‘Impact’ fees costing homeowners plenty

As if there’s not enough costs involved in owning a home, now along come these ‘hidden fees’ to hit even harder.

There are a range of hidden costs that go well beyond the purchase price when buying a property.

When it comes to buying a property, extra costs like stamp duty and Pest and Building reports can really add up.

But there are also a range of other ‘hidden’ expenses that can go well beyond the purchase price – and come with major consequences if not factored into your purchasing budget. Here are some of the biggest ones to consider.

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Lenders Mortgage Insurance can be surprisingly expensive.

MORTGAGE FEES

If you are ending a fixed-rate mortgage before the end of term when selling your existing property to buy another, you could be hit with a significant mortgage break fee, says director of Pivot Property Buyers Henry Single.

“I have heard of break fees being as high as $30,000,” he says.

Mortgage broker Brett Sutton from Two Red Shoes says Lenders Mortgage Insurance (LMI) is another major mortgage cost that surprises many people.

“It does come down to the size of the loan and the Loan-to-Value ratio, but it’s not uncommon to see a Lenders Mortgage Insurance bill around $30,000,” Sutton says. “That is an expense that does surprise some people and can limit what they are wanting to do.”

While some lenders add the amount as an additional fee, others capitalise it into the loan, thus reducing the amount you can borrow.

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Two Red Shoes mortgage broker Brett Sutton. Picture: supplied

“It can really impact the overall price of what they are looking to spend,” Sutton says.

Other mortgage fees that buyers should factor in include loan establishment or application fees, which can range from a few hundred dollars to more than $1000, and valuation fees, which are typically around $300-$600, he adds.

“In a funding scenario, we would typically make an allowance of $600 for lender set up fees and then about $3,500 for legal fees and inspection reports and then about $1,200 for other sundries,” Sutton says.

Also, if your deposit is locked up in another property at the time of purchase and you use a deposit bond company, you should typically be prepared to pay a 1.7 per cent fee of the deposit amount upfront, Sutton says.

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Pivot Property Buyers director Henry Single. Picture: supplied

DUE DILIGENCE COSTS

The cost of Pest and Building reports, Strata reports and solicitor fees may be a more obvious expense incurred by buyers, however, they can easily add up if you are getting outbid at auction after auction, Sutton says.

SETTLEMENT COSTS

If there is a delay in settlement that is not caused by the vendor, you may be liable to pay penalty interest based on the balance of the purchase price owing, says Single.

“The stock standard penalty interest rate is 8-10 per cent,” he says.

While this can be negotiated at the time of purchase, it often isn’t – and if the delay stretches on for a week you could be hit with hundreds, if not thousands, in daily interest charges depending on the value of the property.

Speaking with a broker and buyers agent can help you prepare a realistic budget.

BUDGET FALLOUT

The consequences for those who don’t factor these costs into their budgets can be dire, says Sutton.

“It could potentially jeopardise the purchase if there isn’t enough money there at settlement to cover these costs,” he says. “If you can’t find the money from somewhere it could mean you are unable to settle and are in breach of contract.”

This means you could lose 10 per cent of the property’s value – and potentially be sued by the vendor if the property is sold for less in the future, he says.

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Don’t forget about the cost of moving.

BUYING BUDGET CHECKLIST

Don’t forget to factor the following expenses into your buying budget and research a ballpark figure for each one depending on your individual circumstances.

* Mortgage fees – including set up fees and valuation costs as well as ongoing account keeping fees

* Break fees – if you are breaking a fixed-rate mortgage on a property you are selling

* LMI – if you are purchasing with a deposit less than 20 per cent

* Stamp duty – Use the online calculator provided by your State or Territory’s Office of Revenue

* Pest and Building Reports – If you are buying at auction you may need to budget this for several properties

* Strata Reports – Crucial if you are buying into a complex managed by a Body Corporate

* Solicitor/Conveyancer fees – Again you may need to budget extra if buying at auction

* Settlement delays – You could also consider negotiating this at the time of purchase

* Deposit bond fees – This needs to be paid upfront

* Moving costs – Don’t forget the cost of moving, including the possibility of storage, new furniture and short-term accommodation just in case

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Originally published as ‘Impact’ fees costing homeowners plenty