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Ben Kingsley Blog post by Ben Kingsley

What are the Costs associated with Buying a Property?

We’re about to buy a property! It’s an exciting time but we also need to understand the numbers behind acquiring that property.

So what are there?

Let’s use a basically a back-of-the-envelope calculation to help us understand what it’s going to cost to buy that property and what sort of loan that we might have to take on that. So let’s get our pens and papers out and work this out together.

Let’s say we want to buy a four hundred thousand dollar property. Now there’s going to be the cost in purchasing that property but there are also other costs associated with acquiring the property such as, the stamp duty, the lending costs, the conveyancing costs and we might want to do a building and pest inspection on that particular property as well. So a great rule of thumb is using 5%. Now if you’ve got lenders mortgage insurance in the conversation as well and that’s where we take a loan that’s greater than 80% of the value of the property we’re about to buy. You might also want to factor in around an extra 2.5% – 3% in terms of acquisition costs.

So, we’re out in the marketplace and we buy a $400,000 property. 5% rule says it’s gonna cost us around $420,000 in our overall costs. Now we go to the bank and we say we want to get a loan. Now, how much money have we got available to submit to settle on this property? We might have $100,000 and that means we’re going to go on and borrow $320,000 from the bank. That’s how you do your calculations.

Another way might be in terms of saying well I want to borrow a certain percentage of the value the property. So again, that $320,000 will equate to an 80% loan to value ratio. Now there’s the overall costs and a great way of doing some quick calculations on whether you would afford this property and how much it’s going to cost you to acquire that property.

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