When considering the purchase of a home, one of the first steps many buyers take is to secure pre approved home loans. This process not only helps you understand your borrowing capacity but also strengthens your position as a buyer in a competitive market. However, it’s essential to be aware of the various costs associated with pre approved home loans. In this blog, we will break down these costs, helping you make informed decisions as you embark on your home-buying journey.
What Are Pre Approved Home Loans?
Before diving into the costs, let’s briefly define what pre approved home loans are. A pre approval is a conditional agreement from a lender that indicates how much they are willing to lend you based on an assessment of your financial situation. This assessment typically includes your income, credit history, and existing debts. Having a pre approval gives you a clear idea of your budget and demonstrates to sellers that you are a serious buyer.
1. Application Fees
One of the first costs you may encounter when applying for pre approved home loans is the application fee. Many lenders charge a fee to process your loan application. This fee can vary significantly between lenders, so it’s essential to shop around and compare costs. While some lenders may waive this fee as part of a promotional offer, others may charge anywhere from $200 to $1,000. Be sure to factor this cost into your overall budget when considering pre approved home loans.
2. Valuation Fees
Once you apply for pre approved home loans, the lender will typically require a property valuation to assess the value of the home you wish to purchase. This valuation ensures that the property is worth the amount you are borrowing. Valuation fees can range from $300 to $600, depending on the property’s location and complexity. It’s important to note that this fee is usually non-refundable, even if your loan application is not approved.
3. Lenders Mortgage Insurance (LMI)
If your deposit is less than 20% of the property’s value, you may be required to pay Lenders Mortgage Insurance (LMI). This insurance protects the lender in case you default on your loan. The cost of LMI can vary based on the size of your loan and the amount of your deposit. It can range from a few thousand dollars to tens of thousands, depending on your circumstances. While LMI is a significant cost, it allows you to enter the property market sooner without a large deposit.
4. Ongoing Fees
Many lenders charge ongoing fees for managing your loan. These fees can include account-keeping fees, service fees, or maintenance fees. Ongoing fees can vary widely between lenders, so it’s essential to read the fine print and understand what you will be charged throughout the life of your loan. Some lenders may offer no ongoing fees as part of their loan package, so be sure to compare your options.
5. Exit Fees
If you decide to pay off your loan early or refinance with another lender, you may encounter exit fees. These fees are charged by some lenders when you close your loan account before the end of the loan term. Exit fees can vary significantly, so it’s essential to check with your lender about their policies regarding early repayment. Understanding these fees can help you avoid unexpected costs down the line.
6. Legal and Conveyancing Fees
When purchasing a property, you will also need to consider legal and conveyancing fees. These fees cover the costs of hiring a solicitor or conveyancer to handle the legal aspects of the property transaction. Legal fees can range from $800 to $2,000, depending on the complexity of the transaction and the professional you choose. It’s essential to factor these costs into your overall budget when applying for pre approved home loans.
7. Stamp Duty
Stamp duty is a government tax that is payable when you purchase a property. The amount of stamp duty you will need to pay depends on the property’s value and the state or territory in which you are buying. In Australia, stamp duty can be a significant cost, often amounting to thousands of dollars. Some states offer concessions or exemptions for first-time homebuyers, so it’s worth researching the rules in your area.
8. Home and Contents Insurance
While not a direct cost of obtaining pre approved home loans, it’s essential to consider the cost of home and contents insurance. Most lenders will require you to have insurance in place before they approve your loan. The cost of insurance can vary based on the value of your home and the level of coverage you choose. It’s a good idea to shop around for the best rates and coverage options.
Conclusion
Understanding the costs involved in pre approved home loans is crucial for any prospective homebuyer. From application fees and valuation costs to ongoing fees and stamp duty, being aware of these expenses will help you budget effectively and avoid surprises down the line. By taking the time to research and understand these costs, you can make informed decisions as you navigate the home-buying process.
If you’re ready to explore your options for pre approved home loans, reach out to First Homes today. Our team of experts is here to guide you through the process and help you find the right loan for your needs. Don’t let the costs deter you—take the first step toward homeownership with confidence!
