Home Loans: How Much Your Property Will Really Cost

When you are considering entering the property market, it is important that you take a wide angled view of your situation and your purchase, so you are not blindsided by the real costs of buying a home. It is easy to focus on saving for your deposit and searching the papers and internet for your dream home, however, in between your searches and your moving day actually arriving, there are a lot of other costs and fees to consider too.

Start Adding Up Your Costs

Every financial situation and house purchase is different, so here is a guide of the fees and costs you should expect in buying a home, and what they average at. However, to make your own calculations alongside our list you will need to clarify your variables, such as:

* House price.
* House value.
* Deposit amount.
* Loan term.
* Fixed or adjustable interest rate.
* Loan interest rate.

This is because many of the costs associated with buying a home and getting a home loan are dependent on the loan amount and your situation. For example lenders mortgage insurance is calculated as a percentage of your loan amount, and the interest rate you are charged can be calculated based on your financial situation all your credit rating. So, following are some figures to give you an example of the real costs involved in owning a property.

Interest Rates

Based on average interest rates, on a $165,000 home loan, you can see the difference a fixed or adjustable rate makes. With the average fixed interest rate being 4.88% your repayments would be $880.72 each month. However, with a variable interest rate, which is around 4.19% at the moment, you would be paying just $805.92 per month.

Mortgage Insurance

Mortgage insurance can be charged on your home loan depending on how much of a risk you seem to the lender. The insurance protects your lender if you default on your loan and the amount they sell your home for does not cover the outstanding amount of your loan. If you want to insure your payments in case you become ill or lose your job, you will need to take out a separate insurance policy and this can cost around 25-30% of the amount you are protecting.

To avoid lenders mortgage insurance you usually need to contribute a deposit of 20% of the purchase price, the more of your own money you are able to contribute, the less of a risk you are to the lender and you are therefore more likely to be approved. Mortgage loan insurance premiums are charged as a percentage of your loan amount, based on the percentage you are borrowing, for example, if you are borrowing 85% of the purchase price you may be charged a premium of 1.75% of the loan amount. If you are borrowing 95% you may be charged 2.75% of the loan amount. You may also be charged surcharges if you choose a loan term of greater than 25 years.

Appraisal Fee

Since your lender is taking security over the value of the property you are buying they may ask for an independent valuation, and you may have to cover this cost of between $250 and $350, which must be paid at the time the appraisal is completed.

Deposit and Down Payment

When you make an offer on a property, you often have to provide a deposit to secure your offer and start the sale process. The deposit amount required depends on where you are buying, how you are buying – at a private sale or at auction, as auctions often require a 10% deposit – but you can normally secure a property with a 5% deposit made to the vendor. If you also intended to make a 5% down payment on your loan to your lender, then paying a deposit to the vendor is considered as this deposit.

Strata or Body Corporate Fees

If you are buying a property in a block of units or flats, you may have to pay an estoppels certificate fee of around $100.

Property Inspections

During settlement of your contract you will need to have building and pest inspections completed to ensure there are no structural issues with the property. A typical property inspection can cost around $500, a pest inspection around $100, a council building inspection to verify any additional works can cost around $50 and a land survey to check the property is correctly within its boundaries can cost around $400, bring your total for pre-purchase inspections to around $1,000. Depending on the issues uncovered you may be able to stop the sale, or use any issues as leverage to reduce the purchase price.

Land Taxes

Land registration fees, also known as land transfer tax, deed registration fee, tariff or property purchases tax, may be charged but these differ depending on the state in which you are buying. These are a percentage of the property price.

Prepaid Taxes and Utilities

If the vendor has already paid their taxes and utilities in advance, they will want to be reimbursed for the amounts they have paid in advance, and your lawyer or conveyancer can organise this payment.

Property Insurance

Most lenders will need to see proof that the property is insured before processing your loan, so you will need to obtain a comprehensive home and contents insurance policy, which can cost you around $1,000 a year depending on the size and age of the house – the older the house, the more it is going to cost to repair, and the more it is going to cost to insure.

Legal Fees and Disbursements

These fees are often charged to cover the lender’s costs for having their lawyer draw up the loan documents and contracts and will cost you a minimum of $500.

Moving Costs and Time

It is important to budget for moving costs, even if you do not hire a truck to help you. If you have to take time off of work to move house you can lose income if you are self employed, or leave if you earn a wage. There are also costs such and cancelling phone, gas and power contracts, and charges to redirect mail.

Minimise Your Property Costs

Many of these costs are unavoidable, and are set by your lender, however if you are organised and know what you are entitled to, you can minimise the costs of being a property owner. For example:

* Shopping around for the most affordable loan really can save you money as lenders will often run specials where they offer a discounted interest rate, or throw in loan features without the costs.
* Contributing a larger deposit will cost you more in the beginning, but can do much more than just save you on lender’s insurance. When you contribute a larger deposit, you need to borrow less, and your repayments are lower, meaning you can pay less interest and pay off your loan faster.
* You may be able to deduct the interest charged on your home loan at tax time if it’s worthwhile in your situation. The standard deduction allowed is $7,200 if you are married and filing your returns jointly. If you are the head of the household you can claim $6,350, if you’re single you can claim $4,300 and if you’re married but filing separately you can claim $3,600. Therefore, if your total home loan interest and fee deductions are more than your standard deduction then you can get back some of those repayments made during the year.

There is no doubt that your home is a significant investment, but many of these costs are one-off charges, and many others can be minimised with a little organisation and preparation, so you can balance the lifestyle you want, with being a home owner as well.

Alban is a personal finance writer. He provides advice to people looking to invest in property and helps choosing the best home loans.