The extra costs of buying a home and how to minimise them
For most people, your home is the biggest thing you’ll ever pay for. Sadly the cost doesn’t come in one neatly packaged bundle. Expenses come in different shapes and sizes, and from sources you mightn’t expect.
Budgeting properly can help ensure that when you do move in, you’ll have more left in your pocket than just a set of house keys.
Here are some of the things we advise our members to think about when they’re buying a home.
This is usually the biggest upfront expense for a home buyer. How much you might need will depend on the type of borrower you are, the amount you’re borrowing, as well as the terms of your home loan. For example, for someone applying for their first home loan, most lenders will require a minimum deposit of 10% of the value of the property but 20% is a good rule of thumb.
Generally, the bigger the deposit you’re able to pay, the stronger a position you’ll be in for a number of reasons.
- Firstly, it means you’ll own a bigger portion of the home from the start, with less to pay back.
- Secondly, paying a bigger deposit can mean you avoid other costs – for example if you have a deposit of 20% or more you won’t have to pay for Lenders’ Mortgage Insurance (more on that later).
- Thirdly, it’ll give you access to greater choice when it comes to selecting a home loan . A bigger deposit often means access to a cheaper interest rate.
Starting to save for a deposit as early as possible is a wise move, and finding the right savings account can be a big help. Some accounts offer rewards through bonus interest for regular saving and term deposits offer a great option to lock away funds for a set fixed term so you’re not tempted to dip into your savings.
When your home loan application is being assessed, having evidence of savings is a great way to show your discipline and that you’re ready for the financial commitment of a home loan.
For First Home Buyers, it’s worth looking out for government savings schemes designed to make becoming a home owner more achievable. The First Home Super Saver Scheme is the latest example of government developing schemes to support first home buyers in saving towards a deposit.
Stamp duty (sometimes called ‘transfer duty’) is a government tax on property purchases and is likely to be your biggest upfront cost (aside from Lenders Mortgage Insurance (if applicable)). The amount you need to pay depends on which state you’re in, the value of the property, and the type of buyer you are.
In some cases, certain types of buyers don’t have to pay stamp duty if the property they’re buying is below a certain value. These exemptions are often designed to help First Home Buyers and vary from state to state, so it’s worth checking to see if you could be eligible.
Mortgage registration fee
This is usually a relatively small fee (around $150) charged by the government of each state in order to register the home loan against the property being purchased. The fee varies from state to state, so be sure to check what this fee might be for you.
Other government fees
Depending on the type of buyer you are and the type of property you’re buying, other government fees may apply. See our government fees calculator to find out what you might have to pay.
At the outset, it’s worth planning for the cost of legal/conveyancing fees. The cost will likely depend on the complexity of the transaction and the time involved, but would normally be around $1,500. It’s a good idea to shop around and ask for quotes from a number of providers before committing to one.
Building/pest inspection fees
To avoid any nasty surprises it’s sensible to arrange for independent building and pest inspections to be carried out on the property. In fact, you can make your offer to buy conditional on the building passing these inspections to your satisfaction.
The costs will depend on the size of the property, but again it’s a good idea to shop around before deciding which provider to use.
You may also need to budget for repairs or improvements to be made to the property before it’s ready for move-in day. These types of costs are less likely if you’re buying a new or recently built home. Be wary of paying for any improvements until the purchase has gone through and you’re the legal owner of the property.
There are a number of different kinds of insurance to think about (and budget for) when you’re buying a home.
Lenders’ Mortgage Insurance (LMI)
Covers the lender if you are unable to pay back the home loan. It’s paid by the borrower (you) and can often be included in the overall cost of the loan. However, paying it as a lump sum upfront can help minimise the overall cost of the loan. As mentioned already, if your deposit is 20% or more of the value of the home loan, you won’t have to pay LMI.
Home and contents insurance.
Home insurance covers you if your property is damaged or totally destroyed by things like a storm or natural disaster. Some details, like when you need to take out the insurance (before or after having an offer accepted), will vary from state to state. In Queensland for example, any risk associated with damage to the property transfers to the buyer within 24hr of an offer to purchase being accepted by the seller so it’s important to have done your insurance research before making an offer. Contents insurance covers the things inside your home, so you only need to take this out when you move into the property.
Once you’ve bought a new place, you’ll have to think about the cost of actually moving in. Unless you have an army of willing friends and a large van at the ready, using a professional removal service will be necessary. Most of these charge based on the quantity they have to move and the time it takes to get it from A to B.
Having a couple of helpers available on moving day can help get the job done more quickly and less expensively, but it’s still likely to cost hundreds of dollars for a full house move, and considerably more if you’re moving a long distance. Always shop around before you commit.
The extra bits and bobs
In the rush to get the main costs covered, don’t forget to save some money for the little extras you’ll need when you first move in. These may include cleaning fees, extra pieces of furniture, tools for DIY (and gardening tools if your new place has a garden), and of course nibbles for the house warming party. Making a list before you head to the shops is a good way of avoiding overspending.
More ways to keep the cost down
As well as the cost-saving opportunities already discussed, there are other ways to manage the expense of buying a new home.
- Grants for First Home Buyers.
State governments often offer grants to those hoping to take their first step onto the property ladder. These grants sometimes only apply to specific types of properties (like newly built homes) or homes under a certain value. Visit http://www.firsthome.gov.au to see if you’re eligible for a grant.
- Financial planning.
Speaking to a qualified financial planner is a good way of making sure you are taking advantage of any cost-saving opportunities available. They can also offer advice on saving and other ways to get you in a strong position to buy a property.
Need more help with budgeting for your new home? Our home loan calculators can help you get to grips with how much you’ll need.
Important information: Please note that this is only intended as a general guide in relation to issues you may want to consider when looking at buying a property. It is not intended to be an exhaustive list of all relevant issues and you should take into account your own particular circumstances, and obtain independent expert advice where needed, before proceeding.