15 March 2018 The costs of buying your own home When buying a home, knowing exactly what you need to save as a deposit and the costs involved can be hard to understand. To make things easier, we have created this simple guide with some easy to understand definitions to help you plan ahead. The following are the cost elements to consider when buying your own home: Deposit Lender's Mortgage Insurance Stamp Duty (Government Fee) Mortgage Transfer and Registration Fee (Government Fee) Conveyancing and Legal Costs Application and Settlement Fees Deposit: The most important factor involved with purchasing a home is the deposit. This is an amount of money that you are required to save in cash to contribute towards your home purchase. Usually, your home loan provider will allow you to borrow up to 80% of the purchase price of a house without needing to pay Lender’s Mortgage Insurance. This will mean that you are required to save 20% of the purchase price yourself. You may be able to reduce the amount needed for your deposit, and borrow more than 80% but this may require Lender’s Mortgage Insurance to be paid. Example: Daniel and Zoe are looking for a 3 bedroom house in South Australia for their expanding family. They expect that it will cost roughly $500,000 for the type of property that will meet their needs. In this circumstance, if they are borrowing 80% from their home loan provider, they will need to save a deposit of $100,000 or 20% of the purchase price. Lender’s Mortgage Insurance: Traditionally, a home loan provider requires a borrower to have at least a 20% deposit when buying a home. If you do not have a 20% deposit and need to borrow more for the purchase of the property, you may be able to do this by paying Lender’s Mortgage Insurance (LMI). LMI protects the home loan provider against the additional risk involved with lending a higher portion of the property value, this charge is then passed on to the borrower who can either pay this charge up front, or elect to include it in the total loan amount to be paid over the remaining loan term. Usually the standard maximum amount that is able to be borrowed with LMI is 95% of the purchase price including the charge itself, meaning you may only need to supply a 5% deposit. The LMI charge will depend how much you need to borrow and this can also vary from state to state. It is important to note that LMI is different to Mortgage Protection Insurance which is cover to protect the borrower if they are unable to meet their mortgage payments. Example: Daniel and Zoe know that their ideal house will cost $500,000 meaning a normal deposit of 20% would require $100,000. Unfortunately they have only saved $65,000 between them. This will mean that they will need to borrow $450,000 or 90% of the purchase price supplying a $50,000 deposit, and allowing some extra funds to cover other costs covered below. Because this is over 80% of the purchase price, they will incur a Lender’s Mortgage Insurance charge, approximately $9,890¹, which they have elected to include in their total loan amount, and pay over the remaining loan term. Government Fees: Stamp Duty Stamp duty is a tax on property transactions which is imposed by state and territory governments. It can vary depending on the state or territory, and may be called stamp duty, transfer duty or general duty. When you purchase vacant land or an existing house this will trigger a stamp duty cost that must be paid. If you are purchasing a property, you should make an allowance for this charge in your total costs. For first home buyers, there may be government stamp duty concessions that can help reduce this cost depending on the purchase price of the property. To find out if you are eligible as well as calculate the estimated stamp duty on a property visit your relevant state or territory government website or contact them directly.² Mortgage transfer and Registration Fee A mortgage transfer fee is a government charge incurred when a mortgage is moved from one party to another when a new or existing property is purchased. Similarly, a mortgage registration fee is also incurred when a property is settled and is a charge passed on to the purchaser from the government for the work required to register the mortgage in the new name/s. Example: Daniel and Zoe have found a house for $500,000 in their desired suburb in South Australia. In order to ensure they have enough saved for their total costs they visit the Revenue SA website and use the calculator, entering both their purchase price and type of property to determine that their total stamp duty costs will be $21,330. They also find out using an upfront costs calculator that their transfer fee will be approximately $3,897 and their mortgage registration fee will be $160. They note down these costs. Conveyancing / Legal Costs: When you're buying a property, you may need to employ a conveyancer. A conveyancer is a licensed professional who knows real estate law. They can give you advice and information, prepare documentation and help you through the settlement process. A conveyancer may also be a solicitor, but it is not always required. A conveyancer must be licensed in the state or territory where you are buying or selling property. There is a fee attached to their services which you should make allowance for in your total costs. These costs can vary and it is important that you confirm these with your chosen agency or individual before committing. As a rough guidance, an approximate cost of $2,000 should cover most normal conveyancing cost given a normal property settlement with no unusual work. Example: Daniel and Zoe are getting ready to submit an offer for the property and have engaged a local conveyancer to assist them with their settlement and legal advice. The conveyancer has a look as the contract of sale and the details of the property settlement and gives them an estimated cost of $1,800 for her services. Usually, these costs are taken at the time of settlement from your contribution towards the property rather than needing to be paid up-front. Application and Settlement Fees: When you are applying for a loan, there may be application fees that should be accounted for. These are charges from a home loan provider for submitting an application with them, and are usually several hundred dollars. A settlement fee is also charged upon the settlement of the new loan for costs incurred during the process. Both of these fee types will be paid on settlement. Example: Daniel and Zoe were successful with their offer and will be submitting an application for unconditional approval to their home loan provider. As a result, their home loan provider will charge them an application fee of $595 and a settlement fee of $285. For the scenario above, Daniel and Zoe have monitored their costs throughout the process to ensure that they have sufficient funds to complete their purchase. As a first home buyer purchasing a brand new home, they were also eligible for a government grant which has helped reduce their contribution. For their situation, their total costs included: Deposit: $50,000 Stamp Duty: $21,330 Mortgage Transfer Fee: $3,897 Lender’s Mortgage Insurance: $9,890 (Creating a total loan amount of $459,890) Mortgage Registration Fee: $160 Legal / Conveyancing: $1,800 Application: $595 Settlement Fee: $285 SA First Home Buyers Grant: $15,000 Total funds required to complete: $63,067 Please note, the examples in this communication are given as a hypothetical situation to educate first home buyers on the types of costs applicable to a property purchase and should not be relied on for the applicant/s individual circumstances. The figures provided have been calculated using the RAMS upfront cost calculator and should be used as a guide only. There may be additional charges and all calculations and costs should be confirmed with a relevant professional for an accurate estimate of the funds required for your particular situation. More Information: Credit criteria, fees and charges apply. Figures in the example are correct as at 1 March 18. Information in this material is general and does not take into account your objectives, financial situation or needs and you should consider whether it is appropriate for you. You should also obtain independent professional advice relevant to your financial circumstances. 1 The exact amount and calculation of Lender’s Mortgage Insurance may change between lenders and vary between states and is subject to change. 2 Eligibility criteria and conditions of release for each state government’s grants should be checked at the time of application according to the information provided on each state government’s website. For information about eligibility requirements in the various states and territories, visit the relevant government department’s website.