These hidden costs are hurting
With housing affordability on the tip of the nation’s collective tongue, it is understandable that many Australians are curious about what’s involved in assessing financial readiness to buy a home.
Tammy Barton is one of Australia’s leading entrepreneurs and budgeting gurus. She reminds would-be homeowners that there is more to saving for a home than just a deposit.
“Most people are aware that they need to save up cash, but there are a lot of hidden expenses that people overlook,” the MyBudget founder warns.
With the current residential dwelling price hovering at a national mean of nearly $670,000, what are the hidden extras you need to budget for when planning to buy a new home?
The example below is based on a purchase price of $670,000 (national mean) in New South Wales.*
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Government fees and stamp duty: $26,000
Stamp duty is a government tax that needs to be paid by purchasers within 30 days of settlement. The rate of stamp duty differs significantly between states. Ms Barton recommends that you use an online calculator to check the value of stamp duty relevant to your location, price bracket, dwelling type and any applicable concessions (eg. first-time home buyers grant).
Legal fees: $1,500 - $3,000
Engaging a legal specialist or conveyancer to take care of the legal particulars of a sale can attract fees at varying rates. Make sure you understand what services are being provided and what the bill will look like at the end.
Pest and building inspection: $300 - $400
A common pitfall of home ownership is failing to identify issues that prove to be expensive in the long term. The cost of a pest and building inspection may save you from bigger expenses and a lot of heartache later.
Loan application/establishment fee: $600
Make sure you’re aware of the fees your lender charges and how much they amount to before you sign on the line. Keep in mind that lenders may use different language to describe the same sorts of fees. It’s important to make sure that you’re comparing apples, so don’t be afraid to ask for clarification.
Lender’s mortgage insurance: Could be as high as $20,000
If you have less than a 20 percent deposit, lenders will require you to pay Lender’s Mortgage Insurance (LMI). LMI protects the lender should you stop making your repayments. It does not protect you as the borrower. You can avoid paying LMI by having a minimum deposit of 20 percent of the sale value. For a sale based on the national mean house price, that would be a deposit of almost $134,000.
Removalist/moving van $100 - $2,000
Just when you think all the expenses are done, you’ll be hit with the cost of moving in. Ms Barton recommends that you include moving costs in your budget, including any renovations that you may like to do immediately.
Building insurance: Approximately $100/month
Your home will likely be one of the biggest purchases you ever make. Should the unthinkable happen, you’ll be thankful you made room in your budget to insure the house and its contents.
* These are estimated costs and will differ depending on the purchase price, location and other factors.
While these additional expenses can be daunting, being aware of them at the outset allows you to factor them into your budget.
Tammy's Tips for making home ownership more affordable:
- Check for first home buyer schemes in your state
This can reduce the overall cost associated with buying if you haven't owned a home. However, make sure that you understand the eligibility conditions of the scheme to avoid disappointment.
- Create a budget
Budgeting is the only way to take control of your finances and the sooner you start budgeting, the sooner you could be moving into your own home.
- Open a dedicated savings account and make regular deposits into it
Separating your savings for a specific purpose decreases the likelihood that you'll dip into them when other expenses or purchases come up.
- Pay off any existing debts, especially high interest loans and credit cards
Wherever possible, pay off your other debts, especially high-interest credit charges, so that you can save for your financial goals faster.
- Trim back on everyday spending
Small changes to your spending habits can snowball into big savings over time. "Everybody has something they can cut back on," says Ms Barton. "Even just making your morning latte at home instead of buying it from a cafe will save you over $1,500 a year."
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