The right time to buy a property largely depends on individual’s available disposable income. However, it makes it easy if one takes a mortgage so as to spread the burden over a period of time, which most people prefer instead of depending on savings which may take longer before meeting the required amount. There are a number of costs that one need to pay on top of the deposit commitment. These costs normally range between 7-10% of the selling price. Let us use an example of one buying a house financed through mortgage, the estimated costs would be as below;
- Stamp Duty – A stamp duty is the tax placed on legal documents usually in the transfer of assets or property. This is usually 4% in Nairobi & Mombasa, other counties are at 2%. Some counties like Machakos charge 4% for urban areas and 2% for rural areas.
- Valuation fees – Valuation is the process of developing an opinion of value of a property, usually for banks to know the actual amount that they can give as mortgage. The fees charged by valuers is called valuation fees and there is a schedule for calculating the amount which usually comes to approx. 0.5% of the property value.
- Legal fees – This is the cost charged by the lawyers to handle real estate transactions between the buyer and the vendor, and is usually 1-1.5% of the property value.
- Mortgage application fees – This is the cost charged by banks to process a mortgage for the borrower. This varies from bank to bank. Some banks do not charge processing fees.
- Insurance – Insurance premiums are usually paid annually and is calculated based on the mortgage value at the beginning of every year. There are two types of insurance;
- a) insuring the property against fire and burglary whereby the insurance company compensates the buyer in case of risk occurring.
- b) Insuring the buyer against death or permanent incapacitation whereby the insurance company pays off all the outstanding mortgage balance in case of the risks occurring.
However, When buying without mortgage financing, the costs would include only legal fees and stamp duty.