Buying a new home can be an exciting yet daunting process, particularly if you are purchasing your first home. It costs a lot to buy a home in Melbourne, so we want to make sure you are ready to apply for your dream home.
When you are purchasing a home, often you focus on the deposit, particularly if you believe you need 20% to be approved for a home loan. (Hint: You do not!) However, Your Mortgage estimates that new property owners will need to pay between 5 – 8% of the property value upfront for other fees and charges.
Fees vs Charges
One of our most frequently asked questions at Melbourne Finance is: What is the difference between the fees and the charges on my home loan? Home loan fees are usually costs involved with providing a service like conveyancing or transferring your property name. Where property charges are costs that directly affect your property, such as stamp duty. Many of these costs need to be paid upfront, and some can be waived in certain circumstances.
Here is a quick guide on costs to look out for when purchasing your new home.
Home Loan Fees
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Application Fee
This fee is for your loan’s set-up and is a one-off fee, usually paid upfront by new homeowners. It can vary depending on how you apply for your home loan (in person or online) and sometimes can be waived by the brokers.
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Lender’s Mortgage Insurance (LMI)
This will be applied to homeowners if they intend to borrow more than 80% of the loan to value ratio (LVR). It is an insurance premium that protects lenders in the event of the worst-case scenario. This cost can be added onto the loan or paid-up front.
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Mortgage Registration and Transfer Fees (Victoria)
These fees assist with formal processes of registering the property, including the transfer of property into your name. They are usually paid upfront before settlement to ensure a smooth process.
In Victoria, the Mortgage Registration Fee is a flat $116.80, but transfer fees are at least $35 for every $10,000 of the property value.
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Disbursement Fees
This is a fee that is opted in at the lender’s discretion for a solicitor to be present at the settlement of property to ensure a smooth transition.
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Rate Lock Fee
If you are considering a fixed rate home loan, you may incur a rate lock fee if you have applied for this. The rate lock ensures that your chosen fixed rate does not increase before your first home repayment.
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Valuation Fee
Homeowners will incur this fee if lenders choose to have an external valuer assess the property. Lenders may choose to do this to help determine the final amount of the loan. Not all lenders apply this fee though, at Melbourne Finance, we often get external valuations for free.
Property Charges
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Stamp Duty
Stamp duty is the biggest upfront cost when purchasing a property, it usually is up to tens of thousands of dollars. It is a charge that is upfront that you cannot opt out of as it is the tax you pay the government for purchasing property. The exact fee varies by state, but you may be exempt from stamp duty in Victoria if you are purchasing your first home or if the property is valued under $600,000.
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Building and Pest Inspections
These inspections are strongly advised for all property owners despite the potential high charge. Building inspections will inform you of the building’s structural integrity and survey the land for any potential damages. However, the more important inspection out of the two is a pest inspection as it can cost you thousands of dollars to remove pests from your home but only a couple of hundred to check for them before settlement.
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Solicitors
When applying for a home loan, we would not recommend DIYing the legal stuff. By hiring a solicitor, you can be assured that your settlement contract is fair and adheres to government regulations. Solicitors can be expensive, but they are valuable because they handle all the legal paperwork.
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Moving Costs
Once you have bought a home, it is now time to move all your belongings and furniture to your new property. If your family and friends are unavailable, you may be considering hiring a removalist. Removalists are super helpful as they can take care of the heavy items while you take care of the kids or pack up other parts of the house. They do come at a cost though which can be up to $300 an hour for large homes, and there may be additional fees for hard to move items.
The other moving cost that often gets forgotten about is your connection fees for your gas and electricity. Depending on the provider you are with it could be quite simple to switch addresses but moving to a new house is also the perfect time to shop around for a better energy price. So, it is best to be prepared for the exit fees and connection fees associated with electricity and gas.
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Council Rates
Once your name is registered as the property owner, you are required to pay council rates. They are generally charged at the end of each quarter, but when sold the amount required to reach the end of the quarter is added to the purchase price.
Protect your budget.
We know saving for a home is a long process, but one of the best things you can do is hire a broker. Our brokers can review your cash flow and expenditures to help you budget successfully to be approved for your home loan. At Melbourne Finance, it is important to us that we make sure that none of these costs outlined surprise you, so throughout our involvement, we will be as transparent as possible and answer any questions you may have.
If you are preparing to purchase a new home, get in touch with us for a confidential chat.