The hidden costs of buying and selling a home

You've saved up your deposit and you're ready to go. Well, maybe... have you thought about, and calculated, all the other costs you need to incur to buy a home?

Over and above the purchase price, there are many costs you need to factor into your calculations:

Stamp Duty

Most home buyers are required to pay tax to the state government. This tax is called stamp duty. This is paid on all property transactions including residential, retail and commercial properties.

Most states now have some relief for first home buyer's, reducing the amount of stamp duty that needs to be paid.

To give you an indication as to the cost in your particular state, click on: Stamp Duty Calculator

Legal Fees

When purchasing property you would usually employ a solicitor/conveyancer to look after all of the paperwork.

Allow approximately $800 - $1200 for legal fees. This will vary depending on who you hire and which state you live in.

Mortgage Insurance

Mortgage insurance is an insurance policy that covers the lender for the amount of the loan given to you. It is paid by you (the borrower), usually as a once off premium, to cover the lender against the risks of you defaulting on your loan. In other words, if you default on your loan, any amount unrecoverable from you, or your property is guaranteed to be paid to the banks from the Insurance Company.

For example,

You purchase a property in 2003 for $400,000 borrowing $380,000 (95%). You have not paid your loan for 6 months as you have lost your job and you still owe $370,000. The bank is forced to sell your property. The house is sold for $360,000 with selling fees of $10,000, leaving $350,000 to pay off the outstanding loan balance. The loan still has $20,000 to be paid. The bank will get paid $20,000 from the insurance company.

The cost of mortgage insurance depends on the total amount you want to borrow as a percentage of the property value. It is usually only charged when you are borrowing more than 80% of the property's value. The higher percentage you borrow, the higher the cost of mortgage insurance. As a rough guideline it is usually between 0.5-2% of the mortgage.

Mortgage Stamp Duty

There is also another tax that you'll have to pay if you require a mortgage to buy your home. It's called Mortgage Stamp Duty and is paid to the state governments whenever a mortgage document is signed and stamped.

The amount payable varies from state to state. Click on Mortgage Stamp Duty Calculator and refer to the Stamp Duty on Loan amount to calculate how much you will need to pay.

Mortgage Application Fees

The amount of application fees vary greatly between lenders. Some charge nothing while others can charge up to $1,000. Most charge around $600 - $800.

Moving costs

This is quite often a cost that no one budgets for. There are two ways you could do this:

Do it Yourself - You could hire a truck and do it yourself with a couple of mates. This will usually cost somewhere between $100 and $300. Check when hiring the truck, how much the excess km's will cost you, and budget for this. One more thing, give yourself enough time to move, it's amazing how fast 4 hours can go.

Hire a Removalist - The costs involved can vary greatly. A small one-man-band operator who has no insurance might charge a few hundred dollars, while a major removalist company that is fully-insured can charge up to a few thousand dollars. It all depends on how much stuff you need to move! It is worth ringing around to get a few different quotes.

Connection of utilities

Another cost that most don't put into their budgets is the cost to connect your electricity, gas, phone etc.

If you haven't had an account with them before, some of the providers will want a bond to be paid, sometimes up to a couple of hundred dollars each. Even without the bond, a connection fee usually applies to each one of the utilities, around $60 - $100 for each one.

Even without the bond, a connection fee usually applies to each one of the utilities, around $60-$100 for each one.

To avoid a shortfall arrange this early and find out how much you'll need to budget and when it will need to be paid.

Building Inspection

Your solicitor/conveyancer will usually advise you to get a building inspection. This will give you a complete picture as to the state of the property you are buying. They will look and investigate many things that you either didn't pick up or just overlooked.

Be careful, a coat of paint and some new carpet can disguise many problems. Make sure you get a qualified inspector to check your property and look for structural defects, asbestos, electrical or plumbing faults, damp or ventilation issues as well as the many other problems that may be affecting a property.

Don't take the risk - pay the cash. Most building inspections will cost somewhere between $200 and $600.

Termite Inspection

Like the building inspection, most solicitors/conveyancers will advise that you get a termite inspection. You generally don't know you have termites until its too late, and it can be very expensive to repair the damage they cause. A termite inspection will generally cost between $200 and $400.

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