Pre­pare for those un­ex­pected costs

Hills Gazette (Kalamunda) - - RESIDENTIAL -

AS we move into the spring sell­ing sea­son, many first-home buy­ers will con­sider buy­ing or build­ing.

It isan ex­cit­ing time, how­ever they may not be aware of all the fi­nan­cial as­pects in­volved in pur­chas­ing a home and may find them­selves fac­ing un­ex­pected costs, or with a loan that does not suit their sit­u­a­tion.

Re­solve Fi­nance man­ag­ing di­rec­tor Don Crellin said fi­nan­cial lit­er­acy was im­por­tant for peo­ple mak­ing the big­gest in­vest­ment of their lives.

“Un­der­stand­ing the real costs as­so­ci­ated with buy­ing a home, in ad­di­tion to the pur­chase price, is im­per­a­tive,” he said.

“We know how hard peo­ple work to save a house de­posit, only to find they need to take a string of other fees out of that sum.”

Mr Crellin said they could also be sign­ing off on fi­nan­cial de­ci­sions that were in­ap­pro­pri­ate for their cir­cum­stances and which could re­ally cost them in the long run.

He said there were sev­eral things all first-home buy­ers should un­der­stand be­fore they took the plunge:

1. Lenders Mort­gage In­sur­ance (LMI) ap­plies when you have a de­posit less than 20 per cent of the pur­chase price.

It is cover­age for the lender, not the bor­rower.

It cov­ers the lender in the event of not re­cov­er­ing the full loan bal­ance from the bor­rower if they be­come un­able to meet their loan pay­ments.

2. There are ad­di­tional costs to fac­tor in other than the pur­chase price of your prop­erty.

You will po­ten­tially need to fac­tor in stamp duty, con­veyanc­ing and le­gal fees, pest and build­ing in­spec­tion fees, mort­gage regis­tra­tion and trans­fer fees, loan ap­pli­ca­tion or es­tab­lish­ment fee, LMI and coun­cil and water rates.

You may need to sub­tract these costs from your de­posit.

3. If buy­ing at auc­tion you have the abil­ity to get a bar­gain if you are lucky, how­ever this is never a “change of mind” pur­chase.

There is no “cool­ing off” pe­riod on an auc­tion buy.

You also need to pay a size­able de­posit, usu­ally 10 per cent at the fall of the ham­mer, so you will re­quire ac­cess to tens of thou­sands of dol­lars on that day.

4. Set­tle­ment is the process of trans­fer­ring own­er­ship of a le­gal ti­tle of land (prop­erty) from one per­son or en­tity to an­other. It typ­i­cally con­sists of three stages: be­fore con­tract; be­fore com­ple­tion; af­ter com­ple­tion. It is wise to en­gage a con­veyancer/ set­tle­ment agent to han­dle this process for you.

They are li­censed and qual­i­fied pro­fes­sion­als whose job it is to pro­vide ad­vice and in­for­ma­tion about the sale of a prop­erty, pre­pare the doc­u­men­ta­tion and con­duct the set­tle­ment process.

5. When tak­ing out a loan you may be of­fered an off­set ac­count.

This is a sav­ings ac­count or trans­ac­tion ac­count linked to your home loan ac­count.

The ac­count’s bal­ance is “off­set” daily against your home loan bal­ance and as a re­sult you are charged in­ter­est only on the dif­fer­ence be­tween the two.

When it comes to a home loan sav­ings, how­ever small, can ac­crue to a big dif­fer­ence over time.

6. Us­ing a mort­gage bro­ker can save you thou­sands.

A mort­gage bro­ker helps cus­tomers iden­tify the most ap­pro­pri­ate lender, which is often a bank and prod­uct for their unique sit­u­a­tion.

Your bro­ker ne­go­ti­ates the home loan on your be­half, does all the leg­work on re­search­ing the loan prod­ucts and sup­ports you through the ap­pli­ca­tion and set­tle­ment process.

In ad­di­tion, a rep­utable mort­gage bro­ker should guide you on be­com­ing fi­nan­cially lit­er­ate.

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