When you’re sweating about making one of the biggest financial decisions of your life, lenders and vendors throw big scary words at you. ‘Hidden costs’, ‘stamp duty’, ‘taxes’ and other fees and charges that add on to home ownership. However, catastrophizing about your finances is a hindrance more than a help. So here is a tally of all the extra costs you must consider and factor into your budget when buying your first home.
The size of the deposit can determine costs.
Let’s say you’re looking at a home worth $500,000. You’ve saved up a 10 per cent deposit of $50,000. So that seems straightforward. However – if you’re buying and you have less than a 20 per cent deposit, you’re going to have to take out a Lenders Mortgage Insurance (LMI) premium. That doesn’t protect you, more so the bank or lender. Lenders’ mortgage insurance in this example would cost $7,920. Lenders won’t lend to borrowers without at least a 5 per cent deposit, so always factor in the LMI if you don’t have a 20 per cent deposit.
The unavoidables – stamp duty and statutory charges.
When you’re buying a house, you’ll have to pay stamp duty to your state government. In the example we have of a house price of $500,000 we would have a stamp duty cost of $23,346 in Victoria (though only $10,156 in Queensland). Not only that, but you’ll also have to pay to register the title (about $75). You’ll also have to pay the remainder of that year’s local Council and water rates, which can vary per area. This can run up around $500 to even $1,000. If this home is not your only home, you may have to pay an additional land tax.
Inspections, valuations and bank fees
Before you set foot into the house, you should get a pest and building inspection done to make sure the structure is sound. You also need to pay the bank a loan application or establishment fee, which can cost about $500-600. At this stage you should also take out title insurance to protect against any undue claims against your property by other people.
The lawyer’s cut
With big purchases come lawyers. What do lawyers mean? Legal fees, of course! They may charge a document preparation fee of about $200-300 and another $100 or so for legal searches and inquiries, to make sure your home has no other claims to the property or assets. Then there are legal fees depending on the complexity of the dwelling, if it’s an investment property, part of a trust or any other ownership arrangement. This can add about $1,000 to $3,000 depending on the how tricky the process may be. Since this is an owner-occupier scenario, the legal fees sit at the bottom end of the scale.
So, what’s the total cost?
Looking at the deposit, stamp duty and all the other fees added up, you’re probably looking at an extra $28,820 if we take the mid-point on all those fees as a reasonable estimate. So be wary before buying, because buying a house before you even move in…can cost a lot!