Don’t get caught out by extra costs
Thursday, 13 March 2014
Let’s explore some of the less obvious costs so you can prepare and budget for them.
Be aware of fees and taxes. In most cases, when buying or building you will need to pay stamp duty, mortgage registration and transfer fees on your property.
Based on a $300,000 loan, a homebuyer could expect to pay around $17,000 extra to cover these fees and taxes.
If you are building though, you pay less stamp duty than if you’re buying an established house.
Protect your new investment. As soon as you sign the contract, you’re responsible should something happen to the home such as it being damaged or destroyed by fire.
That means you’re required to take out building insurance immediately, with lenders requiring this as a condition of your mortgage.
When building, consider public liability cover on the vacant land until construction starts.
Call in the experts. You will need to hire a conveyancer or solicitor to handle all the paperwork involved in the property transfer process. Fees for this service can vary depending on how complex the sale is but generally cost around $1,000.
Remember utility, connection and maintenance costs. You need to budget for connecting utilities such as water and electricity to the house when you are building a new home, and there may be some transfer fees if you are moving services to a new address.
If you are purchasing a property that is under strata title, you may also be required to pay additional ongoing costs to cover the maintenance and insurance of the property.
Understand mortgage insurance. Generally, Lender's Mortgage Insurance (LMI) is required if you are borrowing more than 80 per cent of the property’s value.
You can reduce your upfront costs significantly by saving a 20 per cent deposit or by finding a lender who does not require LMI.
Check your surroundings. It’s smart to have pest and building inspections before finalising your purchase to give you an idea of any structural damage or pest infestations before you take ownership. These inspections generally range from $500-1000.
Consider conducting these during the cooling off period (if buying through private sale), as you’ll know that your offer has been accepted and it will prevent unforeseen spending.
Expect the unexpected. If your pest and building inspections uncover any issues, it is a good idea to have a contingency budget in place so that you can get these resolved quickly.
When building a home, your contingency budget could cover unexpected issues such as finding large rocks when clearing the site.
Set aside a budget for optional extras. When building a home, make sure you know what’s included in the builder’s quote, as some things, such as heating and cooling, driveway paving, floor coverings or landscaping may not be included.
Be sure you’ve budgeted for them from the beginning to help you stay within your means.