Feb 12, 2022 4 min read Finance

Hidden Fees When Purchasing A Home

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Purchasing a house isn't as simple as having the deposit required for the loan. There are actually a lot of "hidden" fees that you may not be aware of which you should prepare yourself for. But if you're struggling with trying to get the deposit for your house, make sure to check out: How Much Money Do You Really Need To Purchase A House. Depending on how risk averse you are, there are certain fees that are optional.

Mandatory Fees

Being able to secure your deposit is a great first step, but when you purchase your property, there are other fees that are involved before and after the settlement. Below is a summary of the fees/costs involved:

Stamp Duty - This is a tax levied by the NSW government and it is based on the value of the property. You can check out my previous blog for more details on the "discounts" that can be applied specially the: First home buyer assistance scheme (FHBAS)
Legal Fees - You will need a solicitor to review your contract and execute the contract of sale for you which can vary between $1000 - $3000.
Loan Application Fees - This is dependent on the lender, it can be waived, but generally varies from $0-$1000.
Registration of title - This is required in order to register the property with the NSW state government and can cost up to $150.
Council Rate & Strata Fees - These are fees that commence at the settlement date (the day in which you officially own the property). Council rates vary and are dependent on the suburb that you purchase your property whereas strata fees are an additional fee applied to apartments or townhouses. Think of strata fees as "management/maintenance fees" for the whole complex.
Independent Valuers Fees - Before a lender provides you with the funds, it will need a valuation on the property to ensure that it is being purchased at a reasonable price and that you will be able to service the loan. These fees can vary between $300 to $600.

Individual Circumstance Fees

As mentioned earlier, some fees are dependent on your financial circumstance or how risk adverse you are. These fees include:

Lenders Mortgage Insurance (LMI) - This is a fee that banks and other lenders charge borrowers when they’re deemed high risk. Usually, if you are borrowing more than 80% of the property’s purchase price or those who are applying have an inconsistent income.
Building, pest and strata reports - Before purchasing the property you would want to make sure that there are no "hidden" issues with it. The best way to do that is hiring someone to inspect your property to generate a pest and building report. Similarly, a strata report is for units in a complex and provides the history of the building, the financial status of the plan, pending building works, special levies, past works history and all expenses for the past 2 years.

Both of these fees are optional as the LMI depends if you have enough money for the 20% deposit and the building, pest and strata report is dependent on how risk adverse you are or if you have enough knowledge as a builder to determine how structurally sound the house is.

With all of these fees, it can become quite nerve-racking. Fortunately there are professionals who are able to help us throughout this process and educate us on all of the fees that would be involved. So when applying for a home loan, there are two general options that you can go with: Working with a broker or going directly to a lender (majority of the time it is a bank).

Working with a Broker

Purchasing your first home can be quite stressful as you may not know all of the processes and paperwork required. This is where a mortgage broker comes in handy. Think of a mortgage broker as a middleman between yourself (borrower) and the lender (bank), who does the research and work for you to get the best home loan for your current financial situation.

One of the best benefits with going with a broker is that most brokers do not charge you for their service. Instead, they have their own fee structure with the lender and earn money on commissions paid by the lender. On top of this, they will do all the legwork, know what's the best rate in the market (as it's their job to research) and are able to provide you with expert advice from their experiences with other property investors.

As someone who is new to the real estate industry and wanting to get into the property market, a mortgage broker can really help you learn all about it and the best part is, you're getting "free" advice.

Direct From Lenders

For those who may be skeptical of mortgage brokers because they might not have you in their best interest, then going directly to a lender is the other alternative. Going directly to a lender will cut out the middle man and in doing so can make the loan process faster. You also won't need to communicate or rely on a broker to relay messages back and forth.

It all depends on your current situation, if you have the time to put in the work to research which lender has the best rates and offers, then going directly to a lender would be beneficial. But if you're like most of us who are working the 9-5 or have other commitments, the last thing you want to do is spending time researching and enquiring about the rates and offers lenders provide.

Purchasing a home is a big milestone in everyone's lives as it has a long term impact on our financial position (approximately 30-years required for repaying a loan). Whether you're new to the market or a property investor, it is important to understand all of the additional fees that are required in buying a home. The best way to learn about all of this is getting in contact with an expert or subscribing to my blog where I'll be discussing how we can shift our mindsets when it comes to investing and finances. .