The extra costs to consider when buying a house

Buying your first home is one of the biggest financial decisions you’ll ever make. You’ve probably saved hard for your deposit and worked out what kind of mortgage payments you can afford, but the unexpected costs can add up. Make sure you’ve budgeted for all the expenses that come with finding and securing your house, so that the extra costs don’t eat into your deposit.

The hidden costs of house-hunting

Building inspection report

Sometimes called a “pre-purchase inspection”, this is a comprehensive inside-and-out checkup of your future home. It’ll cover any significant defects or urgent maintenance needed, from damp issues to dodgy wiring. Any issues that show up could be used to negotiate on price, or you could try asking the outgoing owners to fix them before the property changes hands. 

The cost of an inspection can vary a lot depending on the size of the house and the quality of the inspector. But the last thing you want to do is pour your hard-earned cash into a house with hidden issues, so the cost of a building report is well worth it.

Make sure you use a qualified and experienced building inspector - not just your tradie friend - but be wary of using the one the real estate agent suggests.

Land Information Memorandum (LIM)

This is a summary of all the information that a council holds on a property. It covers things like how much the rates are, consents and permits for any work done, and info on any geographic hazards like erosion or flooding.

A LIM is sometimes handed out to potential buyers, but keep an eye out: if it’s more than a few months old, it’s a good idea to request an up-to-date version. Councils are also only responsible to the person who has requested the LIM for any incorrect statements it contains, which means you’re only covered if you request a LIM from the Council yourself. There will normally be a fee to pay.

 Valuations and Lenders Mortgage Insurance

If you have less than a 20% deposit, lenders often request a valuation before they’ll agree to give you a mortgage. So it’s a good idea to put aside some extra cash to cover this work.

If you have less than a 20% deposit, you’ll also almost certainly have to pay lenders’ mortgage insurance (LMI), sometimes also called a low equity premium (LEP). This is insurance that protects the lender if you’re unable to keep up with your mortagage repayments, and is not the same as mortgage repayment insurance that protects you if you become sick, disabled, or lose your job.

The cost of the LMI is charged either as extra interest on top of your standard mortgage interest, or an additional one-off charge. As a one-off charge it will either need to be paid upfront, or added on top of your mortgage. You can find out more about the costs of LMI here.

The hidden costs once you’ve had your offer accepted

Lawyers/conveyancers

You’ll need a lawyer to deal with the paperwork and the transfer of ownership, which is called conveyancing. It’s a good idea to find one while you’re still house hunting, so that you’re ready to move quickly once you do find a place you’d like to put in an offer on. The cost of this will vary depending on how complex your purchase is and how many offers you make.

Purchase deposit

When you’re making an offer, you’ll be asked for a “purchase deposit” that you’ll pay in cash - this is normally 5% to 10% of the purchase price. If your deposit is mostly made up of KiwiSaver funds, you might not have this much of your deposit as cash, so raise this with your lawyer before you put in your offer. You should also keep in mind that making a KiwiSaver withdrawal can take a few weeks - you should also discuss this with your lawyer.

Renovations, repairs, furniture and fit-out

Once you’re actually in, you might face a few costs getting the place sorted. While most of us can live with ugly curtains for a while, you should ensure all the basics, like electrics and plumbing, are running smoothly and safely.

Some properties come with chattels like dishwashers and fridges, but others don’t, so read your sale and purchase agreement carefully. There’s also a whiteware shortage in New Zealand due to Covid-19, so you might be in for a long wait for new appliances.

Insurance

Your new house is likely to be your most valuable asset, so it’s important that you protect it. Most lenders will need proof that you’ve arranged insurance for a property before settlement, so get some quotes early on.

As well as home and contents insurance, you should consider mortgage insurance, which will cover mortgage payments if you’re ever unable to work. Working out your insurance obligations and what level to be insured for is something you really want to get right, so talk to your insurer or financial advisor to make sure you’ve got the right level of cover.