The price of a property is not, unfortunately, the only cost a homebuyer or investor will incur when going through the settlement process. Learn about the other fees involved so you can calculate the minimum amount you need to purchase a property.
The price of a property is not, unfortunately, the only cost a homebuyer or investor will incur when going through the settlement process. There are multiple fees and costs that you need to be aware of, so you can plan ahead and be prepared.
The following items are a high-level summary of what may need to be paid prior to or at settlement of your property:
Deposit
Equity Top Up
Stamp Duty
Finance Costs
Settlement Costs
Let’s go through these in more detail.
Deposit
Just like you would leave a deposit to secure any major purchase, a home deposit is the upfront fee payable to the vendor’s solicitor to secure the sale of the property.
Despite popular opinion, the deposit can actually be much less than 10% of the purchase price. For the purchase of land and a new build, for example, typically a 10% deposit is required for the land and a 5% deposit is required for the build, which equates to 7.5% or less of the purchase price. And for the purchase of new apartments, developers can sometimes negotiate a smaller deposit of 5%.
Equity Top Up
An equity top up is an additional investment at settlement to meet the lender’s Loan to Value Ratio (LVR) requirements. For those who are unsure, an LVR is how a lender assesses their risk before issuing a home loan; it’s calculated by dividing the loan amount by the lender-assessed value of the property.
For example, if the bank has granted an LVR of 80% of the purchase price and you have paid a 5% deposit, then you will need to pay the equity top up amount of 15% at settlement.
If the LVR and deposit adds up to 100% (e.g. 95% LVR / 5% deposit or 90% LVR / 10% deposit) then there is no need for an equity top up at settlement.
Stamp Duty
You likely know about this one because of the stamp duty incentives that are available to some buyers.
Stamp duty is a tax payable to the state government for the transaction of the property (the actual rate varies according to the value of the property at the time of transaction).
The timing of payments is state dependent; it can be payable at either contract exchange or settlement. There are also additional stamp duties payable for foreign buyers in some states.
Certain buyers (first home buyers and owner occupiers) may be eligible for government-approved incentives that allow them to pay little to no stamp duty. You can ask me, Oli, or your conveyancer for assistance calculating the stamp duty payable for you.
Finance Costs
The banks will charge a number of fees when establishing the loan needed to settle the property. These upfront fees usually include*:
Loan Establishment Fees: $0 - $1,000
Registration Fee: $200
Title Search Fee: $1,000
Mortgage / Stamp Duty (state-dependent fee): 1%-2% of loan amount
Progress Inspection Fees (for New House Builds): $500
Lenders Mortgage Insurance (note can be capitalised to loan and therefore not paid upfront): up to 2% of loan amount
Your mortgage broker can provide a costing sheet for your chosen lending product (if you don’t have a mortgage broker I can refer to you to a trusted partner – ask me in the chat).
*all fees are approximate and can vary based on the size and type of loan.
Settlement Costs
These costs are for your conveyancer to lodge the necessary paperwork with the relevant authorities to record the transfer of ownership.
Typically, these upfront costs include:
Conveyancer Fee: $1,000
Registration / Land Transfer Fee: $700
Adjustment at Settlement for Council / Water Rates: $1,000
Building Insurance (usually needed for finance approval – sometimes there is no need to pay if the building insurance is included when there’s a body corporate): $1,000
The next step
Now that you know exactly what fees and costs are involved, you can calculate the minimum amount of money you need to have on hand to buy a property.
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SUMMARY
The price of a property is not the only cost a homebuyer or investor will incur when going through the settlement process. There are multiple fees and costs that you need to be aware of, so you can plan ahead and calculate the minimum amount of money you need to purchase a property.
This marketing material and its contents is provided for general information purposes only. No part of this marketing material constitutes any advice (financial, tax or otherwise), recommendation or representation to you as to any decision which you should make. You should not use any part of this marketing material to form the basis of any investment decision made by you. Before making any investment decision, you should take independent advice from a professional adviser which takes into account your individual needs and circumstances. All information, opinions and estimates contained in this marketing material are subject to change without notice. We disclaim to the greatest extent possible all liability whatsoever for any loss howsoever arising directly or indirectly from this marketing material or its contents.