There are a number of purchase costs associated with buying a house that many first home buyers are not aware. Even if you have saved for a deposit, you need to ensure you have the funds to cover the other expenses.
What expenses are possible prior to purchasing?
Pest & building inspection & report
It is advisable to get the property checked out to ensure that there is no hidden pest damage and that it is structurally sound. You may find someone who will do both or they may be done by two different professionals. Read the reports thoroughly and chat to the person doing the report about their findings.
Recent sales reports
For lenders the biggest factor in determining what a property is worth is to study what similar properties have sold for in the past 6 months. If you take their lead you could do the same by getting a recent sales report for the suburb online or ask the real estate agent to supply a list of sales of similar properties for you. A quick drive around the neighbourhood looking at those properties will start to give you an idea of what you should be paying for properties in the area.
What are the expenses involved with the purchase?
Deposit or deposit bond
In order to exchange contracts you will need to pay a deposit or bond. The deposit is generally 10% of the purchase price and is held by the real estate agent in their trust account until settlement. If you don't have this amount of cash available then you may be able to use a deposit bond. Most lenders will be able to arrange a bond for you. Check with the real estate agent that the seller will accept a bond in place of cash.
Stamp duty & transfers
Stamp duty, registration and transfer of title and mortgage are all state government fees that are levied when you purchase a property. Online calculators will help you work out how much this will be for a particular purchase. You may be entitled to some stamp duty concessions as a first home buyer so be sure to check the Office of State Revenue in your state to find out.
Solicitor or Conveyancer
Most people purchasing properties will use the services of a legal professional to take care of the legal side of things. They will want to look at the contract prior to you finalising your offer so decide on who you are going to use early on. Get a quote on what they will charge and what is covered as it could vary significantly.
Lenders Mortgage insurance
If you are borrowing more than 80% of the value of the property then most lenders will take out mortgage insurance to protect themselves in case you default on your loan. This cost is generally added to the loan but ask you lender early on to calculate it for you.
At settlement, any expenses that have been paid in advance by the seller will be adjusted so that you pay for what relates to the time from the purchase. This will include council rate, water and electricity. Your solicitor will take care of the calculations.
When you exchange contracts you enter into certain obligations. Ask your legal representative about what you should be doing to protect your interest. They may advise you to take out building insurance well before settlement.
Loan establishment costs
Setup costs for the loan will generally be taken out of loan funds at settlement. This covers the cost of the valuation and legal fees to represent the lender at settlement. Ask for an estimate of these as part of your research into different loans and lenders.
Need help estimating how much you will need to contribute to the purchase?