October 17, 2018

8 Expenses You Need to Consider When Budgeting for a New Home

Buying a home can be one of the best financial decisions you’ll ever make. You get to take control of your home, safe in the knowledge that as long as you pay your mortgage each month, you’ll have a place to live.

You’ll never again have to deal with rental agents and dreaded quarterly inspections, and if you want to hang a picture on the wall, you can.

For this incredible freedom, there is, of course, a cost. Well, technically, there are many costs to keep in mind when you make the leap to home ownership. To help you pull together a realistic budget for your new property purchase, here’s a handy list of costs you need to account for:

Purchasing costs

Deposit and Lenders Mortgage Insurance

When it comes to your deposit the higher the better. 20% of your purchase price is ideal, as it keeps you out of the costly lenders mortgage insurance zone. Also, don’t forget, a higher deposit means lower monthly payments.

Legal Fees

You’ll need to pay for a solicitor or conveyancer to prepare the required documentation and be your go-between with the bank. There will also be fees for land transfer and mortgage registration.

Stamp Duty

If you’re a first home buyer you may be eligible for stamp duty concessions, but if not, stamp duty can be a huge expense. For example,

stamp duty on an established home valued at $500,000 in New South Wales is over $17,000. Not all lenders will allow you to capitalise this cost into the mortgage, so you’ll have to front this in addition to your deposit.

Building and pest inspections

Some new home buyers try to cut costs as much as possible, which is understandable, but if a $500 building inspection identifies thousands of dollars of deferred maintenance, you’ll have a bargaining tool to reduce your purchase price. This will be the largest financial investment you will ever make, so inspections are a must for peace of mind.

Ongoing expenses

Land and water rates

These will be specific to the property, and may be partially covered by strata.

Strata and body corporate

If you’ve purchased an apartment, unit or townhouse you could be up for body corporate or strata charges. These generally cover the maintenance of shared areas and building insurance.

Home, contents and income protection insurance

Home insurance is vital for house owners. If you don’t have a large emergency fund available, you should also consider income protection insurance or salary continuance insurance so you can continue to pay your mortgage in case of loss of income due to illness or injury.

Regular maintenance

You’ll need to include a sum for regular maintenance in your budget. A good rule of thumb is 1% of the property’s value per year.

There are many costs involved in becoming a homeowner. By keeping these costs front of mind when you’re ready to purchase a new home, you’ll be in a strong position to determine your maximum budget for purchasing. Happy house-hunting!

Readers, if you own a home, what other hidden costs surprised you?

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