How to Factor in Upfront Commitments When Applying for a Home Loan: Insights from a Mortgage Broker
Applying for a home loan is an exciting step, but it’s important to understand and plan for the upfront commitments involved. As a mortgage broker, I’ve guided many clients through the process, and I’m here to help you navigate the financial aspects of buying a home with confidence. Here are the key upfront commitments to consider and how to plan for them.
1. The Deposit
The deposit is the largest upfront cost and typically ranges from 10% to 20% of the property’s purchase price. For example, a $500,000 property will require a deposit between $50,000 and $100,000. However, with some government schemes or lender programs, you might qualify for loans with smaller deposit requirements.
How to Plan:
Set a clear savings goal based on the type of property you wish to purchase.
Explore options like the First Home Loan Deposit Scheme (FHLDS) or family guarantees to reduce the required deposit.
Work with your broker to determine the minimum deposit acceptable for your chosen lender.
2. Stamp Duty
Stamp duty, a government tax based on the property’s purchase price, is often one of the largest upfront expenses. The amount varies by state and territory, with exemptions or concessions available for first-home buyers in some cases.
How to Plan:
Use online stamp duty calculators to estimate costs.
Check if you qualify for concessions or exemptions.
Factor this cost into your overall budget when planning your deposit.
3. Lender’s Mortgage Insurance (LMI)
If your deposit is less than 20% of the property price, you may need to pay LMI. This insurance protects the lender, not the borrower, and can be a significant expense, often adding thousands to your loan.
How to Plan:
Calculate the potential LMI cost with your broker.
Consider options like increasing your deposit or exploring low-LMI lenders.
Understand that LMI can often be added to your loan amount, which increases the overall cost through interest.
4. Conveyancing and Legal Fees
Engaging a conveyancer or solicitor is essential to manage the legal aspects of property transfer. Fees typically range between $1,000 and $2,500, depending on the complexity of the transaction.
How to Plan:
Obtain quotes from several professionals to compare costs.
Ensure you understand what services are included in their fees.
5. Building and Pest Inspections
These inspections ensure the property is in good condition and free from major structural or pest-related issues. Costs range from $400 to $1,000 depending on the property size and location.
How to Plan:
Schedule inspections early in the buying process to avoid delays.
Budget for this cost and consider it non-negotiable to protect your investment.
6. Loan Application and Valuation Fees
Some lenders charge application fees to process your loan, which can range from $200 to $600. Additionally, they may charge for property valuations, which typically cost $300 to $500.
How to Plan:
Discuss these fees with your broker to determine if your lender offers fee waivers.
Include these costs in your upfront budget.
7. Moving Costs
Relocating to your new home comes with expenses such as hiring movers, purchasing packing materials, and connecting utilities. These costs can range from $500 to $2,000 or more depending on the distance and services required.
How to Plan:
Obtain quotes from removalists to get an accurate estimate.
Include connection fees for utilities like electricity, gas, and internet in your moving budget.
Final Thoughts
Upfront commitments can feel overwhelming, but with careful planning and the right advice, they are manageable. As your mortgage broker, I’m here to help you account for these costs, explore strategies to reduce expenses, and ensure your finances are in order before you apply for a home loan. Together, we’ll create a comprehensive plan so you can approach your home-buying journey with confidence and clarity.
