Continuing our look at the Home Loan Process, this week we are going to look at the range of costs that are invloved with purchasing your new home and arranging finance. It is quite possible that the Other Costs can end up being 5% to 10% of the property value. The costs can be broken down into 3 main categories, Government costs, Home Financing costs and additional costs.
Government Costs
There are a number of Government Costs that are payable:
- Registration of mortgage – One off fee payable to the land titles office to register the mortgage.
- Registration of transfer – Once off fee charged by the State Government to cover transfer of the title of your new property.
- Stamp Duty – Stamp (or Transfer) duty is a levy (or tax) charged by the State Government for legally recognising certain documents.
- Land Tax – State governemts charge a tax based on the value of the land.
The costs assoicated with each of these charges varies depending on which state (or territory) the property or land is located.
Financing Costs
There are a number of fee’s and charges that your lender will charge in relation to providing a home loan.
- Loan Establishment Fee – This is a one-off upfront cost to establish your loan.
- Settlement Fee – One off upfront fee is payable when the Bank (or its representative) arranges the funding of a loan (regardless of whether or not we attend settlement) for a property purchase, or for the refinance of an existing loan that’s with another lender.
- Rate Lock Fee – A fee paid by fixed rate borrowers on application for a mortgage. By paying a rate lock fee, your rate will be locked at application, instead of the normal practice of the rate being set at settlement. Protects the borrower from a rate increase between the application being submitted and the loan being finalised.
- Security Guarantee Fee – this is a charge in relation to having a guarantor putting up security for your loan.
- Addition security fee – This fee is charged when you have more than one security for the loan (guarantee securities are excluded from this fee)
- Home Loan Exit Fee – A fee payable for you to exit your home loan agreement, often charged when you repay the loan within a certain period after establishing the loan (e.g 2 years)
- Lender’s Mortgage Insurance (LMI) – As discussed here LMI is typically charged when the LVR is greater than 80%. There are special circumstances when LMI is charged at lower LVR’s (often for low doc loans) or at higher LVR’s (some lenders have special policies for some professions, eg doctors).
- Valuation fee – some lenders will charge a fee to get a valuation on the property being purchased (and additional fees for any additional properties being used as security).
- Document Preparation / Legal Fees – some lenders will charge a fee for preparing the loan documents and for any legal fees that they may incur in providing the loan.
- Professional Package – offered by some lenders, this is an annual fee for the life of the loan, but often allows the borrower access to discounted interest rates, annual fee free credit cards, discounts on insurance and other products offered by the lender.
The financing costs will vary depending on the lender being used, which fees are charged and the amount being charged varies with each lender. Often some of the fees will be waived during special offers or can be negotiated to be removed. Options like the professional package add an annual fee, but will have fees like establishment fees waived as part of the package.
If you are refinancing an existing loan, it is important to find out from your current lender the costs associated with paying out the loan. This is doublely important if you currently have a fixed rate loan. It is often wise when talking to your lender to tell them you are currently considering selling your current home and you want the current payout figure for your loan for your budget.
Other Property Costs
There are a number of other costs that you may incur when purchasing a new property.
- Solicitor/Conveyancor Fee – for the preparing/checking the legal document and providing legal advice around the property transaction. Usually will also perform the title search for the property. They will normally calculate how the funds will be disbursed, including costs like Council Rates which have been prepaid by the seller.
- Building / Pest report – Examine the property and report on any problems, maintenance needs and pest found (like termites).
- Council Building Inspection – to check the structure of your building
- Building Insurance – The cost to insure your property. Ongoing cost on a monthly/annual basis. Should be put in place once the contract of sale documents have been exchanged (or the cooling off period has finished).
- Contents Insurce – the cost to insure the contents in your new home. Ongoing cost on a monthly/annual basis. Should be put into place prior to moving into your new home.
- Strata levies – if your property is on a strata title, there will be Body Corporate Fee which covers maintenance and upkeep of the common areas, and often will incorporate the building insurance. Your Solicitor/Conveyancor will make adjustments for the first payment. This will be ongoing usually on a quarterly basis.
- Council Rates – your share of the rates from the date of settlement. Usually paid quarterly or annually. Your Solicitor/Conveyancor will make adjustments for the first payment.
- Utilities/Services – You will have pay a connection fee to get your utilities and services connected to your new home. This may include electricity, water, gas, telephone, internet and pay tv.
- Removalists costs – The cost of moving your belongings from your current residence into your new property. This may include engaging a professional removalists or hiring a van and doing it yourself.
There are a number of costs that you need to take into account when purchasing your new home outside of the direct cost of purchasing the property. It is highly reconmended that you set up a budget and put down an estimate of what the costs will be. This will be useful information for you to have when determining how much you can afford to pay for your new property.