How to prepare for the (hidden) costs of buying property
It’s no secret that buying property in Australia can exhaust your finances. While many people are generally aware of the upfront costs, there are hidden costs that tend to fly under the radar.
Stamp duty, mortgage establishment fees, insurance and inspection charges are the major upfront costs related to buying property that you probably already know about. However, have you given thought to some of the hidden or indirect costs? For example, many of us tend to fork out significant funds during the property search process alone!
Seeking and paying for professional advice, paying for petrol and road tolls when driving to properties, paying for childcare while you visit a conveyancer, and checking out properties online are just some of the hidden costs associated with purchasing real estate.
To get finance-ready and to prepare yourself for the costs that come with buying property, keep the following in mind:
1. Chip away at existing debt
Your bank account will certainly take a hit if you don’t clean up your finances before you embark on your property search. One way to prepare yourself financially is to focus on paying off your current debts such as personal loans, car loans and credit cards. If you’re falling behind on your repayments or you find that your debt is getting the better of you, it may be time to consolidate your debt.
One way you can do this is to apply for a balance transfer credit card that allows you to combine your plastic debt onto one card with a lower interest rate. It also provides greater convenience with one manageable repayment to make every month, rather than two or three.
Of course, you can also consolidate other debts such as your mortgage and personal loan, but just be careful about combining short-term and long-term debt.
2. Discover your borrowing capacity
Finding out how much you can afford to borrow is another important step when it comes to getting ready to buy property. This involves some basic budgeting where you’ll need to list your total income and your expenses/outgoings. You can use an online calculator to help you understand your borrowing capacity. Bear in mind that lenders will also take into account the number of dependents or children you have when considering how much they’ll lend you.
3. Forecast property costs (both direct and indirect)
Once you have an idea of how much you can borrow, start comparing home loans to get a feel for current interest rates and product fees. This will help you work out your mortgage costs such as your estimated periodic repayments and the establishment and account-keeping fees associated with the loan.
Apart from loan costs, you’ll also need to budget for other costs related to securing and holding a property such as stamp duty, mortgage insurance, repairs and maintenance, renovations, land tax, council fees and so on.
If in doubt, speak to a financial advisor to help you through this step.
4. Avoid or minimise hidden costs (where you can)
Being conscious of hidden costs and trying to mitigate them is important if you want to reduce your overall property costs. For instance, if you want to avoid paying hefty childcare fees while you’re inspecting properties, consider asking a neighbour or family member to look after the kids.
On the other hand, if you’re having to travel far to view potential properties and you’re paying for multiple road tolls and petrol bills, use Google Maps to take a different route to avoids the tolls and try to visit several properties in the same area on the same day.
Buying property may not be kind to your hip pocket, but being prepared can help you alleviate some of the financial pressure. One of the smartest things you can do is forecast the expenses involved, including both major upfront costs and some of the miscellaneous or indirect costs. This way, you won’t be stung with any fiscal surprises during your property buying journey.