When looking for a home loan not everything is about rate. You have to make all the pieces fit together. Some pieces to consider are Total Costs, Deposit, Credit Conduct, Savings, Servicing, Security and Loan Purpose.
When you buy a house, there are more costs than just the purchase price of the house. I’m going to use an example buying an established house worth $500,000 in Perth so you can see the costs you might incur. They are of course estimates, but it gives you a good place to start.
|Govt. Stamp Duty on Property||$17,765|
|Govt. Rego,Transfer & Discharge Fees||$418|
|Lender Mortgage Insurance||$16,400|
|Total Cost to Complete||$536,583|
|Loan Amount ||$486,583|
In this example there are over $36,000 in additional costs when buying this house. We speak to clients all the time that did not realise that there would be extra costs and is completely eats up all of their deposit, sometimes meaning they can’t buy yet.
Let’s work through each line to explain what it is and give you tools to help you calculate the cost for your own purchase.
The amount you have agreed to pay for the property from the Contract for Sale.
Govt. Stamp Duty on Property
Govt. Rego, Transfer & Discharge Fees
In a nutshell whenever a property changes hands and/or the mortgage is registered or discharged there is a fee.
A Land Transfer is lodged and registered with the appropriate State Titles Office when a property changes ownership. It is this document that records the change of ownership. The cost to register the title varies in each State/Territory. Your solicitor/conveyancer will usually perform this task on your behalf.
There is also a government charge to register and/or discharge the mortgage document. This is paid when you register a new mortgage (including a refinance) and when you discharge your mortgage.
This one is a little tricky as every lender has different fees and they change regularly. They can include application, valuation, risk and lender legal fees. Any fees to apply should be disclosed upfront in any product information you receive. There can be additional costs only advisable once your application has been received and assessed, for example if you are buying a property in a Trust you may have additional legal fees.
If you seek the advice of a broker and/or conveyancer up front, they should be able to give you an estimate of these fees.
When you buy (or sell) a house most people use a settlement agent or conveyancer. Conveyancing is the process of transferring ownership of a legal title of land (property) from one person or entity to another. The fees for this are usually based on the purchase (or sale) price and vary, we recommend getting at least 3 quotes.
Lender Mortgage Insurance
Or LMI as it will usually be rattled off as, is an insurance policy that protects lenders from the risk associated with providing funds for home loans. Mortgage Insurance covers lenders in the case the borrower defaults on their home loan, it does not protect you as the borrower. The policy guarantees that the lender or alternative vested party recovers some of the funds in case of major default.
In Australia lenders are required by law to take a Mortgage Insurance Policy on any home loan where the buyer has a Loan Value Ratio (LVR) greater than 80%. In a nutshell it means your deposit is less than 20% of the loan value.
There are many reasons for paying less than 20% deposit and it is no reason to hold off entering the housing market.
Mortgage insurance rates vary according to the lender and insurers requirements and the borrower’s situation, for example if the borrower is self-employed or if the property is intended as an investment. Rates range from 0.5% to over 4%, based on the perceived risk of a loan based around these factors. The higher the perceived risk, the higher the premium charged.
This is another cost you are better off speaking to a broker to estimate for you.
In the example we’ve quoted BOQ LMI assuming there are genuine savings. We chose BOQ because their ledning policy allows this borrower to capitalise the mortgage insurance to the loan. We wrote more about mortgage insurance here. Or LVR is not a cost but as we mentioned it above we wanted to give a brief explanation, you could also read more in this post.
Home Loan Amount / Home Value = Loan Value Ratio (LVR)
The LVR of your loan will determine which lenders you can apply to, not all will allow you to borrow over 80%. The ones that do will have certain criteria you need to meet to qualify. In many instances it will also effect the interest rate.
It has a huge impact on your ability to borrow, so get a brokers advice up front.
In Summary… there are more costs involved in buying a house than just the purchase price of the house. The above costs are estimates of some of the basics costs involved but every situation is unique and there could be other costs e.g. additional costs involved if building, allowances for First Home Buys etc. Get a Lend Me Mortgage Broker to help you estimate these costs now, even if you are only just starting to work out a savings plan for your deposit and are months away from buying.
Disclaimer: All calculations and comparisons in this service are provided in good faith. We do not accept any responsibility for any losses arising from any use of or reliance upon any calculations or conclusions reached using this service.