When you’re buying a home, you should know exactly how much it’s going to cost you. For one, it will help you plan better, and another reason is that it will help you avoid charges that some lenders may hide in their product. Here are some of the extra costs to consider when buying a home:
This is where the bank takes their cut. Interest is ultimately the biggest factor to take into account when choosing a loan. You obviously want to pay as little interest as you can for as long as possible. However, it is important to not just consider the interest. It is important to also understand that lenders will charge different interest rates for different products, depending on whether the loan is a standard variable, basic home loan, honeymoon or a fixed loan. Each of these loans come with their benefits and disadvantages, so you need to make sure you choose the right loan product for your financial position.
When buying a property, the lender will only lend you a portion of the property’s value, expecting you to pay the rest upfront as a deposit. In general, the lenders feel most comfortable with a larger deposit and would like you to put 20% down. So, if the property you’re purchasing is worth $500,000, you will need a deposit of at least $100,000. However, lenders will allow you to put down a deposit of less than 20%, but you will be subject to Lender’s Mortgage Insurance (LMI), which we’ll discuss later.
3. Stamp duty
This is a tax that you pay the government when you buy a property. The stamp duty may be lower if you’re a first time home buyer, however it largely depends on the value of the property. To get an estimate of the value of your stamp duty, you can use any of the different stamp duty calculators online or speak to one of our experienced mortgage brokers.
4. Legal fees.
Also set aside a portion of your budget for the legal costs that may be involved in your purchase. These usually go towards the preparation of the necessary legal documents before the approval of the contract.
As we mentioned earlier, you will be required to pay LMI if your deposit is less than the required 20%. This is an insurance policy that the lender takes out which you pay just in case something happens in the future and you could not meet you repayments. The less of your own money you put in the higher the LMI premium is. However, if you do need to pay LMI on a loan most lenders will give you the opportunity to add the insurance premium to the loan account.
Keep in mind that these are the most common costs that are involved in buying a property and each person’s situation differs. To get a better estimate of these costs for your personal circumstances, speak to me today.