Tallying up all the costs of buying a home

We all know that buying a home involves a big initial financial outlay, but few of us are aware of just how long the docket can run. Federal and State governments may be handing out incentives left, right and centre, but this doesn’t mean that you no longer need to prepare an extensive cost analysis before buying a home.

The costs involved in buying a property can go all the way up to 11% of the purchase price for some people. If you have a $44,000 deposit for your $400,000 home, that’s your entire deposit spent on costs.

If you’re a first-home buyer, the costs are eased by the First Home Owner Grant and other government incentives but bear in mind that the miscellaneous expenses can really weigh on your finances.

Appliances, furniture, and renovations can all eat your savings away so it pays to be prepared with a solid budget detailing your planned expenses before leaping into the property market.

Costs of buying a home in Australia:

• Upfront costs:

  • Lenders Mortgage Insurance

  • Legal and conveyancing fees

  • Building and pest inspections

  • Stamp duty

  • Home loan fees

  • Buyers agent

  • Removalist costs

• Ongoing costs

  • Council rates

  • Strata and body corporate

  • Regular maintenance and repairs

  • Home and contents insurance

Costs of buying a home in Australia

Homebuyers will usually incur two types of costs: upfront costs when securing the loan, and ongoing costs once you’ve bought the home. It is best to always calculate your mortgage finances to be aware of both of these costs. 

Upfront costs of buying a house

Lenders Mortgage Insurance

Lenders Mortgage Insurance (LMI) is charged by lenders if the homebuyer is borrowing more than 80% of the value of the property. LMI is a cost paid by the borrower which protects the lender if the borrower defaults on the loan.

The cost of LMI can depend on the insurance provider and the size of your deposit. You can try using our Lenders Mortgage Insurance Calculator to get an estimate.

Legal and conveyancing fees

Hiring a solicitor or conveyancer is a must when buying a property. Although there are DIY conveyancer kits available online, there’s just no substitute for the real thing. 

A solicitor or conveyancer will prepare all the required documentation and be your go-between with the bank and the vendor you’re buying the property from. There are also costs around registering the land and mortgage transfers.

The main difference between a solicitor and a conveyancer is their form of expertise and in turn, the price of their service. A qualified conveyancer is limited to preparing legal documents and giving legal advice in regards to property transactions, whereas a solicitor can provide a wider range of legal advice.

Building and pest inspections

A building and pest inspection (for houses and separate dwellings) or strata report inspection (for units and strata dwellings) is strongly advised. 

These reports will provide information on the structural integrity of the building (including pest infestations for houses) and inform you of any problems which might bring costly repairs later on. For a unit block, a strata report inspection will let you know what work has been done on the building and if any is planned for the future (including all costs paid and due to be paid).

Stamp duty

Stamp duty (also known as transfer duty) can be a huge expense and is one of the most complained about costs when purchasing a property. The cost of stamp duty varies from state to state, as do the various state and territory stamp duty concessions for first home buyers.

An example of stamp duty costs for an established home valued at $800,000 in New South Wales is over $31,000. Not all lenders allow this cost to be capitalised into the home loan, so it’s a cost you need to be prepared to pay for upfront in addition to your deposit.

Buyer's agent

Obviously, you don’t have to have a buyer’s agent but it’s certainly a cost to consider. A buyer’s agent works exclusively for you as the homeowner to find, negotiate and purchase a property to suit your wants and needs.

They have all of the research tools and contacts at their fingertips and will track down the right home for you, generally within a short 45–60-day window. Homebuyers usually take six months to do the same job. They can often swoop in on properties that aren’t even on the market yet and get you in ahead of the competition.

Removalist costs

A professional removalist team will take the stress out of the process, although costs can be reduced by hiring a trailer or truck to move your home contents DIY style.

Home loan fees

Once you have a home loan, there are several home loan fees that may be charged upfront. Lenders try to make their fees and charges transparent for borrowers, but each lender might call their fees something different and some fees might still catch you by surprise.

For instance, application fees may be referred to as establishment fees, and settlement fees may sometimes be referred to as the lender’s legal fees. To further complicate things, an application fee can sometimes include your settlement fee, document preparation fees and a valuation fee.

For some borrowers, this could be confusing and could potentially make budgeting harder. However, it is all about reading through the terms and conditions of your home loan contract and making sure you know what each fee or charge means. Your mortgage broker should be willing to provide a list of the costs involved in getting your home loan.

This makes it important for you to ask your broker about the comparison rate schedule for your home loan product to see how other fees affect the true cost of the loan.

Home loan fees that may be charged include:

• Loan establishment fee. This is a one-off upfront cost to establish your loan. It is sometimes called an application fee and can often cover the cost for one valuation, bank legal fees and settlement attendance fees for the bank.

• Valuation fee/security assessment fee: Your lender will employ an external valuer to do an assessment on the property you’re purchasing. This will determine how much the lender is willing to lend you, as the borrower and potential homeowner.

• Security guarantee fee: If a guarantor is putting up security towards your home loan, you’ll be charged a fee.

• Rate lock fee: A fee paid by fixed rate borrowers on application for a mortgage. By paying a rate lock fee, your rate will be locked from application and will incur no other increases before you begin your first repayment.

• Document preparation fee: Your lender may also charge a fee to prepare your home loan documents before the contract is approved.

Ongoing costs of buying a house

Council rates

When you buy a property you’re required to pay the vendor the remaining yearly or quarterly rates, such as water and land. These will begin from the date of settlement and will be individual to the property and area.

Strata and body corporate

If you’ve purchased an apartment, unit or townhouse, you’ll need to pay body corporate or strata fees. These cover the maintenance of shared areas in and around the property, building insurance (this only covers the building not the contents of your apartment) and admin fees to run the body corporate/strata management.

Regular maintenance and repairs

As a homeowner, you’ll also need to budget for regular maintenance and repairs on your property. Hopefully, these expenses won’t happen too regularly but you do need to budget for them as they can quickly become very expensive.

Maintenance can include getting your air conditioners serviced, painting the property, gardening, cleaning out the gutters, etc.

Repairs may include replacing a broken hot water system, air conditioner repairs (somehow they always know to break down in the middle of summer), fixing a leaking washing machine, repairing screen doors, etc.

Home and contents insurance

Taking out building insurance is a requirement of lenders as part of the process of getting a loan. The question of when you need to have your building insurance sorted by can differ according to the state or territory you live in, and also depends on your contract. Generally speaking, you’re required to have building insurance on the property from the day both parties sign the contract of sale, or by settlement.

It’s also wise to take out contents insurance which covers all the contents within the property, including all your furniture, electronics, and so on.

Ready to buy a house? The table below features home loans with some of the lowest interest rates on the market for owner occupiers.

This article was first published by Nila Sweeney on 04 October 2018, updated by Gerv Tacadena 11.2.22