House Buying Costs & House Ownership Costs
What are the major house buying costs?
Were not talking about the number agreed on the sale and purchase agreement here! These are the other house buying costs, the ones that sneak up on you, the ones that may have to be paid out of your own pocket...
Below is a comprehensive list of things you may have to pay for, in addition to the purchase price, in the process of looking for, buying and moving into a new house.
|$500 to $800
|Pre-Purchase Building Inspection
|$450 to $1,000
|Share of rates already paid by the vendor
|Varies - can be as
much as 25% or the annual rates bill. But is usually around $100 to
|Home loan application fee
|$0 to $500
|Low equity premium
(if you borrow more than 80%)
|up to $3,500 - this is
added to your mortgage
|Life, Income Protection
and/or Mortgage Insurance
|$500 - $1,500+
|Connecting gas, electricity, phone and Sky TV
|House moving costs
|up to $500 (across town)
up to 3,500
|House Hunting Costs
(Petrol, taking time of work,
mobile phone calls to agents etc)
|Varies - is never $0
You may not incur all of these expenses, and some of these house buying costs can be spread out over a year (insurance), or added to your mortgage if your bank will lend you a little bit more then the house purchase price. Otherwise you will need to have this money available.
What about credit cards I hear you say! Lawyers and most professionals providing reports such as valuations do not accept credit cards. One very expensive option would be to withdraw cash from your credit card to pay for these professional services. Credit cards charge a high rate of interest and you usually start paying this immediately if you take cash out. Interest rates on cash advances average around 20-25% per annum.
Sometimes banks will offer to pay some money towards your legal fees or property valuations if you get a mortgage with them. This is great, but you have to pay these bills first and supply a paid invoice or receipt before the bank will refund you the money. Of course, if you don't buy a house then you won't be rebated these house buying costs.
How much does it cost to own a home?
The mortgage is the most famous ongoing cost of house ownership and is by far the largest one. But don't forget about rates, insurances, water, repairs and maintenance! And what about all those extra bits and pieces that you are going to need to buy for your new home - new furniture, new appliances, plants for the garden? And are you planning any renovations?
As a bare minimum you should allow $1,500 per year for maintenance, this does vary widely depending on the age and condition of your house and the building materials used.
With costs such as rates, insurance, and water you will be able to find out the exact amount these will be for the first year at least. These will go up year on year, sometimes by amount far exceeding inflation, so factor this in.
How much you want to spend on renovation and new things for your house and grounds is up to you, but there is no doubting you will want to spend money, so establish a budget.
Then you work out how much you can afford to pay on a mortgage, remember to add on all those extra expenses! A good rule is to add another 20-30% to your mortgage repayments to cover rates, insurance, water, small improvements, new stuff, and repairs and maintenance.
You will have to come up with the money for all these extra things from somewhere - so take this into account when you are working out how much you can afford in repayments.
How much will it cost to sell my current house?
If you have a house to sell, this will add on another big expense, this house buying cost can be the biggest - just roughly:
- Real estate agents commission - around 3-4% on average of sale price - $16,500 - $22,000 for an average New Zealand home ($568,000 Apr 2016). This commission is highly negotiable - 1-2% is not unheard of! If you sell your home yourself you can potentially cut the selling costs even more.
- Listing and advertising fees - on average around $3,000. This cost is very dependent on how long your house takes to sell, what kind of advertising campaign you choose, and (if you are using an agent) if the agent passes these costs on to you.
- Doing a few small improvements, touch ups, or repairs around the house, before selling - around $2,000. More if you do major work.
Many people forget to take the costs of selling into account when working out how much they can afford. Selling costs put a serious dent in your equity, so work it out before establishing your budget for your new home.