Buying a home
How can I estimate the total costs involved in buying a home?
Planning: Lenders Mortgage Insurance Explained
Lenders Mortgage Insurance or LMI applies in all cases where you’re borrowing more than 80% of the property’s value, and it’s usually added onto the total amount you borrow.
Why is LMI necessary? Having a smaller deposit is a bigger lending risk to a bank. If a property needed to be sold because an owner defaulted on the loan, LMI covers the bank if the property sells for a loss.
The positive is that with LMI you can borrow money to buy a home with the deposit you have right now. But it will cost you more upfront.
Is LMI worth the cost? Everybody’s situation is different, most people will think about how long it might take them to save the full 20% deposit versus any increase in house value if they were to buy now.
How much does LMI cost? You can use an LMI calculator to get an estimate, but there’s no rule of thumb because it depends on a lot of factors, like the value of the property and the exact amount of your deposit. Talk to a Suncorp Bank lender to get an exact amount.
The only way to avoid paying LMI is to save 20% deposit, look at cheaper properties, or find a family member who can be a guarantor.
Book an appointment with a Suncorp Bank mobile lender and we’ll work out your borrowing power.
So, you've found that perfect house. Great! House hunting can be exciting, especially when you spot “the one”.
It's a little less exciting when you sit down to figure out how much you need to spend. There's the price of the house itself, which will probably be your biggest expense, but you'll have to factor in a range of other things when working out your total budget.
Stamp duty—a tax levied on property purchases by states—is one of the bigger costs for which you'll have to budget. The exact amount will vary depending on which state you're in, but it's calculated as a percentage of the property price. For example, a property worth $600,000 in New South Wales will incur a stamp duty of just over $22,000, whereas a property of the same value in Queensland will incur a lower stamp duty of around $13,000.
If you're wondering how much you may be up for, we've got a calculator that can help you estimate your stamp duty obligations.
You can learn more about stamp duty by referring to your state government via the relevant website (FYI, stamp duty is sometimes referred to by other names, such as “transfer duty”, depending on which state you're in):
- New South Wales
- Northern Territory
- South Australia
- Western Australia
Lenders Mortgage Insurance
If your deposit is less than 20% of the purchase price, you'll need to take out Lenders Mortgage Insurance (LMI), which protects lenders in the event of borrowers defaulting on their loans. LMI can be several thousand dollars, depending on the size of the loan, so if you can pay a 20% deposit it's certainly worth considering. If you can't, you might consider saving for a little longer to reach that 20% threshold, but the LMI saving should be weighed up against the extra living expenses incurred in that time (like rent) and the possibility of property prices shooting up.
Other borrowing costs
Besides stamp duty and LMI, other costs associated with taking out a home loan can include:
- a loan establishment fee;
- a guaranteed rate fee, which fixes a rate for 90 days following your application;
- an additional valuation fee, if more than one property valuation is required;
- a guarantor fee, if a guarantor is included on the loan; and
- ongoing account-keeping fees.
Don't panic! Not all the above may apply to you. For more detailed information about fees associated with a Suncorp Bank Home Loan, check out our Lending Fees and Charges document.
There are a few other expenses that you may need to budget for. These can include things like:
- solicitors or soliciting conveyancers;
- connection or relocation of utilities;
- council fees, such as rates;
- body corporate fees;
- pest and building inspections; and
- moving services.
Again, don't stress too much. Not every fee on this list will necessarily apply to you.
The costs can start to add up, but if you've taken the time to plan for them you can make sure that you only spend what and when you really need to. If you're especially savvy, you might even save a few bucks for an awesome housewarming party.
To estimate the total costs involved in buying a home, try to come up with individual estimates for lending costs (loan establishment fee, etc.) and other costs (utilities, moving services, etc.), then tally them up. These can vary a lot, but even a ballpark figure will help as a starting point.
The information is intended to be of a general nature only. We do not accept any legal responsibility for any loss incurred as a result of reliance upon it – please make your own enquiries.
Any advice contained in this document has been prepared without taking into account your particular objectives, financial situation or needs. For that reason, before acting on the advice, you should consider the appropriateness of the advice having regard to your own objectives, financial situation and needs. Where the advice relates to the acquisition, or possible acquisition, of a particular financial product, you should consider the Product Disclosure Statement before making any decision regarding the product. Contact us for a copy.