Prepare for those unexpected costs
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.