What are the costs involved with buying a home?

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Buying a home will probably be one of the largest financial transactions you will make in your lifetime. It can be exciting and daunting at the same time, so it’s important to know and understand all the costs involved when buying a home, as the total cost at the end of the transaction can often be a lot more than just the price you are paying for the property.

Most of us already know that we need to have at least a deposit of 5% of the purchase price in order to qualify for a home loan with most banks. As a general rule of thumb, we recommend that you have a minimum 8% deposit, with the other 3% being for the other costs involved with buying a home. Below we will outline some of the costs you need to be aware of when buying a home.

Lender’s Mortgage Insurance

If you are borrowing more than 80% of the value of the property (ie. you only have a 5-19% deposit) when buying a home, you will be required to pay Lenders Mortgage Insurance. The cost of this varies between lenders, but it is usually around 2% of the amount borrowed. For example, if you are buying a home for $300,000 and you have a 10% deposit ($30,000), you will borrow $270,000. Lenders Mortgage Insurance will be calculated on the $270,000 and based on the average 2%, this can cost around $5,400.  Some lenders will allow you to incorporate this cost into the loan, however, there are many lenders that require you to pay it upfront.

Transfer Duty (also known as Stamp Duty)

In Queensland, transfer duty applies whenever you sell, buy or transfer property. The amount you pay is based on the purchase price of the property, except for when you are a first home buyer. Australian residents and citizens who are first home buyers are exempt from paying transfer duty. Additional duty of 7% applies to purchases of residential land by foreign persons (including companies and trusts). To find out approximately how much transfer duty you will need to pay, use the Transfer Duty Estimator on the Queensland Government website.

Building & Pest Inspection

Although it isn’t compulsory to have a building and pest inspection on the home you are buying, it is often recommended to do so to ensure you aren’t buying a termite ridden or unsafely constructed property. The cost of a building and pest inspection in Queensland usually depends on the type of property. For a typical 4-bedroom home, the cost can range between $400-$700. For units or townhouses, the costs will generally be a little bit less.

Conveyancing fees

Having a conveyancer or solicitor act on your behalf after the contract is signed is, again, not compulsory. However, it is strongly recommended that you engage the services of a conveyancer or solicitor to ensure everything is completed correctly. They will also arrange and submit all the government documents applicable for the transfer duty, and ensure you are purchasing an unencumbered home. The cost for conveyancing can vary between $1,000 - $1,500 and is usually paid at settlement.

The costs associated with buying a home will vary depending on your situation. To find out more about costs associated with getting a home loan, speak to a mortgage broker at Preston Finance & Insurance today.