Move from Rent to Buy – Borrowing Costs

calendar August 18 2017
As well as the deposit what are the other costs you need to budget for?

A lot of focus is placed on raising a deposit to purchase a home. A deposit is your “skin in the game” that can come from a variety of sources; including savings, gifts from family or proceeds of asset sales. Lender policy requires a deposit. While the amount of deposit as a percentage of the purchase price can influence the borrowing cost, there are other purchase costs to consider and budget for.

The main costs include:

Legal costs
Using a Solicitor or conveyancer to help you with the legal aspects of the purchase is highly recommended. Their role is to ensure that you receive effective title when you purchase the property. This important service includes review of the contract before you commit to the purchase; undertaking necessary and optional searches and enquiries on your behalf; liaising with selling parties’ legal representative throughout the process, and attending settlement.
Costs for a purchase are usually in the $1,500 to $2,000 range depending on their fee and the enquiries they make. An upfront deposit can be requested with the balance usually paid at settlement.

Insurance
Unless you are buying vacant land or a strata title property a lender will require you to insure the structural improvements for “replacement value” and have their name listed on the policy as an interested party. The cost can range from under just $1,000 to over $2,000 depending on the nature of the construction, specific risks such as flood and bushfire and the type of cover you take out. The essential points are 1) does policy the cover your needs & risk, and 2) you get what you pay for – i.e. budget price usually = budget cover. Example, house flooded, need to rent for 12 months – does the cover the rent? There is no point in taking out the policy to tick a box – the important part is the result when you claim.

We recommend that you do your insurance research before you go house hunting and make an offer as the annual insurance costs can be significantly higher than normal if there is a risk that you did not consider. Most insurance companies offer online quotes based on value and type of house in a postcode. Also, check Council records for flood and bushfire risk areas as they can be the main reason for increased premiums. If the house is on flat land don’t forget to consider what nearby drains can become if heavy rain persists; and have a hard look at the local environment – what could go wrong?

Lender Mortgage Insurance (LMI)
We will talk more about LMI in our next article, however, it is a relevant borrowing cost if you are unable to contribute 20% or more of your own funds to the purchase price. The cost can be several thousand dollars and the one-off up front premium increases in line with the loan amount and the loan to value. It is a valid way to get into the market if you have not saved 20%. There are ways to reduce or eliminate LMI.

Moving
Moving your furniture, clothes, and possessions from your current home to another can be done in a variety of ways; from doing it yourself, asking friends and family to help, or using professionals. The costs range from cheap to up to $3000 depending on your home contents; the timing of the move (and storage) and type of access to either property. Check your contents insurance to verify if you are covered under your policy, otherwise consider the risk of something going wrong during the move and take out insurance.

Contact us to obtain our moving checklist for ideas on how to plan your move.

Incidentals
Budget for:
– Changing locks
– Purchasing light globes
– Cleaning
– Painting before you move in

Party
After all that work you must have a party – right? The traditional “house warming” is a term is based on the practice of inviting friends and neighbours to your new home. Guests would bring wood and start fires in all available fireplaces to create a protective atmosphere of warmth and to repel evil spirits. In modern times other sometimes friendly spirits such as “Johnny”, “Jack” & “Jim”, are brought to the new home.

Time to enjoy the new home!

If you would like to discuss any of the items listed above or talk to use about what you need to do to purchase you home contact us today!

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