There’s no denying it – buying a home is an expensive process. It takes an average of five to six years to save for a deposit (based on the cost of a 20% deposit of a $600K home) – even more if you are looking to buy in an expensive area.
However, owning a home means budgeting for expenses that go beyond just your deposit and mortgage.
The cost of your deposit can swell if you need to purchase Lender’s Mortgage Insurance. This is an insurance policy that you as the borrower are required to take out if your deposit is less than 20% of the value of the loan. It’s designed to protect the lender from financial loss in the event that you can’t meet your mortgage repayments and your property is sold by the bank.
This is different that mortgage protection insurance, which protects the borrower in the event that they cannot meet their mortgage repayments.
LMI can be paid upfront or added to the total of your loan, in which case you will be charged interest over the term of your loan. As an example if you only have a ten per cent deposit on a $600K home, LMI will cost around $25,000.
The Australian Government’s First Home Loan Deposit Scheme allows first-home buyers who meet the eligibility criteria to borrow with as little as a 5% deposit. This scheme guarantees 10,000 low-deposit loans a year.
Keep in mind though, that a smaller deposit means your loan will cost you more in the long run.
If you are a first home buyer, you may also be eligible for the First Home Owner Grant, and an exemption from or reduction of your stamp duty. The HomeBuilder Grant has also been extended which gives an extra incentive for people to buy a newly-built home or one that has been significantly renovated.
There are other costs associated with purchasing a home – solicitor’s and conveyancer’s fees, (around $1000-$1500) a building and pest inspection (which many lending institutions now make a criteria of the loan)- approximately $500, and moving costs, which can be several hundred dollars.
The costs of being a homeowner don’t end there!
Once you have moved into your home, there are a number of other expenses which fall to you as the property owner.
Home and Contents Insurance
While it’s always wise to have insurance cover for your personal belongings, if you rent you can get away with contents insurance on its own. Once you own a property, this insurance needs to cover repairs to your dwelling in the event of fire, flood, accidental damage and other scenarios, such as electrical burnout of your fridge or freezer. This insurance is usually taken out in conjunction with contents insurance, which covers the cost of replacing your possessions in the event of theft or damage. Some policies ask you to pay more to cover accidental damage.
An insurance policy usually includes an ‘excess’, that is, the amount you pay towards a claim you make on your policy. When choosing an insurance policy, make sure you take note of how much excess you would be required to pay in the event of a claim. Usually, the higher the excess, the lower the annual premium – which is fine if you never have to make a claim. However, there is no guarantee this is the case, so paying a little extra means you’re not substantially out of pocket when the time comes to put in a claim.
It can be difficult to calculate the cost of home maintenance, as the cost will depend on the size, age, location and general condition of your home. There is a lot of maintenance you can do yourself, with some simple instruction and small outlay for tools and materials. In this category is mowing, weeding, planting, cleaning the exterior and interior of your home, pool maintenance, small repairs, pressure washing and painting. These things should be done regularly to keep your home in good nick and prevent bigger problems down the track. The more of these things you can do yourself, the smaller your home maintenance costs will be.
Some jobs are bigger and require the services of an expert, both for safety reasons and because of the skill level required. Things such roof and plumbing repairs, window replacement, painting (depending on your proficiency), duct and heating repairs and mould and pest removal should be done by an expert. These tasks are done less regularly or only to deal with a specific problem, however having savings to cover an unexpected costs is a good idea.
Love Thy Neighbour
Even if you live on a big block in a country area, it’s likely you will have neighbours, and with neighbours can come disputes over things like fences, overhanging trees and encroachment onto your property. If a fence needs to be repaired or replaced, it’s the responsibility of all property owners who share the fence boundary to share this cost. If a neighbour’s tree overhangs your property, generally you have to wear the cost of cutting it back to the boundary line, unless the tree is interfering with or damaging your property in some way. Before cutting a tree belonging to the Council, you must get a permit, as some trees are protected under a Tree Preservation Order.
Trimming back branches on a tree on your property can sometimes be done yourself, but significant tree trimming and removal can be expensive, especially as it’s a good idea to have this task done by a qualified arborist. Along with removal of the branches and woodchips, this can cost in the hundreds, sometimes thousands of dollars.
The cost of rubbish removal is partially covered by your rates – a rubbish and recycling bin forms part of your rates levy, although most councils charge extra for green waste bins.
Most councils also offer their ratepayers two hard rubbish collections per year, with additional collections available at the ratepayer’s cost. If you have more substantial waste to remove from your property (or items that can’t be collected in a hard waste pick-up),bin or skip hire will set you back around $130 a day (plus council permit fees) for a 2 cubic meter bin, although these fees may vary depending on the weight of the materials.
Rates are a tax that property owners pay. All councils raise money through rates to cover part of the cost of providing a range of services and infrastructure projects for residents of a particular area. The rates you pay for your property will depend on the value of properties in your area and a ‘rate in the dollar’ calculation, which can vary depending on how much revenue is needed to cover the cost of services and infrastructure your council provides. Most councils allow their property owners to pay rates in instalments, but charge interest on late payments.
Utilities (Service Charges)
If you’re renting you may have an arrangement with your landlord to pay only the usage charges for your utilities – for example, for the electricity, gas and water. As a property owner, you are responsible for the whole service – this may include annual service charges (and in the case of your water supply, a sewerage charge). This can add a couple of hundred dollars to your annual bill for each utility.
Body Corporate/Strata Fees
If you live in an apartment building or a block of more than two units, you are part of a ‘body corporate’ and must pay strata fees. These fees pay for the maintenance of the building and/or communal areas such as gardens, pools, driveways, stairwells, lobbies, lifts and the exterior of the building. Strata laws vary between states, but typically, these fees are collected quarterly or twice a year. The number of communal amenities will dictate the cost of strata fees, but as a guide you can expect to pay between $500 and $2500 each quarter, depending on where you live. These fees can be tax deductible – your tax accountant can give you more advice on this.
These expenses can seem like a continual drain on your finances, however the satisfaction and pride of owning your own home and watching it grow in value is for many people a worthwhile trade-off.
The Home Inspection Hub conducts pre-purchase house inspections, new home construction inspections, owner builder defect reports and special purpose inspections across Melbourne, Geelong and Central Victoria. Our inspections are competitively priced and are carried out by our team of qualified, experienced and professional inspectors.
Call us today on 1300 071 283 or email firstname.lastname@example.org to see how we can assist you with an inspection today.