The hidden costs of buying property

Strategic property investment has the ability to transform your life, as you can achieve financial freedom and have more time to enjoy the little things.

But it’s important to note that the entire journey can be quite overwhelming and sometimes confusing, leading investors to forget about the hidden costs of buying property.

Therefore, I have outlined the top hidden costs that buyers need to be aware of, so they’re not caught out:  

Lenders mortgage insurance

If you have paid less than a 20 per cent deposit on the purchase price, you’ll need to pay what’s called lenders mortgage insurance (LMI).

LMI protects your lender against the risk of default to cover any shortfall and is a one-off fee for the property.

That is, in the event you have to sell your property or default, and the sale price of your home is not enough to cover the amount you owe on your loan, it pays the balance to the lender. Be aware that it is there to protect your lender, not you.

The amount of the insurance will vary, and depends on a few things like the size of the loan and the size of your deposit. Always discuss this with your bank or mortgage broker before signing any loan documents.

Legal fees

This is the cost of having the contract of Sale (COS), mortgage documents and any other searches carried out on the property and legal documents prepared for you.

The conveyancer or solicitor reviews the COS and communicates the terms and conditions to the purchaser.

This can cost anywhere between $1,000 to $3,000 depending on the scope of work involved.

It is also important to note that there is a difference in qualifications between a conveyancer and solicitor which may result in a difference in fees as well.

Building and pest inspection

This is an optional written report carried out by a licensed builder and is usually around $400 to $800, depending on the property. The cost can also depend on if you are in a city or regional area.

I strongly recommend getting a building and pest inspection done for any property you are serious about purchasing.

It can give you peace of mind and help you to avoid costly problems later on. If issues do occur you may be able to negotiate further on your purchase price or even rescind the sale if there are major structural problems or termite damage.

Building and pest reports do not normally cover everything and often the inspector will recommend you to get further inspections carried out by an electrician or plumber etc.

It is a general inspection and the inspector usually notes that they are not licensed to advise on certain issues.

Stamp duty

Stamp duty on a property purchase is a state government tax. The amount varies from state to state. The dollar amount depends on the value of your property and exemptions may apply for first home buyers – but it can be tens of thousands of dollars.

For instance a $1 million residential home in NSW can cost you around $40,000 in stamp duty, which equates to 4 per cent.

Loan application fee

This is also referred to as an establishment fee, up-front, start-up or set-up fee. If you aren’t charged this fee, you may be charged higher ongoing fees. Always check with your lender before signing any paperwork.