The upfront costs of buying a home

Discover what the hidden costs of buying a home are to help you prepare for your purchase

Are you looking to buy your first property? Although you may be laser-focused on building up your home loan deposit, there’s a list of other costs you should think about when buying a home.

Being aware of the upfront costs of purchasing a property can help you avoid any nasty surprises along your home buying journey.

Here’s a breakdown of some of the fees and expenses you might encounter along the way.

Lenders Mortgage Insurance (LMI)

Lenders Mortgage Insurance is a fee charged by a lender to protect themself if a borrower defaults on their home loan repayments.

It is typically charged if your Loan to Value Ratio (LVR) is above 80%.

LMI is not to be confused with mortgage protection insurance. Mortgage protection insurance protects the borrower in the event that an unexpected circumstance (like illness, injury or unemployment) prevents them from meeting their monthly repayments.

It may be possible to avoid LMI fees, depending on your individual circumstances. For example, professional home loans will typically waive this fee for borrowers in certain professions, like doctors, dentists, accountants and engineers.

If you’re a first home buyer, you could be eligible for several government schemes, such as the First Home Guarantee. This waives LMI charges for first home buyers with a deposit of as low as 5% as the government guarantees up to 15% of the purchase price.

Finally, some lenders might waive LMI fees for borrowers who have a deposit as little as 15% of the value of the property. It’s important to search around and compare different home loan options to find one that works for you.

If you’re worried about LMI fees, it may be a good idea to chat with a broker to see if you’re eligible for an exemption.

Stamp duty

Stamp duty will likely be one of the biggest expenses when you’re buying a home, second only to your home loan deposit.

Also known as land transfer duty or property transfer duty, stamp duty is a one-off government tax. It is charged each time legal ownership of an asset is transferred and must be paid upfront.

How much could stamp duty cost you?

Stamp duty rates and rules vary between states and territories. The amount you’ll be charged will depend on the location, type and value of your property.

As a general rule of thumb, the fee will typically fall between 3-4% of the value of your property.

Some borrowers may be eligible for stamp duty concessions or even full exemptions, for example, first home buyer concessions.

FND’s Stamp Duty Calculator can give you an estimate of how much you might need to pay.

Hiring a conveyancer or solicitor

Conveyancers and solicitors complete all the necessary legal work when you purchase a property. This includes reviewing the contract of sale, undergoing title searches and preparing documentation requested by the lender for settlement.

Since October 2018, all residential property transactions in Australia must be done by someone with the correct legal qualifications. This means you’ll need to hire either a conveyancer or solicitor to review your contract when you buy a home.

You should receive an estimate from your conveyancer or solicitor before they get started.

Costs will depend on various factors, such as the complexity of the terms of sale for your property.

Property inspections

It may be a good idea to complete a few property inspections before you purchase your new home.

Why? These inspections can reveal whether or not you’re getting a fair deal. They can give you peace of mind before you buy and even give you means to negotiate the purchase price if things aren’t up to scratch.

There are typically three inspections to complete:

Building inspections: these check for both major and minor issues, such as structural or foundational faults and safety hazards. Based on national averages, a building inspection can cost anywhere between $200 and $1,000, depending on the size and location of the property.
Pest inspections: these check for issues with pest infestation. Pest inspection costs vary depending on the size of the property and the level of inspection required but typically cost around $150-$300.
Strata inspections: these check the accounts and records of the property and provide information on strata levies and insurances. The average price for a standard strata report is around $250-$300 but this can vary.

Loan application and establishment fees

Loan application and establishment fees are charged to cover the set-up of your home loan and various administrative costs such as application processing.

How much could application and establishment fees cost you?

These costs usually vary between $200 and $700, depending on your lender. Some lenders can waive this fee, so it may be worthwhile asking if this is possible to save some extra cash.

Valuation fees

Before your loan settles, your lender will likely charge a fee to have a third party assess and value your property.

This helps the lender decide how much they should lend you and if your deposit is sufficient.

How much could valuation fees cost you?

The report looks at the property value and resale factor and typically costs between $100 and $300 to complete, but some lenders may provide this service at no additional cost.

Renovations

If your home is a fixer-upper, or you’d simply like to make cosmetic changes to boost its value, it may be worthwhile calculating how much renovations will cost you.

There are three common types of renovations that involve different approval processes – cosmetic, minor and major.

Cosmetic work: this includes day-to-day work such as interior painting, replacing hooks and nails and filling minor cracks in internal walls
Minor renovations: this includes things like kitchen renovations, installing hardwood floors, changing internal walls or installing an air conditioner
Major renovations: this includes structural changes and any changes that affect the appearance of the property. Costs can vary greatly, depending on the type of renovation and the contractor or company you hire to do the job.

Home and contents insurance

There’s a chance you’ll have to pay home insurance as part of your home loan agreement, although this varies from lender to lender.

The cost of home insurance will depend on various factors including the size, location, age and type of construction of your property.

Two types of insurance cover are available – total replacement cover and sum insured cover.

Total replacement cover: this level of insurance provides you with enough cover to rebuild your home to the same condition as it was prior to the event
Sum insured cover: this cover will insure your home to an amount specified by you. You may need to pay out of pocket if the cost of rebuilding your home is higher than you estimated.

Contents insurance is usually optional. It covers the value of the contents of your home against any loss or damage caused by unanticipated events like natural disasters or theft.

Strata fees

If you purchase an apartment or unit, you will need to pay strata fees.

Strata fees are ongoing costs and cover the upkeep and general management of the building and common areas.

This amount will depend on the type of area and building in which your property is located.

Council and water rates

Property owners are charged council and water rates by the state government. These costs will depend on which state your property is located in and are also ongoing.

Want to find out more about the upfront costs of owning a home? Get in touch with one of our FND Brokers today.