As investors, we are often so focused on negotiating the best possible purchase price that we get engaged on that number – and on the deposit we need to save. Therefore, these two figures are the biggest to unleash us.
Whether the impact of this initial figure holds our full attention, or we simply think that everything that follows will be "affordable" in comparison, the other costs involved in buying a property could not to be registered. However, they should all be taken into account in the overall purchase budget.
Here are a handful of fees that buyers should be aware of and, even if some only represent a few hundred dollars, they must all be planned.
Mortgage Loan Insurance for Lenders
Previously, buyers had to give the lender at least a 20% cash deposit before they could get a home loan. But today, this amount has been reduced to 5%, which is reasonable.
However, to take advantage of this, a borrower will have to pay a mortgage lender insurance (LMI), which will cover the bank if your situation changes and you can not continue to repay your mortgage.
In other words, it is the insurance taken out by the bank to protect itself against any potential risk related to the return of more than 80% of the value of a property.
While the cost of LMI can be in the thousands, depending on the amount borrowed from the bank, the current advantage is that a borrower is able to pay that amount to in advance or spread it over his whole life. of the loan.
But that does not mean that the costs of LMI need to be covered because the phased payment will increase the amount of your monthly repayments.
Approximate cost:
A few thousand dollars, depending on the value of the property and the amount you decide to borrow. For example, for a property valued at $ 800,000, borrowing $ 700,000 could cost you about $ 10,000 to $ 15,000 in LMI costs, while for $ 750,000, this premium will increase to $ 30,000 and more.
Stamp duty
Also known as Land Transfer Tax, it is a tax imposed by state and territory governments whenever a buyer buys property. This fee must be paid in advance within a certain time after the day of settlement or after the transfer of the property.
Fees vary from state to state, but they can cost the buyer tens of thousands of dollars, depending on the purchase price of the property. Stamp duties are generally more expensive for investors than for owners. Unfortunately, this is not a tax-deductible expense, although it can be added to your cost base at the time of sale.
Approximate cost:
Stamp duties can reach tens of thousands of people, but costs vary depending on the jurisdiction of each state and territory (see box), so check with your state's finance department to determine the approximate rates.
Remittances and Legal Expenses
A number of experts will have to step in to help a buyer obtain an investment property.
A mortgage broker can help you find the mortgage that best suits your goals and finances, but it will not usually charge you a fee, but the lenders they work with will ultimately pay for them. pay a commission.
However, after obtaining a mortgage loan or pre-approval for a home loan, you will need funds to pay a lawyer or a conveyor to handle the legal aspect of the purchase. ;a property. Not only will they prepare all the necessary legal documents, but they will present them and ensure that everything is done correctly and on time.
In addition, they can take over the change of hands from the property on the day of settlement, transfer your mortgage, liaise with the bank, house and pay the stamp duty of the property and give advice to the property. along the journey.
Approximate cost:
Legal fees can range from a few hundred dollars to around $ 2,000, depending on the rates of your lawyer or intermediary, and your state or territory. Make sure to get a written cost estimate before calling on their services.
Mortgage Application Fees
In addition, but not as impressive as the total amount of the home loan, there are mortgage application fees: the cost of setting up or opening your home loan with a lender.
It is worthwhile to ask your lender if he plans to waive these fees, as it is known that many do so under certain conditions in order to allow you to acquire your business.
Approximate cost:
Between $ 300 and $ 750.
Inspection Costs of Pests and Buildings
Before finalizing the purchase of an investment property, it is advisable to look for any problems. Warning signs may include pests on the property, unstable building foundations, moisture, a flowing roof, and basement soil.
All of this is best assessed by a qualified pest inspector and a building inspector or surveyor, who have the necessary experience to determine if the problem is on a scale of risk and how well it could be corrected. waste time. choose to finalize the purchase of the property.
Approximate cost:
Up to $ 1,000.
Home, Property and Homeowners Insurance
In most states and territories, building insurance is legally required from the date of signing the contract or from the day of settlement. Although the seller is considered responsible for the property between the signing of the contract and the day of settlement, it was a gray area in the past, so it is worth making the small investment to cover you in case the worst would happen.
For this reason, buyers are advised to consider taking out building insurance from the date of signing the contract, for safety reasons. Investors should also look for a homeowners insurance policy that will come into effect on the day of settlement.
Approximate cost:
Insurance costs vary from one provider to the other. The amount also depends on the length of your insurance contract and the type of insurance product you choose. It is therefore advisable to obtain at least three quotes from different suppliers before making a decision.
In addition to these sometimes overlooked costs, other costs may arise – not only during the purchase process but also after – such as the cost of an extra set of keys or renovations minor required before your tenant can move in
The first thing to do is to consult a qualified and experienced mortgage broker for that he will guide you through any potential fees associated with the purchase of an investment property. In this way, you can integrate them in advance to your budget and avoid any unforeseen costs.
