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The Hidden, the Upfront and the Ongoing Costs of Buying A Home

What are the upfront and ongoing costs of buying a property?

You've spent practically every Saturday since Christmas driving from inspection to inspection at breakneck speed, braving the crowds in case your dream home happens to be the next one. When you finally find a place to call home you don't want to see you've under-budgeted. So what exactly do you have to pay for when purchasing a home, over and above the hammer price?

The amount of time you have to search for the right property and the type of sale transaction – whether auction, blind auction or private treaty – will affect your pre-purchase costs.

Some of the costs involved with homeownership include government fees, insurance, interest charges, strata fees, council fees and more. Read on for a full run-down of the costs you're likely to come across.

Home deposit mastery

As humans, we tend to want things right now. It's called instant gratification. And while buying a home as soon as the idea enters our heads would be gratifying, the fact of the matter is good things come to those who wait. Before attempting to buy property for the first time, it's a good idea to have saved a lump sum of at least 5% of the value of the home – plus extra savings you may need for stamp duty, conveyancing fees, mortgage registration and transfer fees.

There is no magic number when it comes to a home loan deposit, however, in Australia, the majority of lenders require you to have saved 10% of the property's value (a couple of lenders may only require 5%). This means if you're looking to buy a house with a cost of $800,000, you'll need a deposit somewhere between $40,000 and $80,000.

Purchase price

This is what you'll pay to purchase the property, and unless you're paying outright, it's likely to include money you've saved and money you've borrowed.

Lenders will generally ask for a minimum deposit of 10% to 20%, but others may lend to you if a family member pays the deposit, signs as guarantor or buys the property with you as a co-owner.

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Invest in real estate concept. Over blue sky background.

Stamp Duty 

Number one fee to hit your back pocket, of course, is stamp duty. Each state has different ways of calculating stamp duty and the First Home Owners Grant also provides some relief depending on the value of your home. But as a guide, a $300,000 home in NSW will attract stamp duty of around $10,000.

Stamp duty is a land/property transfer tax applied by all Australian state and territory governments. It is one of the most significant upfront costs you'll have to pay, and it can vary greatly depending on where your property is located.

Depending on your circumstances, the value of the property and the type of property, you may be exempt from paying stamp duty, so be sure to do your research. Stamp duty (or transfer duty): Property purchases in Australia are subject to a government stamp duty, also known as transfer duty. It is charged at different rates depending on which state the property is located in. Concessions are available to some buyers but, generally, stamp duty is considered one of the highest single home-buying costs. The due date for stamp duty payment varies from state to state.

Most of us will need to borrow to buy a house, and this incurs a whole new range of fees. Just making the application generally incurs a payment from your lender to cover contracts, property title checks and credit checks.

Buyer agent fees 

Buyer agents locate and purchase property on a buyer's behalf for a price. Buyers often engage the services of a buying agent when they don't have the time to look for a property or are not comfortable managing the purchase process.

A traditional real estate agent will charge you around 2.8% of the purchase price on your property by way of commission, which equates to approximately $16,800 – roughly the cost of a small car, or a lovely overseas holiday with the family. Coupled with that, some agents add a marketing fee on top for photography and advertising on leading online portals. Add to that your legal fees with a conveyancer or a lawyer, and you won't have much change from about $20,000.

You'll also need to account for added costs such as solicitors' fees and government charges on top of your deposit. And in many cases, stamp duty. You can read UNO's comprehensive guide to stamp duty here.

The Australian Securities and Investments Commission says aiming for a deposit of 20% or more of the purchase price, plus enough to cover added costs1 is a good goal. Also, contact your state revenue office about grants for first homeowners.

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Pest & Building Inspection Fees

Other property fees can include pest and building inspection fees (a pesky one, but worth every cent if you find the walls are about to crumble) – generally around $700, depending on the size of your property.

These inspections will alert you to structural problems or defects that may not be visible—asbestos, termites, electrical, ventilation and plumbing faults.

A strata report, if you're buying a townhouse or apartment, can tell you whether the property is well run, well maintained and adequately financed.

Pre-purchase pest and building inspections need to be conducted before you bid at auction, or during the cooling-off period after the seller has accepted your offer if you are buying by private treaty. Not all individual treaty purchases have a cooling-off period – in that case, you would conduct your pre-purchase inspections before signing the contract of sale.

Mortgage registration and transfer fees

Mortgage registration and transfer fees also apply and differ from state to state.

There's also registration of ownership transfer fee, legal fees (you need a solicitor to handle the transfer the ownership), utility connection costs, council rates and ongoing maintenance costs (don't forget, when you buy your own house, you can't just "call the landlord to come and fix the leaking toilet"). These usually include a mortgage establishment fee, then charges for the property valuation, registration of the mortgage and if you have to borrow more than 80 per cent of the property price, lenders mortgage insurance.

If purchasing by private treaty, they're conducted during the cooling-off period. Some conveyancers charge a flat fee, while solicitors commonly charge by the hour. The amount you pay will depend on the complexity of the transaction.

Lender's mortgage insurance

When applying for a loan, you may also have to pay lender's mortgage insurance which is a type of insurance that protects the lender from borrowers who can't repay the loan. If you have a deposit equal to or more than 20% of a property's purchase price, generally you won't be asked to pay this insurance.

Lenders Mortgage Insurance (LMI) is a type of insurance that lenders take out to protect themselves in case the borrower defaults on the loan. Lenders usually charge the borrower a one-off fee to cover this insurance if the amount borrowed is more than 80% of the value of the mortgaged property. But this can be capitalised (incorporated into the loan amount) and the extra amount added to your monthly repayments.

Legal and conveyancing fees

You'll need to pay a licensed professional or conveyancer to conduct title searches; make a strata report (if buying a townhouse or unit); review a contract of sale; check encumbrances, covenants and easements; and negotiate settlement details. If you are buying at auction, these processes need to take place before you bid. 

Property purchase transaction costs

Once the hammer has fallen at auction, or you have signed the contract on a private treaty sale and the cooling-off period has begun, you are on your way to settlement and homeownership. 

To help with calculations, prospective homeowners should budget to spend around 5-7 per cent of the purchase price of the property on fees. On a $300,000 property, this is between $15,000 and $21,000. Suddenly, you could be looking at spending up to $51,000 with a 10 per cent deposit.

Ongoing property ownership costs

You've found and bought your property – what costs can you expect next?

  • Mortgage repayments: The principal plus interest charges and lender fees.
  • Moving home costs
  • Home and contents insurance: There are strategic ways you can reduce your home's insurance costs.

couple sitting on floor during house renovation

Moving costs

If you plan on moving into the property rather than renting it out, moving costs can vary depending on distance, if you rent a van, ask your mates to help or hire a professional removalist.

Loan repayments

You need to pay back what you've borrowed, and some loan providers may have facilities to help you keep charges down or access money you've repaid if you need it.

  • Council rates and strata fees: Here are some surprise tips on managing council and strata fees.
  • Utility costs: It is possible to cut your water, gas and electricity bills.
  • Required renovations: One way to reduce renovation costs is to do it yourself!

A guarantor is usually a family member who is legally responsible for paying back the entire home loan if the borrower cannot or will not make the loan repayments. The guarantor will also have to pay any fees, charges and interest. If you have a direct family member who can act as guarantor and use their property as a guarantee, you may be eligible for a guarantor loan.

You may also want to consider using an offset account if your lender offers this. It is a transaction account linked to a home loan to help reduce the interest payable against your outstanding loan balance.

How much you pay back and how often you make repayments will affect how long it takes to pay off your home loan. Our Loan repayments calculator can help you crunch the numbers.

A rule of thumb is the smaller your deposit, the more rigid the regulations are on it. If you've only got 5%, it has to comprise "genuine savings" – i.e. it's not dependent on your brother selling his car, or a loan from a friend. These are the things that make lenders nervous. Your deposit will affect how much you can borrow from your lender. Money from a parent or third party is known as a gift and not considered genuine savings.

Interest charges

You'll pay interest on the money you borrow so it's a good idea to compare what different lenders can offer and to check out the comparison rate.

You can generally choose a fixed or variable rate, or a combination of the two. This is worth some research as it can make a big difference to your repayments, particularly if interest rates move up or down.

If you've got 10% or more, a gift (from a parent, for example) can be part of it—the more significant the amount, the more options you'll have for your home loan.

So, if you want your Saturdays back, make sure you know your real budget – the price you pay for the property is just the start of it.

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