Don't get caught unaware: Essential purchase costs can eat into your deposit

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Buying your first property can be one of the most exciting moments in your life.

All those times of declining invitations to shop, dine-out and have caramel syrup in your latte have finally paid off.

With your financial details and a sizeable deposit in hand, you head to your mortgage broker to get pre-approval before you start your search.

Something that you may not have known is that the deposit you have is about to shrink by somewhere between $5,000- $25,000 and there’s nothing you can do to avoid this.

When buying a property there are a number of professionals that you have to engage as well as services and fees that are required to be paid during the transaction. Some of the essential costs involved are listed below. All fees vary due to property, state or territory and your personal circumstances.

• Transfer Duty 

Transfer duty is a government fee that must be paid on dutiable transactions for property. This varies between states and the type of property purchased and may be reduced by government grants. Fees range from $1,000 to $25,000 plus.

• Lenders Mortgage Insurance 

This protects the lender in the unfortunate event that you default on your home loan. This will vary due to the structure of your loan and your deposit. Fees range considerably, so allow 3% of your loan amount.

• Settlement costs 

Expenses during the settlement of the property, these include body corporate, rates and valuation shortfalls amongst others. Fees range considerably, so allow up to 3% of your purchase price.

• Conveyancing or Solicitor fees 

Fees range up to $3,000 for legal advice and services throughout your purchase.

• Mortgage Application fees 

This will cover the preparation of the loan and supporting documents, valuations and searches by your financial institute. Fees range up to $2,000.

• Building Inspection 

This is a written account of the property that will give you an indication of any defects or problems. Fees range from $300-$900 plus, depending on services.

There are also a number of other fees that you may have to cover that can quickly add up. These include utility connections, home and contents (or landlord) insurance, moving services and even mail redirections. Some of the essential fees can be incorporated into your mortgage, but others have to be paid up front.

As a guide, be prepared to put aside 10% of the purchase price to cover the costs involved in buying your property. We’ve put together some scenarios for buying in Queensland and New South Wales as a first home buyer and as an investor to show the type of consideration necessary for a safe and financially stress free purchase.

Purchase costs are something that first time property buyers are often unaware of and as a result overlook them when saving for their deposit.

Preparing to use 10% of the purchase price on additional costs can be daunting as you see your deposit suddenly dwindle. But it is best to find yourself with money left over after your purchase than scrambling around at the last minute asking family and friends to help cover the shortfall.

Andrew Herbert is partner of My First Place.

My First Place is offering a buyers club to take care of some of the fees involved in purchasing.

For first home buyers there’s a package worth $4,200 that covers solicitor fees, mortgage application fees, building inspection, insurance and utilities.

For investors, the package is worth $3,350 and it covers solicitor fees, mortgage application fees, building inspection, landlord insurance and a depreciation schedule.