What Are the Upfront Costs of Buying a Home?

Are you searching for a one-bedroom apartment close to the city or planning to a big house with a garden in one of the best Tasmanian suburbs? Either way, it pays to know the upfront costs of buying a house apart from the home loan deposit. These costs may include government taxes and other associated expenses you need to consider to avoid unpleasant surprises. To help you understand the fees better, we have prepared a quick guide to upfront home-buying costs in Australia.

Stamp Duty

A state or territory government tax imposed on the property transfer, stamp duty is inarguably one of the largest upfront costs of buying a house in Australia. The amount you’ll need to pay depends on the purchase price of the property and the state in which it’s located. Some states, including Tasmania, offer stamp duty concessions for first-time home buyers. Check if you’re eligible to lower the amount of stamp duty you have to pay for your first house. 

Lenders’ Mortgage Insurance (LMI)

If your deposit is less than 20% of the property’s purchase price, you may be required to pay Lenders’ Mortgage Insurance, which protects the lender in case of loan default. Its cost varies depending on your mortgage amount and deposit size. It can be a substantial expense, but it allows you to buy a home with a smaller deposit. 

Loan Application Fees

Some lenders charge a loan application fee to cover the costs of processing your mortgage application. This fee can vary between lenders, and some may waive it entirely as part of a promotion or for competitive reasons. 

Legal and Conveyancing Fees

These fees cover the cost of the legal work involved in purchasing a property. This includes preparing and reviewing the contract of sale, conducting property searches, and handling the settlement process. The fees can vary widely depending on the complexity of the transaction and the conveyancer or solicitor you choose.

Building and Pest Inspections

You must conduct a building and pest inspection before finalising the purchase. These inspections help identify structural problems or pest infestations that could cost you a lot in repairs down the road. So, prepare for this upfront home-buying cost, which will depend on the property size and the level of inspection required.

Home and Contents Insurance

While not always mandatory, taking out home and contents insurance before settlement is highly recommended. This insurance protects your new home and belongings from damage or loss caused by insured events such as fire, theft, or natural disasters. So, be prepared for home insurance costs as early as possible.

Government Fees

Apart from stamp duty, you must be aware of the other government fees associated with buying a house in Australia. These include the cost of transferring the property title into your name (transfer fee) and registering your mortgage on the property title (registration fee). These government fees vary by state and territory.

Tips for Budgeting for Upfront Home-Buying Costs in Australia

Understanding these costs is the first step to creating a more accurate budget. Here are more tips for budgeting for the upfront costs of buying a house in Australia:

• Use Savings Calculators

Leverage online savings calculators to estimate how long it will take you to save for a deposit based on your current income and expenses. These tools can provide a realistic timeline for your savings goal and help you adjust your budget accordingly.

• Create a Realistic Savings Plan

Based on your research and calculators, create a savings plan that outlines how much you need to save each month to reach your goal. Be realistic about your expenses and look for areas where you can cut back to increase your savings rate.

• Save for a Larger Deposit

Doing so helps you reduce LMI costs, secure better mortgage rates, and potentially lower the upfront costs of buying a house. It may take longer to save for a larger home loan deposit, but it also pays to consider its long-term financial benefits.

• Research and Compare Mortgage Deals

Spend ample time comparing different mortgage deals. Look for options with lower fees and interest rates, as these can affect both the initial & overall cost of your loan.

• Explore Government Assistance

Look into government schemes and grants available for first-time home buyers, such as the First Home Owner Grant or the First Home Guarantee. Being eligible for such grants can help reduce the burden of upfront costs of buying a house in Australia

• Stay Informed and Flexible

Stay informed about changes in the property market, interest rates, and government policies that could affect your home-buying journey. Be prepared to adjust your budget for upfront costs and savings plans as needed.

Summing It Up

Purchasing your first home in Australia involves various upfront costs that can add up quickly. But when you understand and budget for these expenses early in the home-buying process, you can achieve a smoother transition to homeownership.

Want to learn more about the upfront costs of buying a house and other related details? Talk to one of our seasoned mortgage brokers in Hobart. They will answer all your questions about home-buying and help you prepare well for your purchase.