The hidden costs that come with buying your first home
Achieving your dream of home ownership can be both an exciting and daunting prospect. It's often an emotionally charged financial decision so it's important to plan carefully.
There are a number of considerations worth accounting for when preparing to get your foot on the property ladder.
1. Understand all the costs
A property's price tag is not the only cost to consider when looking to buy your first home.
A range of other costs need to be assessed when determining how much you have to spend.
Some of the costs associated with applying for a loan and purchasing a home are well known while others are not. These include:
Stamp duty: a tax paid when transferring the title (ownership) of a property. As a tax imposed by state governments, the percentage you pay will depend on the state in which you buy property. This is often the largest cost outside the mortgage itself.
Loan application: some lenders may charge a fee to process your application. It is used to cover things like credit checks, property appraisals and administrative costs.
Mortgage registration fee: each state imposes this administrative fee for registering the lender's mortgage on the title record for the property.
Strata search: this cost is only applicable if you're buying an apartment. The strata search will give you the history of the building in terms of past repairs, special levies, disputes, reoccurring maintenance problems, insurance details and more.
Solicitor/conveyancer fees: the cost of having a solicitor or conveyancer carry out any legal work involved with purchasing your property.
Building and pest inspections: it's recommended you carry out these standard inspections before you buy to ensure the building is structurally sound and there are no pest problems.
Home and contents insurance: this will protect you financially in case your home and its contents are damaged by fire, storms, flooding or theft. If you are borrowing money to purchase, it's often mandatory to have home insurance in place prior to settlement.
2. Know your budget
When applying for a home loan, most lenders will advise the maximum amount you are eligible to borrow. However, this shouldn't dictate the amount you actually borrow.
Rather than focusing on the total dollar amount of the loan, look at the monthly repayment schedule and compare that to your monthly income and outgoing expenses (including how much you're currently paying for rent). This will help you determine how much you are comfortable borrowing, as well as identify areas where you can reduce your spending.
Loan repayment calculators can be helpful in determining your borrowing capacity as well as your ongoing payment obligations.
3. The pre-approval process
Pre-approval, approval-in-principle and conditional approval are all terms that usually mean the same thing. Pre-approval provides a good understanding of the amount a lender is willing to provide you based on your financial position.
Pre-approval is not a guarantee, but it's a good starting point and can provide you with a level of confidence as you advance through the process of purchasing a home. Most pre-approvals are free and valid for 90-days.
4. What's good for the planet is good for the pocket
When purchasing a property, you are usually signing-up to a 25 to 30-year loan term. Keeping this in mind, there are costs associated with the day-to-day running and upkeep of your property that can be minimised.
For example, choosing an eco-friendly home today can help to reduce bills over the long term. Things to look out for include solar panels, good levels of sunlight, rainwater tanks, airtightness and thermal insulation. This can be good for both pocket and planet.