First home buyers can sometimes get a shock when they add up all the extra costs of buying a house. These costs are regularly referred to as hidden costs, when in fact they aren’t hidden, they just aren’t included in the sale price listed on the real estate sign or website. We’re talking about all the other costs of home buying, like stamp duty, conveyancing fees, and more. From government charges to lender fees, insurance to the cost for a building and pest inspection, there are many extra costs involved with buying a house.
Extra Costs Associated with Buying a House
To help you plan your budget for your new home, we’ve put together a list of the hidden costs you should expect to pay, which aren’t included in the initial price of the property.
Government Fees and Stamp Duty
Government fees include a transfer registration fee and stamp duty.
Stamp duty, also known as transfer of land duty, is a tax you may have to pay when you buy property. Each state and territory in Australia has its own rules for calculating stamp duty, some of which are more complex than others.
Stamp duty can cost tens of thousands of dollars. The exact amount depends on the value of the property and the state in which you buy it. The more expensive the home, the more you’ll pay. Fortunately, most states offer stamp duty exemptions and concessions to first-home buyers. If you’re a first home buyer, you may be eligible for a discount or exemption from stamp duty.
Conveyancing or Legal Fees
When you buy a house, you may want to engage a conveyancer or solicitor to look after the preparation and completion of all the documents, such as the mortgage and transfer of ownership and settlement.
While it is possible to complete the legal aspects of buying a property yourself, engaging a conveyancer or solicitor to prepare the documents for you and provide advice may save you money in the long run. it’s best to pay an extra $1,500 – $2,000 for a professional conveyancer to prepare the relevant documents so you avoid financial liability.
Administrative costs and other upfront costs
If you choose to engage with a solicitor or conveyancer to do the legal documentation for buying your property, this will come at an extra cost.
Buyer’s Agent Fees
A buyer’s agent is someone who you engage with to either do the negotiating and due diligence side of things or a full search where they look at property options for you, including off-market opportunities.
Engaging with a buyer’s agent is beneficial if you simply don’t have the time yourself, or if the market is competitive and properties are selling in a heartbeat. Fees vary with the services, but you’re looking at paying an engagement fee in advance, or a percentage of the purchase price of the property you buy.
Not all insurance costs are a requirement and in most cases it depends on what level of cover you want or require.
Home insurance covers the cost of loss or damage to your home. It’s also often bundled with a contents insurance policy that protects your possessions from loss or damage. Talk to your insurance provider to work out the type of cover you require. Some lenders may require you to have home insurance before settlement happens.
Income protection insurance allows you to keep up with your mortgage repayments for a certain period, in the event of loss of income if you’re injured or ill. Another option is mortgage protection insurance that can cover your home loan repayments.
Utilities and Connections
You will need to set aside a certain amount to connect water, electricity, and gas as essentials, along with things like a phone line and internet.
Building and Pest Inspection
Just like we test drive a car to check how it drives, a first-time homebuyer should be encouraged to hire an inspector to seek out any issues or hidden expenses with their potential home. This will ensure the home you’re buying is structurally sound and free from damages and pests. The building and pest inspection fee is insignificant compared to the potential cost of dealing with a major building or pest control issue.
In Perth, it is common for most real estate agents to recommend buyers get an inspection as a condition of the offer and acceptance. Buying a house, especially an older property, without a professional inspection by a builder or pest technician is risky. These inspections typically cost around $500-600 or higher depending on the property.
Don’t forget to factor in the cost of moving into your new home! If you need to enlist the help of removalists, this could add hundreds of dollars to your costs – or perhaps even thousands in some cases. You can save money by researching companies ahead of time and getting multiple quotes. But remember, the cheapest option is not always best, so read reviews and ask friends for recommendations.
What is often forgotten is that buildings need upkeep. One rule of thumb for calculating maintenance costs is an average of 1 per cent of the value of the property per year, in order to keep the house in good repair.
Council and Water Rates
Building and property owners pay council and water rates to the state government, so they vary depending on where you live.
If you own a unit in an apartment block, you’ll need to pay strata fees, which go towards general management of the building and the complex’s common areas. Strata fees can amount to a significant sum, and vary depending on where you live and the type of building you live in.
If renovations are required, you’ll need to factor in the extra costs this with incur. Make sure you weigh the cost against what you’re paying to buy the home.
Home Loan Fees
Upon taking on a home loan, you might be required to pay; a loan establishment fee, a valuation fee for the lender to assess the value of your home, or a discharge fee if you’re exiting a prior home loan agreement.
Lenders Mortgage Insurance
Mortgage insurance, or Lenders Mortgage Insurance (LMI) is required if your deposit is less than 20% of your property’s lender-assessed value.
The amount of Lenders Mortgage Insurance you may have to pay depends on your LVR (Loan to Value Ratio).
Different lenders and insurers have varying rates for calculating LMI. When you are talking to lenders about home loans, you could ask them for an estimate.
You’ll need to make your mortgage repayments at least once a month. The sum you will pay depends on your loan type, your lender, and the amount you borrow.
Mortgage Registration & Transfer Fees
A transfer and mortgage registration fee are the costs associated with formally registering a mortgage and transferring the property ownership upon buying a home. The total mortgage registration fee will vary from state to state. Under certain circumstances, such as a special promotion, the lender may waive their fee, so it pays to ask.
A transfer fee, on the other hand, are generally more expensive, and like a mortgage registration fee, range from state to state.
Loan Application Fee
Some lenders ask you to pay an upfront fee when you apply for a home loan. However, you may be able to get this fee waived. When you take out a home loan, you don’t simply pay back what you borrow – you also need to pay to set up the loan in the first place.
Taking the time to properly budget and plan for unexpected costs such as transfer costs, mortgage registration fees, lenders insurance, one off property costs, removalists, building and pest inspections and installations, insurance and repayments will help keep the buying process smooth and less stressful. Here are some handy budget calculators thanks to Nectar Mortgages.
In some cases seeking the advice of an expert or broker will help with planning for lending costs and achieving lower interest rates.
For many, buying a home or an apartment is not only about having a home, it is also the main (and often the only) way we intend to build lifelong wealth. However, it’s important you know and understand the costs of buying a house before you jump into it.