Stamp duty
Stamp duty is a governing tax on a real estate property transaction that is charged by each state and territory. These amounts can and do vary depending on your purchase location. The stamp duty rate will also depend on many other factors, such as:
The purchase price of the property: The stamp duty rate is typically calculated as a percentage of the purchase price. The higher the purchase price, the higher the stamp duty will be.
The state or territory where the property is located: Different states and territories have different stamp duty rates and regulations, so the amount of stamp duty you have to pay will depend on where the property is located.
The type of property: Different types of properties may be subject to different stamp duty rates. For example, a home that is being used as a primary residence may be eligible for a lower stamp duty rate than an investment property.
Your residency status: Some states and territories offer different stamp duty rates for first time home buyers and Australian citizens.
Your concession eligibility: Some states and territories offer stamp duty concessions for certain groups of people, such as veterans or people with disabilities.
You can utilise this link to calculate the estimated stamp duty on a property based off price and location.
It is worth noting that stamp duty cannot be added to your loan. This is because upon approving a loan, the lenders calculate the amount as a percentage of your property’s value. This is often referred to as the loan-to-value ratio (LVR). Having an 80 per cent LVR loan would mean that your current savings have to cover 20 percent of the property’s value as the deposit. This deposit covers expenses including stamp duty, pre-purchase reports and any conveyancing charges you may incur.
In addition, depending on which state you are looking to buy in, you may be able to save on stamp duty if you qualify for any of the concessions offered by that state. In different cases around Australia, states and territories offer stamp duty concessions for first home buyers, retirees, deceased estates and off the plan purchases. You can talk through your eligibility with your lender or mortgage broker or find out more about each concession on your local state or territory revenue department’s website.
Lenders Mortgage Insurance
Lenders Mortgage Insurance (LMI) is a type of insurance that a lender takes out to cover themselves against the risk of not recovering the outstanding loan balance, if the borrower is not able to meet loan repayments and the property is sold less than the outstanding loan balance. LMI is a form of cover for your lender, not yourself.
Typically, a lender will not approve a home loan without a minimum 10% deposit of the property’s purchase price. If the deposit amount is less than 20% of the lender-assessed value, then you are usually required to pay LMI.
The cost of LMI can vary. A LMI calculator tool can be found here which will provide an estimate of the amount payable to the lender. In basic terms, the more deposit you have available, the less your LMI will cost. This is because with a bigger deposit, you are classified as a lower risk borrower by the bank.
For example, let’s say Jim is looking to buy his next investment property at a price of $500,000. Jim has a deposit of $50,000 and will require a loan of $450,000. Jim currently has a deposit of 10% and a 90% LVR. This means that he will be required to pay an additional estimated amount of $8,428.50.
Mark is also looking to purchase his next investment property at the same price as Jim. However, Mark has a deposit of $85,000 and will require a loan of $425,000. Mark currently has a deposit of 15% and an 85% LVR. Therefore, he will need to pay an additional estimated amount of $4,118.25.
The two examples above highlight that the more deposit you have available, the less LMI you will have to pay.
Unlike stamp duty, the total amount for LMI can be added to the value of the loan if required. Consider that this amount will also be subject to the home loan’s interest rate, which may mean you end up paying more than the initial LMI amount over the period of the loan.
Legal fees
When purchasing real estate in Australia, you will typically need to engage a solicitor or conveyancer to handle the legal aspects of the purchase. Legal fees can vary depending on the complexity of the transaction, but generally, they can range from around $800 to $2,500 or more.
The legal fees for purchasing real estate in Australia may include the following:
Reviewing the contract of sale: Your solicitor or conveyancer will review the contract of sale to ensure that it is legally binding and includes all the necessary details, such as the purchase price, settlement date, and any special conditions.
Conducting property searches: Your solicitor or conveyancer will also conduct property searches to identify any issues with the property, such as outstanding debts or easements.
Liaising with the vendor’s solicitor: Your solicitor or conveyancer will communicate with the vendor’s solicitor to ensure that the transaction runs smoothly and that all parties are aware of their legal obligations.
Arranging settlement: Your solicitor or conveyancer will also arrange for the settlement of the property, which involves transferring the ownership of the property from the vendor to the purchaser.
It’s important to note that legal fees can vary depending on the solicitor or conveyancer you choose, so it’s a good idea to obtain quotes from several different providers before making a decision. Additionally, you may also need to pay for other costs such as property searches, registration fees, and other disbursements, which your solicitor or conveyancer will advise you of.