29 Sep 5 Hidden Costs of Buying a Property
Property has been a wonderful investment for millions of Australian’s that has continued to perform incredibly well for decades.
While buying a property is a great choice for many people there are a number of costs when buying a property that you have to be aware of, over and above the price of the property itself. For first home buyers, there are a number of exemptions and grants that can make property very achievable, however, there will be some things that are unavoidable.
Lenders like to see that when someone comes to them wanting a loan, the borrower is able to provide a 20% deposit. As house prices continue to climb, this can be tough for many people.
If you have to borrow more than 80% of the value of the property, it’s still possible, but you will have to pay Lenders Mortgage Insurance (LMI). LMI is a one-off upfront premium that is put in place to protect the lender in the event the borrower is unable to meet their repayments.
Depending on the type of loan you’re getting there are ways to avoid paying LMI. If you are a first home buyer it is possible to get a guarantor loan with the help of a family member – normally your parents. There are also Government programs in place, such as the First Home Loan Deposit Scheme that can mean you only need to put down 5% and you won’t have to pay LMI.
It’s also worth noting that depending upon your profession you might be able to avoid LMI. Professionals such as Doctors, Accountants and Lawyers are at times able to achieve higher LMI’s without the need for LMI due to the security of their jobs, however, this is lender dependant.
Loan Application/Valuation Fees
When you apply for a home loan there are some costs that you as the borrower will have to pay. Normally there is a loan application fee that is put in place to set up the loan. This varies with the type of loan you need, with very standard loans attracting lower fees. Your mortgage broker in Melbourne can help with understanding all the relevant fees.
At the same time, banks will want to value the property you’re purchasing as a condition of approval and this is a cost the borrower will have to pay.
Council rates and water levies/special levies
Once you’ve purchased a property you might be faced with a situation where you are immediately required to pay the council rates and water rates. These fees are normally payable each quarter and as soon as you take possession of the property it will be your responsibility to pay them.
In some circumstances, councils can even ask for special levies if there are some projects that require additional funds.
Strata Fees – Sinking Funds/Special Funds
If you’re buying into a strata complex, there are normally fees that are payable each quarter known as strata fees that pay for the maintenance and upkeep of the property.
Some buildings that have a lot of amenities like pools and gyms can have high ongoing costs. While some older buildings also have a lot of costs as the building itself ages and require additional maintenance.
In some cases, special levies are raised to pay for larger projects such as building-wide renovations, which can at times be quite expensive.
Before buying into a strata building, it’s wise to get a copy of the most recent minutes from the annual general meeting and any other recent meetings as this will outline what they have in mind and any ongoing and upcoming costs to owners.
When you take possession of your property one of the first things you’ll need to take care of is getting the property insured.
If you’ve bought a freestanding/detached home you’ll need to look at home/building insurance. If you are buying into a strata complex, those costs are normally included as part of the strata fees but it is important to check that with the strata manager.
On top of that, it’s worth considering contents insurance and even something like income insurance that would protect you in the event you lost your income for an extended period of time and couldn’t meet your repayments. Normally your mortgage broker in Melbourne can assist you with getting your insurance in place.
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