How much do I need for the deposit?As a rule, home buyers need to have at least 5-10% of the property value as a deposit. For instance, 5% of the property value for a home worth $500,000 means that you’ll need $25,000 as a minimum before you can apply for a home loan. Most banks have a genuine savings requirement that typically requires your deposit to come from savings you’ve accumulated over a period of 3 to 6 months. Not all lenders have this requirement though! You can always ask your parents or a close relative for help with a gifted deposit but one of the best ways to borrow without a deposit is with a guarantor loan. In this arrangement, your parents use their property as a security on your mortgage so you not only don’t need a deposit, but you can avoid Lenders Mortgage Insurance (LMI) as well.
How much does a home loan cost?The first thing home buyers look for when getting a home loan are the interest rates. Although interest rates are important, buying a property comes with additional costs apart from making principal and interest repayments. As a general rule, you’ll spend about 3-5% of the property value for these extra costs so if you’re purchasing a $500,000 property then it may cost you up to an extra $25,000 to complete the entire purchase.
So what are these extra fees?
- Purchase stamp duty: A tax levied by the state government on all property purchases. Generally, this is the highest associated cost when buying a home.
- Mortgage stamp duty: Another tax based on the size of your loan (abolished in most states).
- Transfer fee: A fee charged when registering your name on the title of the property and removing the vendor’s name.
- Registration fees: A government fee for registering your lender’s mortgage on the title of your property.
Apart from these government fees, there are:
- Conveyancing costs: A conveyancer or solicitor can help you go through the Contract of Sale to make sure that it’s favourable as well as handle the overall transfer of the property into your name. Typically, you’re looking at about $800 to $1,500 for their services.
- Inspections: The property may need a building inspection, pest inspection or a strata report undertaken( around $600).
- Home loan fees: You may be charged additional fees (usually up to $900) such as an application fee, settlement fee or a valuation fee.
- LMI: If you borrow more than 80% of the property value then you’ll need to cover LMI, a one off fee that protects the bank, not you, in case you default on your mortgage. Work out the cost of mortgage insurance for a property that you want to buy with the LMI calculator.
It’s important to note that these costs may also include repairs or renovations to the property, council and water rates adjustments, as well as costs to hire a removalist. Speak with your conveyancer to discuss the costs of buying a property or get a pretty accurate estimate with the purchasing costs calculator right now!