Understanding the hidden costs of buying your first home
If new to buying property, your client will soon discover how exciting it is to purchase a new home. There’s so much to take in, and with that can come surprises, not all of which are good. Hidden costs can emerge and take you unaware, so it’s best to be prepared for them.
In the lead-up to buying a new home, it’s a good idea to enlist the expertise of a professional broker or financial planner. They can save client's money in the long-term, however not all professional services are free. If there are any upfront costs, factor them into the budget.
Home loans can have application or establishment fees, and their cost can vary depending on the lender. When your client first gets their loan, they need to make sure they understand whether these apply and how much they’ll have to pay. If they have borrowed more than 80% of the value of the home, Lenders Mortgage Insurance (LMI) needs to be paid. As the name suggests, this is insurance for the lender should they not be able to pay back the loan.
The lender may require an independent valuation of the property, which will need to be paid for. For extra security, the new property can be inspected by professionals before finalising the contract (for example, they may find structural issues or pest problems). This can be worthwhile but again, adds another cost.
When it comes to paying for the new home, stamp duty is the big one to factor in. This is a state government tax which varies from state-to-state. Stamp duty is paid before settlement, and can catch out many new homeowners. First home buyers are entitled to concessions, but again these depend on the state. There are stamp duty calculators online which can help work out how much there will be to pay. It’s worthwhile doing this from the get-go.
Other government fees will need to be paid, such as land transfer registration and mortgage registration fees. Then there are the legal fees associated with hiring a solicitor or conveyancer—these should be estimated from the very beginning so there are no shocks.
Once your client has got their new home, it’s time for them to move in! With focus likely to have been solely on the costs of the new home, people often forget that moving can be pricey. They may want to hire removalists or a truck, and utilities will need to be connected and transferred (for which moving fees may be charged). If the previous property needs to be cleaned, to save time we suggest hiring professional cleaning and rubbish removal services.
While the various costs can seem overwhelming, knowing what’s likely to pop up and speaking to a mortgage broker will help your clients to budget accordingly. Being prepared and realistic in what they can afford, and they’ll be able to strike each expense off the list as you help them along this process.