Getting your foot into the door isn’t cheap, but sometimes it’s where the money is spent that comes as a shock to first-home buyers.
It’s not over once the deposit has been saved and the winning offer made. Here are five areas where hidden costs might be lurking, and how a buyer can avoiding paying more than they need to.
1. Pre-purchase research
Budgeting for pre-purchase inspections is important, there’s a whole range of reports you can get. Getting proper pest and building inspections are important. Minor issues can become major in the future. Spending some money will be a small price to pay for some peace of mind that you are buying a property that has structural faults or insect infestations.
2. Conveyancing fees
Some first-home buyers are surprised to discover they need to engage a conveyancer, or are alarmed by the price.
Rules around conveyancing vary, but first-home buyers should be talking to a conveyancer at the start of the buying process.
It is common to see first-home buyers making mistakes that could cost far more in the long run than the $1500 to $2000 conveyancing fee.
Many did not understand the difference between pre-approval and actual approval, how much of a deposit they need, and when they could pull out of the purchase of a property.
3. Government and bank fees
Stamp duty, the property transfer fee, and mortgage registration fee are government costs new buyers need to know about.
When it comes to home loans there’s the loan application fee, ongoing bank fees and the lender’s property valuation to consider.
Another potential expense is Lender’s Mortgage Insurance – LMI – which protects the lender from losing money if the borrower defaults on their loan, and the sale of the property doesn’t cover the money owed.
Generally, it’s a condition of borrowing with less than a 20 per cent deposit, and the cost can be included in the loan amount.
4. Moving in, and moving tenants in
First-time investors often don’t plan for professional cleaning fees, when a vendor moves out, there’s not a requirement for how clean the apartment has to be, so making sure the property is in a clean condition for tenants to move in is important. This may cost $500 plus. If you want to have a good tenant, you want to make sure property is presented well.
There can be a bit of a delay in the cash flow coming in from the rent. Up front there’s the property manager costs, the campaign to get a tenant – but you are paying interest from day one, so make sure you take this into account.
5. Landscaping and repairs
Keeping aside $4000 for $5000 as a maintenance fund is a good idea, this is in case of an unexpected break down (air conditioning, hot water service)
The upkeep for a backyard can come as a surprise for buyers upgrading from an apartment. You may not own a lawn mower or garden tools as yet.
Landscaping can also be costly, especially for new builds.
He noted that blinds, curtains and security grilles aren’t always included in the price of a house and land package, adding thousands to the overall cost.