Saving for your first home loan deposit is unfortunately just step one. Many first home buyers underestimate how much they really need to save when they’re looking at buying a house and can forget to budget in the other expensive add-ons. Getting into the property market isn’t cheap so it’s a good idea to familiarise yourself with the costs you’ll be up against.
One of the biggest upfront costs is stamp duty. This is a state-imposed tax you have to pay when you buy property. How much you pay depends on which state your property is in but factors such as purchase price or whether it’s an investment property come into play too. Stamp duty could cost you just a few hundred dollars or it could be in the tens of thousands, however most states do offer decent concessions to first home buyers. In Victoria, first home buyers don’t have to pay any stamp duty at all on properties up to $600k, just as long as they intend on living there for a minimum of 12 months. From there, you could be eligible for a reduced stamp duty fee. You can use this calculator to work out your stamp duty or take a look at our article on Everything you need to know about Stamp Duty.
Unless you have a 20% deposit saved, you may need to pay for Lenders Mortgage Insurance (LMI). This one-off payment is a fee banks and other finance lenders charge to protect themselves from borrowers they consider high risk. It exists as security for the lender in case you are unable to make the repayments on your home loan. The amount you owe depends on the lender accessed value (LVR) of your property and the amount you borrow. LMI can be waived for certain occupations including accountants, lawyers and doctors who earn an annual salary of $150k or more for loan amounts up to 90%.
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When you buy a house, it’s a good idea to engage a conveyancer or solicitor to look after all the documents you’ll need to sign such as the transfer of ownership and settlement agreement. This can be super complicated to navigate, so engaging with specialists makes sure the process goes smoothly. Typically these fees are around $1800 but they can be a lot more if it’s a more complex situation.
While stamp duty and LMI are generally your biggest upfront costs, there’s a few smaller fees that new buyers may not be familiar with and need to factor when budgeting.
When you apply for a home loan, your lender will need to do a property evaluation to make sure they can recover enough money from the sale of your property if you default on your loan. This usually costs a few hundred dollars, although there are some lenders that waive this fee.
You’ll also need to pay a loan application fee that is generally around $600+ to set up your home loan. Again, sometimes this fee can be waived depending on who you end up borrowing money from.
One of the other smaller costs you’ll need to pay is a mortgage registration fee, which is a state government fee that registers the property as the security on your home loan. Transferring ownership of property into your name however will cost you a fair chunk more. This is another state government fee that pays for transferring the title of your property from the previous owner into your name.
Budgeting for pre-purchase pest and building inspections is a good idea too as it can save you a lot of money in the long run. You may notice superficial faults yourself when inspecting but hiring a professional to check under the house and in the roof, gives you peace of mind that the home you’re about to buy is structurally sound and free of any infestations.
Understanding all the hidden costs that come with buying lets you properly budget so you’re not caught out once you do decide it’s time to buy. All these little costs can quickly add up, so making sure you’re across them all well before it’s auction day will save you in the long run.