Extra costs to consider on your home loan

Home loan application fees

The most common upfront cost to most loans on the market is the application fee. The fee will depend on the loan you are applying for, as well as the lender. As such, it’s important to understand what your particular application fee covers.

Some of the activities the fee will cover include developing and issuing the loan contract, property title checks, any necessary credit checks and even the lender’s requirements to attend the settlement.

Depending on the amount you plan to borrow and from which lender, application fees typically range anywhere from $150 to $700. They are usually non-refundable, however it’s worth noting they’re also the fee most commonly waived. For example, all four of the Big Four banks charge an application fee of up to $600 and all four carry a home loan product where this fee is waived.

As always, if you’re not sure what it covers or you’re meeting resistance getting the fee wavied, check with an experienced mortgage specialist to find the best set up for your particular situation.

Mortgage fees and costs

In addition to the Home Loan Application Fee, there is usually a mortgage establishment fee. This fee covers all the particulars in setting up a mortgage and covering processing costs. Depending on the lender and product, it can be a flat fee, tiered fee, percentage fee, or hybrid fee. Worth noting, the fee increases the loan amount and affects the interest you pay.

A property valuation fee covers the lender to engage a third party to determine if the value of your purchase is in line with the market value. Generally speaking, the property valuation cost can vary widely, from as low as $300 to $600 or more. It really depends on factors like the type of property, its size, location, and the extent of the valuation service. As the valuer is chosen by the lender, unfortunately you don’t get much say in the process.

Your mortgage deed will also need to be registered with the government, so there will be a mortgage registration fee for that. This fee also allows buyers to check if there are any claims on the existing property. The fee is paid when a home loan is established or when it’s discharged. The cost of the mortgage registration fee varies from state to state, but in NSW it is $143.50.

If you don’t have 20% of the purchase price as a deposit, you’ll be required to pay Lenders Mortgage Insurance. This is designed to cover their risk should you default on your repayments. This fee is a once off, up-front payment which covers the lender for the life of the loan. The amount of the LMI premium depends on the lender, how much it lends to you and the size of your deposit. The lender will normally pass on the cost of this LMI premium to you as a fee, so make sure you work this out and factor it in if need be.

Property fees and costs

Now that you’ve covered the costs of the mortgage, it’s time to look at the associated costs with the property itself. Not all of these fees are essential or required, but it is still important to consider them all for your unique circumstances.

Before you commit to your dream home, it’s a good idea to have the property inspected for any structural or electrical problems, including pests who may have moved in before you do. So factor in building, pest and electrical fees.

The new owner (that’s you!) will need to be registered with the NSW Land Registry Services, so you’ll need to pay a registration of transfer fee. It depends on the conditions of the sale, but is around $150 in NSW.

As with most major transactions, there is a fair bit of legal paperwork, which means you’ll need to cover some legal fees. You generally need to pay a solicitor or settlement agent to handle the transfer of ownership of the property on your behalf.

As this is a significant financial decision, you likely want to consider insurance, to protect your new asset. Most homeowners insure their home and contents against a range of threats, such as burglary, fire, storm, floods and other disasters. Lenders will usually insist that your property is insured while you have a mortgage, so make sure you investigate home and contents insurance. You are also responsible for the repayments from day one. If you’re off work for any reason or your income is affected, life and income protection insurance can help protect your incomes and yourself while you have a mortgage.

You’ll need to connect electricity, gas, telephone and internet services so make sure you’re across the connection fees for every service you’d like in your new home.

Councils provide a host of services to you as a new homeowner, but they don’t do it for free. You’ll be required to pay council rates, which vary across local government areas but are usually charged quarterly. Separate to your council rates, you’ll need to pay for the water your property uses, including drinking water and sewerage.

If you are buying into an apartment complex or strata titled property, you’ll also need to factor in strata and body corporate fees. Some of these fees can be significant, particularly if the building is in need of major work, or if there are lifts, pools and other communal facilities. Make sure you investigate these well before you commit to your next home.

Finally, you need to keep your home maintained! Make sure you take into account regular maintenance on your home, even if you decide not to undertake significant renovation. This will vary across individuals, but it is still important to work out for your budget.

Buying a home is a thing to celebrate, but a little bit of research will ensure you don’t get caught up by any surprises which cause financial stress down the line.

If you are ready to buy and want to make sure you’ve covered off every expense you need to factor in, get in touch with our mortgage experts to ensure you’re well prepared to pursue the home of your dreams.