When people first get started in property, they usually have a limited deposit. In fact, a home buyer not only afford the property, but also factoring some hidden costs.
The following 10 tips are going to tell you how to avoid those hidden costs as a first home buyer, to spend wisely.
Tip NO.1 – Lenders Mortgage Insurance (LMI)
The majority of households think that LMI is there to cover them, but in fact, this is a type of insurance fee that protect the bank. LMI allows the bank to lend to people with less than 20% deposit, and to cover the bank in case those people’s loans goes into default. Therefore, while you can take some advantages from LMI, it ultimately protects the bank.
You may want to know:
How much is LMI cost? The cost is effectively a sliding scale, so the bigger the house, the bigger the lenders mortgage insurance premium.
LMI costs vary from bank to bank – different lenders cost you different LMI for the exact same borrower for the exact same purchase.
The best way is to look at different lenders or ask your mortgage broker to compare lenders mortgage insurance premiums.
The cheapest rate doesn’t necessarily mean the cheapest one when it comes to LMI.
Tip NO.2 – Borrowing costs (home loans)
The fact is that lawyers and different parts of bank actually costs money to process the loan application.
You may want to know:
These application fees vary by different banks, and depend on the type of loan that you’re applying for.
These fees can include loan application fees, annual fees, discharge of settlement fees, settlement fees, or bank valuation fees.
Talk to your broker upfront to make sure you’ve factored than these fees, so you don’t get caught up on settlement.
Tip NO.3 – Stamp duty
4 things you need to know:
It is non-optional and non-negotiable fee when you’re buying a property in Australia.
It is a government state tax, varying from state to state. But it’s all dependent ultimately on the purchase price of that property.
The good news is that in some states, first-home buyers get some relief on stamp duty.
To estimate the cost, just go online and search for a stamp duty calculator online – quick and easy.
Tip NO.4 – Water and council rates
It is a government fee that council sends you the charge fees – infrastructure, parks and all stuff around your suburbs to do like the bins get taken out; your streets are cleaned. The cost of owning and managing the property – they are non-negotiable, and it’s important to be aware of it before you buy that property.
The level of rate increase is at the sole discretion of the council but in the most cases, it’s around about inflation or CPI, which at the moment is around 3%.
The hidden cost might happen when, for example, if you’re buying a property in June and the previous owner has paid the council rates up till July. At settlement, you owe them one month’s worth of council rates, so your solicitor or conveyance will actually adjust and take money and ask you for that extra month’s rate amount, which you still have to pay it.
Therefore, 2 things you could do:
Make sure you factor all of stuff in upfront.
Talk to your solicitor and see if there’s any outstanding council rates that need to be paid and rebate to the old owner.
Tip NO.5 – Strata (body corporate) fees
If you’re buying a unit, a townhouse or an apartment in a complex, you’ll need to pay strata or body corporate fees to someone who manage that complex.
Strata fees (aka. levies) are basically a contribution that you make collectively as home owners in a certain complex to pay for things like gardening, maintenance, building work, cleaner, bins out – it’s all that sort of collective stuff.
Strata report – a written record including all information.
And you may want to know:
In NSW, you have to pay for these reports by $400 to $500.
The report says what’s happening in this complex, if there’s any issues (e.g. water leaking, concrete cancer).
Your lawyer can help you arrange these strata reports or you can sometimes get it from the real estate agents depends on your state.
What you should do?
Have a better understanding of not only what the strata cost today and what those fees are, but what it’s going to cost in the future and if there any issues now in that complex.
Tip NO.6 – Home and content insurance
This insurance fee will protect you not the bank. Many buyers think that they don’t need home and contents insurance but that’s just not true.
This is even more important and actually mandatory if you’re buying a standalone house that’s not on a strata property.
Your TV, your computer, even the kitchen appliances are considered the content. So, even if you’re in a unit, it’s still worth getting contents insurance because if your kitchen catches fire, then you will need contents insurance to replace all that stuff.
Who’s responsible for the insurance? In Queensland, once you sign a contract, even though you don’t own that property, you’re responsible for the insurance at five o’clock from the day your contract is signed.
Make sure to have insurance in place to cover you, and there’s a lot of providers like Allianz. If you don’t go ahead with that property, that’s fine. You can get it cancel and rip it up and move on.
Tip NO.7 – Legal costs (solicitor/conveyancer fees)
One small mistake or error on the contract will cost you hundreds of thousands of dollars. So, get professionals advice and their help.
You need to pay a legal professional or a conveyancer, to basically do strata searches, to do property searches and effectively, to hand out checks at settlement between your bank and the person that you’re buying a property from.
If you buy in an auction, you need to have already worked out who your solicitor is before you sign a contract. If you buy a private treaty under some normal purchase, you can get the solicitor’s details along the process.
Get the minimum level of searches that your solicitor recommends, and try to avoid one person operation or small offices.
Tip NO.8 – Building and pest reports
This is the most common and always mandatory costs that you need to pay for when you’re buying a property.
Basically, the structural soundness of a property – e.g. they check the moisture, damp, or white ants.
A typical building report (let's say four-bedroom home) will cost between $400 to $500, and a pest report will cost $300 to $400 as well. But if you get a combined building and pest report, it usually costs between $400 to $500 and you get it all done in one go.
3 things you could do:
Real estate agents have their own building and pest inspector. You may have your own independent experts that work for you and they’re not working for the real estate agent.
Trust and make sure your building inspectors are qualified builder. You can check their qualification online.
Use the building and pest report to chip a bit off the property if there’s issue in this complex.
Tip NO.9 – Moving and connection costs
Moving does cost you money and a lot of people forget to factor it in.
4 things you may be aware of:
If you move into an apartment, just be aware that you book out lift.
Ask removal company for help, saving your time and energy.
Backloading is a great way to move stuff into state – it takes a longer time frame but it costs less money.
Negotiate down the price if you can help to move together.
Tip NO.10 – Changes to repayments
There are some potential changes to your monthly loan repayment as the interest rates change over the time. If you’re only making the minimum repayment today, as interest rates go up, your repayments going to increase a lot.
Therefore, 2 things you could do:
Try to repay a bit extra – e.g. an extra $50 or $100 a week into your home loan.
Look at fixed rates. The rate is fixed throughout the entire repayment timeframe. Thus, it can bring certainty when interest rate rise.
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