Home Loan Application Fees
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Almost all lenders charge a loan application or establishment fee on new home loans, which can be as much as $1000. There may also be home loans available that have no application fees, but it is important to talk to your home loan consultant about what is best for you because home loans with lower upfront fees may have higher ongoing interest rates, or may not have all the features you need.
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Valuation Fees & Lenders’ Legal Fees
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Your lender is likely to require the property you are buying to be valued by a registered valuer to ensure you are buying it for what it is worth. This cost is about $300 and it is usually incorporated into the total loan application fee.
Some lenders may also charge a separate fee for their legal costs, which could add up to $500 to your upfront loan fees.
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Lenders Mortgage Insurance
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This is a guarantee of repayment to your lender if you default on your home loan and the property has to be sold for less than the outstanding loan amount. It is a one-off fee with premiums that vary according to the size of your deposit and the amount you have borrowed. Almost all lenders will charge you mortgage insurance if you borrow more than 80 per cent of the value of the home. Costs differ between insurers and between home loans. For a $450,000 loan the cost would be about $2500. Mortgage insurance protects the lender – not you. You may want to consider income protection insurance to protect you from losing your home should you fail to meet loan repayments.
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Government Stamp Duty
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All state governments charge a stamp duty on the amount borrowed and the property purchase price. Stamp duty is a tax imposed on written documents (referred to in the legislation as ‘instruments’) that record certain types of financial or legal transactions. However, every state in Australia offers first home buyers some form of bonus or rebate on stamp duty, which means a huge saving. The NSW First Home Plus scheme gives a 100 per cent stamp duty exemption for property purchases up to a cost price of $500,000 and vacant land up to $300,000. This scheme is a big benefit because stamp duty is a large outlay. For example, a purchaser borrowing 90 per cent of the purchase price on a home valued at $500,000 saves $19,730 in stamp duty. The exemption is reduced on purchases over $500,000 and cuts out at $600,000.
Another bonus is the recently introduced First Home Plus One scheme, which allows first home buyers in NSW to buy a property with ‘other parties’. The first home owner must own at least 50 per cent of the property. A first home buyer with a 50 per cent interest in a property will receive an exemption on half of the stamp duty that is payable on properties up to $500,000, with the benefit cutting out at $557,000. Take a look at the Stamp Duty Calculator to see how much you'd have to pay.
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Capitalising Your Upfront Loan Fees
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Although the upfront fees mentioned so far can seem high, compared to an ongoing cost such as the interest rate and any ongoing fees they have a marginal effect on the cost of the home loan overall. Many lenders will also allow you to capitalise the upfront fees and add them to the total amount you are borrowing so that you don’t have to come up with the extra money.
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Home loan account-keeping fees
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Most lenders charge account-keeping fees for their home loans which can cost as much as $400 a year if they have lots of extras included with the loan.
You can find home loans that have no ongoing account-keeping fees; if that’s important to you, ask your home loan consultant to include those types of loans in the options they consider for you.
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Legal Fees Associated With Buying A Home
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When you buy a property, legal ownership needs to be transferred to make it officially yours. This process is called conveyancing. You can do this yourself, but you need to realise that the documentation can be quite complicated. Most home buyers use the services of a solicitor or conveyancer, an expert in the field who will ensure it runs smoothly.
Conveyancing fees vary from state to state and due to the competitive market it is wise to shop around. The cost will depend on the type of title the property is registered as, and also how much time and work is required. Call several solicitors or conveyancers to get quotes, and check out the online calculator on www.legalmart.com.au to get an estimate of costs. They give the example of fees of $1540 for a $500,000 apartment, including searches. Conveyancing can include strata title searches, council building certificates, drainage diagrams and documents from the state traffic authority and water board.
If you want to do your own property conveyancing, self-help legal kits are available for about $100. Be aware, though, that there is a lot of work to do – you need to ask yourself whether it is cost efficient to do this yourself or get an expert, with protection, to complete the sale. Considering all the other stresses and strains involved in buying property for the first time, most people are relieved to have this aspect of the purchase taken out of their hands.
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