When buying a property, there are hidden costs that you need to be aware of. There is a lot of emphasis placed on a 20% deposit (to avoid LMI) that you might forget that you’ll also need to fund upfront costs as well. This article will touch on the key costs that are associated with any property purchase and will then show two examples for scenarios you may experience.
Stamp Duty
Stamp Duty is a charge applied by state governments which relates to the transfer of land/ property. Stamp Duty depends on several factors such as if the purchaser is a first-home buyer, if it’s an established home, new home, etc. A first-home buyer purchasing a property in QLD worth $750,000 will pay approximately $19,600 in Stamp Duty.
Mortgage Registration & Transfer Fee
The Mortgage Registration & Transfer Fees are one-off fees charged by State Governments to cover the Government’s costs for registering the property as security on a home loan and transferring the title of the property into your ownership. The Mortgage Registration Fee is $197 and the Transfer Fee depends on the purchase price of the property.
Conveyancing & Legal Fees
You will need to engage a conveyancer or other professional to prepare the legal paperwork associated with purchasing a property. The fees associated with this vary depending on the professional but are generally between $1,000 – $2,000.
Building & Pest Inspection
It’s vital that you arrange a Building & Pest Inspection when you purchase a property to ensure that there are no hidden surprises with the property that could arise after purchasing it. This inspection will ensure that there is nothing structurally wrong with the property i.e. faulty roofs and that there’s no pest infestation i.e. white ants. Again, this cost varies depending on the professional but is generally around $500.
Lenders Mortgage Insurance (LMI)
If you don’t have the 20% deposit, you’ll need to pay LMI. This fee protects the lender against the risk of default to cover any shortfall. The amount of insurance will vary as it depends on a few factors such as size of loan, size of deposit, etc. LMI can be capitalised on top of your loan (example shown below). If you have $100,000 and are looking to purchase a $750,000 property your LMI fee would be estimated as $9,993 (according to the Genworth LMI calculator).
Example 1:
The below example will show the savings required to avoid LMI:
Purchase Price: $600,000
Savings: $150,000
Loan Details: - First Home Buyer - Primary Residence - Established Home
*If using dark mode on phone will be unable to see the text*
As seen from the above, the upfront costs to purchase a $600,000 property are $16,798 so therefore this borrower would require $120,000 (20% of $600,000) to avoid LMI but would also be required to pay $16,798 upfront. This takes the total savings required to $136,798 (leaving the borrower a remaining $13,202 after the purchase).
Example 2:
As previously mentioned, it can be very difficult for a young professional to save a 20% deposit so paying LMI is an alternative (you shouldn’t fear LMI). The below calculator will show how LMI can be capitalised into the loan:
Purchase Price: $600,000
Savings: $75,000
Loan Details: - First Home Buyer - Primary Residence - Established Home
*If using dark mode on phone will be unable to see the text*
Both examples have upfront costs of $16,798 but in this example the borrower only has $75,000 in savings – $55,000 short of $120,000 which is the 20% deposit to avoid LMI. The estimated LMI calculation (according to the Genworth Calculator) is $18,376 which can be capitalised back into the loan. Therefore, this borrower will have an approximate loan balance of $560,174 after purchasing a property for $600,000 and using $75,000 of their savings as a deposit.
The misconception most new borrowers have with buying property is that they’ll only need a 20% deposit and don’t take into account the upfront fees. Hopefully this article has shed light on different scenarios for the first home buyers out there. As always, if you have any questions or scenarios to discuss please reach out on 0401 225 713.