When it comes to buying a house, you can expect many more costs than just the original purchase price. It doesn't take long before those extra costs start to add up, and you find yourself pushing your financial limits. Therefore, to avoid going over your budget, it's essential that you prepare your finances to accommodate all the hidden costs associated with buying property.
If you're stressed about these extra costs, there's no need to worry! In this blog post, we will break down all the hidden expenses that are categorised under the following headings:
1. State and Federal Government
2. Home Loan Application
3. Property Purchase
To ensure you're adequately prepared before purchasing your home, we will provide a breakdown of each category, including an estimation of how much you can expect to pay for each cost.
State and Federal Government
State and Federal Government fees are one of the most significant expenses you can expect to pay for when buying a home. The main fees that you can expect to pay are stamp duty, mortgage registration and property transfer, each coming with a hefty price that quickly adds up.
For example, if you were to buy a house at Australia's mean purchase price within the eight capital cities (currently sitting at $863,700), you can expect to pay anywhere between $27,684-$49,171 just on Government fees.
Stamp Duty Fee
Stamp duty is a Government tax imposed on all Australian States and Territories. The tax works on a sliding scale, and the percentage you pay primarily depends on your new home's State or Territory location. Stamp duty also considers other factors, such as your home's market value, location and whether you will occupy the property or are a property investor.
As a general rule of thumb, you can expect to pay around 3% to 4% of the property value. Alternatively, if you already know the property value of your potential new home, you can use our stamp duty calculator to get a good idea of how much you will end up paying.
It's also worth mentioning that there are stamp-duty tax exemptions that have been set up by the Australian Government to help first home buyers enter the market. The good news is that if you meet the criteria established by the Australian Government's grant administered by the National Housing Finance and Investment Corporation (NHFIC), you will not need to pay any stamp duty.
Mortgage Registration Fee
Another cost you can expect to pay is a mortgage registration fee, which is an administrative payment incurred when registering your real estate with your State or Territory's Land Titles Office.
Registering your mortgage allows future prospective buyers to check for claims against the property. The one-off payment varies with each State or Territory; however, you can expect a cost of around $150.
Property Transfer Fee
Another cost associated with buying a house is the property transfer fee. You will encounter this cost when you register your name on the property title, to which your State or Territory Government will charge an administrative fee for the change in register.
Much like the mortgage registration fee, the property transfer fee depends on which State or Territory you're in. Some states and properties have a set rate for the property transfer fee, while others use a sliding scale. However, generally speaking, you can expect to pay between $100 to $150.
Home Loan Application
You can find costs hidden in every stage of your application process, starting from your initial application all the way up to your final approval. Believe it or not, you should also prepare for your lender to charge ongoing administrative fees for handling your home loan.
The costs you can expect to pay include loan application fees, property valuation costs and lenders mortgage insurance. Overall, this can set you back around $4,700-$11,600 in expenses related to your loan application, with a further $60-$400 added on each year from ongoing administrative fees.
Loan Application Fees
If you take out a loan to buy a house, you’ll have to pay an application or establishment fee before you’re approved for the loan. This upfront fee is a one-off payment that typically ranges from $500 to $600. However, depending on your lender and loan type, application fees can reach an excess of $1,000.
For this reason, it's critical that you find the right home loan that suits your financial needs and avoids costly application fees. Doing your research can make a big difference when adding up all your costs at the end of the day.
Property Valuation Cost
In the process of applying for a home loan, you can also expect the lender to charge you a property valuation fee. It's not uncommon that your lender will request a property valuation of your new home to ensure that they don't lend you more than what the real estate is worth.
While some lenders may offer free property valuations as an incentive for your business, others are known to use independent valuers who charge a fee ranging from $200 to $600. It's never a bad idea to do your due diligence and ask lenders if they charge for a property valuation, as it could save you some money!
Lender’s Mortgage Insurance (LMI)
In instances where you need to borrow more than 80% of your property's purchase price, your lender will require you to buy lenders mortgage insurance (LMI). This type of insurance helps protect lenders if you default on your loan and sell your home for less than the outstanding amount due.
You can expect this one-off cost to arise during the loan settlement period. The price tag itself depends on a range of factors, including your lender and the size of the deposit. Therefore, the higher your purchase price and the smaller your deposit, the more you pay. Generally speaking, premium rates can range from 0.475% to 4.603% of the total amount you borrow.
Unfortunately, the costs don't stop once your lender has approved your home loan. You can expect ongoing administrative fees that you can expect to pay with each mortgage repayment for the duration of your loan. Depending on your home loan terms, these fees may be either monthly or yearly payments.
- Monthly fees: Monthly fees pay for servicing and administering the loan, possibly including redraw facility or prepayment fees. Monthly fees are usually $5 to $15 ($60 to $180 yearly).
- Yearly fees: Package home loans with discounts on interest rates often include annual fees between $300 and $400.
The actual process of purchasing your property also includes a range of hidden fees that you should prepare for. These costs can consist of conveyance or solicitor fees, alongside building and pest inspections.
Overall, you should prepare to set aside around $700 to $3400 for these property purchase-related fees.
Conveyance and Solicitors Fees
Specific legal fees are included with the purchase of your property. These fees come from either conveyancers and solicitors, who help with legal aspects of your purchase, such as preparing the contract of sale and transfer of land documents. They can also assist in searches concerning legal issues of property ownership and liaise with banks to help adjust rates and taxes on the property.
While conveyancers deal with property transactions, solicitors help advise on other legal matters related to your property purchase. It is possible to handle all the legal aspects of buying a house on your own, however we recommend hiring a conveyancer or solicitor to avoid any mistakes in your purchase.
Conveyancing or solicitor fees vary between $500 to $3000, depending on the circumstances of your purchase. You’ll also have to cover any expenses they pay to a third party on your behalf for services such as title searches and mortgage registration.
Building and Pest Inspection Costs
Most lenders will also require you to complete building and pest inspections to determine any structural issues or infestations for concern.
While expensive, a building or pest inspection can actually be an invaluable step in your property purchase journey. This is because they can help determine the home's true value while also making you aware of any significant issues that could deter you from buying.
In many cases, if you find any issues from the inspections, you can negotiate with the seller to reduce the overall purchase cost or have them repair the problems before buying.
In a rough estimate, you can expect to pay around $200 to $400 for a building and pest inspection, alongside an extra $200 for a strata report.
While you are not legally obliged to buy insurance, it is a popular choice among homeowners to ensure that extra peace of mind when protecting their assets.
There is a range of insurance options that you can select to protect yourself, including home and contents insurance, mortgage protection insurance and income protection insurance.
Depending on the level of protection you are after, you can expect yearly costs of around $3,870 to $10,790, or even more if you select all four types of insurance.
Home and Contents Insurance Cost
Although it is not compulsory, some lenders may require you to take out home and contents insurance. While it is another cost on top of a long list of expenses, it's a good idea to protect both your home and belongings in case of fire, flood, theft, or other disasters.
There are plenty of cost-effective bundle home and contents insurance policies available that can provide you with some comfort in the event of an unexpected disaster. The cost depends on your level of premium, alongside the overall value of your home and contents.
Mortgage Protection Insurance
Mortgage protection insurance (MPI) is an insurance type that covers the cost of your monthly loan payments if you lose your job, have a severe illness or injury, or die. Ultimately, MPI can give you peace of mind that you and your loved ones will continue to have a home in the event of worst-case scenarios.
The policy may pay up to a specific amount of the loan in case of the borrower’s death, with any leftover money going to the borrower’s estate. Additionally, it may pay a monthly amount if the borrower cannot work because of illness, injury, or job loss (with a limitation on the number of months for payout).
The cost of MPI will depend on your age, loan amount, number of people on the policy, and repayment amount. You can expect to spend 0.5% to 1.5% of your loan amount yearly. For the median home in Australia, this would be $2750 to $8250 annually.
Income Protection Insurance
Similar to mortgage insurance, income protection insurance (IPI) can help you continue to make mortgage payments for a certain amount of time if you become injured or ill.
The difference is that IPI can usually provide more financial security than MPI. IPI also covers other living expenses outside of your mortgage when you’re not working, meeting up to 70% of your previous income.
The cost depends on your monthly income, gender, age, and health. For example, the average price of IPI for a healthy 35-year-old male, making $86,000 yearly, is $45 a month ($540 annually).
The last category to address includes any other costs that may emerge during your home purchase. This can include council and utility costs, body corporate fees, repair costs, and moving costs.
Calculating the overall cost of each of these expenses can be difficult, as you need to account for a range of factors.
Council and Utility Rates
Each local council collects rates to help fund local infrastructure and services as a property tax. Council and utilities are fees you will need to pay for utility and water services that your council provides to your property.
Council and utility rates are due quarterly, and your council will use your property value to determine your share of the cost.
Utility rates depend on household size and energy consumption. However, a general example is that the average annual electricity cost ranges from $916 in Western Australia to $2224 in the Northern Territory.
Body Corporate Fees
Suppose the property you purchase is an apartment, townhouse, duplex, or unit managed by a body corporate. In that case, you will need to pay a body corporate fee and strata fees.
Body corporate fees cover property maintenance, repair, and insurance costs for the property. These fees mainly depend on how large the property is, its age, the overall condition, maintenance required and the strata committee.
General body corporate estimated costs are as follows:
- No lifts: $2000 yearly
- One lift: $3500 yearly
- Two lifts: $6000 yearly
Unexpected Repair Costs
Other hidden costs of buying a house lie in unexpected repair costs. These repairs might need to happen as soon as you buy the home if the inspection finds something or over time.
Appliances, HVAC units, and water tanks tend to last a shorter time than they once did. So, if you’re buying a house that’s reaching its 10-year birthday, you can assume that you’ll soon be replacing nearly everything that’s not new.
Now that you’ve considered all upfront costs and ongoing costs related to buying a home, it’s time to think about moving costs.
Moving across the city won’t cost nearly as much as moving across the country. The cost depends on how far you move, the number of possessions, and whether you move yourself or hire a professional.
You could spend anywhere from a few hundred dollars to $1000+.
Final Thoughts on the Hidden Costs of Buying a House
While stressful, preparing yourself for every possible cost is the best way to avoid spending more money than you were expecting. There is no price tag attached to doing your due diligence and researching every avenue possible to save on upfront costs and ongoing payments.
One way to cover your ground is to find the best-suited home loan provider. Joust Live Auction lets you place your mortgage in an online home loan marketplace and let banks or lenders bid on it. In return, you can expect to find the best rates and options that suit your personal financial wants and needs.