Once you've found the property then you will start to rack up further costs with your potential lender.
Not all lenders charge the same fees so it is important you know exactly what you are paying so that you can more easily compare apples with apples. While it is not a foregone conclusion, generally lower upfront costs may mean higher costs in terms of the interest rate charged or in exit fees if you discharge your loan at some later stage.
Firstly, you may have to pay a loan application fee which can cost up to $700. Sometimes this fee is waived or else it is incorporated in the loan establishment fee which is usually between $500 and $1000 although can be higher in some cases. While the establishment fee is a one-off, you may also be up for monthly or annual account keeping fees which can be as high as $300 a year.
First home buyers are generally exempt from stamp duty on the property (usually if it is valued up to $500,000). This can save you in the order of $20,000 so if you are on to your second home this is a serious consideration. Plus your lender may also hit you for a documentation charge, legal fees and a settlement fee.
Your potential lender will probably also want to conduct a valuation of the property which will set you back another couple of hundred dollars.
Then there are the legal costs you will have to find to execute the transfer of title of the property, commonly called conveyancing. A solicitor will charge you somewhere around $1000 although you can get a DIY kit for about $100. While you may save money with a DIY kit, paying out for a professional may prove cheaper (and easier) in the long run given it is unlikely to be your area of expertise.
Most lenders will insist you have mortgage insurance if you have less than a 20 percent deposit this is to cover the lender in case you default rather than to protect you and can set you back a few thousand dollars.
If you have cleared all the hurdles up to this stage, there are still a few more costs lurking. Removalist costs can be upwards of $500 and then you have to consider the connection of utilities such as electricity, gas and phone. Switching your pay TV service, for instance, from one address to another can cost $100. And don't forget the redirection of your mail at around $13 for a month or $66.50 for 12 months.
Now you own a property (albeit with a mortgage) you will have to pay council and water rates and they may be due shortly after you arrive. In addition if you are moving into a strata title development, you will also be up for strata fees.
Buying a house can be a costly exercise but there are few people who look back and regret the decision. The important thing is to budget for something like $10,000 over and above the purchase price to cover you for all the associated costs. And that's not even got you furniture.