Costs of buying a house in Australia

When planning to buy a house, there are extra costs that may pile up once you sign the contract. Here’s a quick guide of what to expect on top of a house’s purchase price.

The main function of a home loan is simple: people borrow a fixed amount of money to purchase property that they wouldn’t have been able to finance otherwise.

When calculating how much you’ll need to get a home loan, it’s usual to consider, of course, how much deposit you’ll need and what the repayments, plus interest, will be over the life of the loan.

However, there are many other costs on top of these which all borrowers should keep an eye out for. Excluding interest and the deposit, upfront costs can total to as much as $40,000, or more, depending on the conditions of your loan, where you live and how much you want to borrow. Many of these fees have to do with the legal paperwork required to purchase property. Other fees are to do with setting up the loan, which are reflected in a loan’s comparison rate.

Extra costs may include:

• legal and conveyance fees
• stamp duty/transfer duty
• loan application or establishment fees
• mortgage registration fee
• lenders mortgage insurance
• home and contents insurance
• pest and building inspections
• moving costs
• connection costs

When shopping around for the right home loan, it’s important to understand extra costs as much as possible so you can plan your finances accordingly. Let’s take a look at some of the fees in more detail.

Legal and/or Conveyance fees

The process of buying a home is, in simple terms, a process of navigating the legal system in a coordinated manner. The term conveyance is defined as “the preparation, execution, and lodgement of various legal documents to enable a swift and legal sale”.

A conveyancer (or a solicitor who performs conveyancing services if you are in Queensland or the ACT) is a legal professional who helps represent you and your interests when buying a home. They act as property law specialists who can assist with negotiating via a contract through to settlement, and also perform legal searches and submit official documentation to various government departments on your behalf. All up, you can expect to pay between $500 and $1800 for conveyancing services across Australia, according to Oneflare.

Remember, conveyancers and solicitors can vary in terms of price and overall quality of services, so it could be a wise idea to do your research before engaging one. Please refer to Canstar’s How to find a Conveyancer article for more information.

Stamp Duty/Transfer Duty

The term Stamp Duty sounds like it could cost as much as a postage stamp, but is in fact one of the more costly fees that borrowers can expect when purchasing a home. Stamp duty, which is also called Transfer Duty, is a government tax on large transactions like insurance or real estate.

How much you’re charged for Stamp Duty depends entirely on which state you’re purchasing in and how much the home costs. If you have to pay it, this additional cost can vary from thousands to tens of thousands of dollars – or even more –  in some cases.

The amount you may have to pay will vary depending on:

• whether or not you’re a first time buyer
• how you’re using the property – whether it’s your primary residence or you’re using it as an investment property
• what type of property is it – Is it an established home or apartment, or simply a vacant lot?
• whether or not you classify as a foreign purchaser
• if you qualify for any stamp duty or transfer concessions.

When considering buying a property, you could use tools like Canstar’s Stamp Duty Calculator as a general reference to work out how much it might cost.

Explore: Can stamp duty be added to my mortgage?

Loan application and/or establishment fees

Loan application fees and loan establishment fees are some of the immediate costs associated with setting up a home loan.

Depending on the circumstances, loan fees can range from $600 to even $1000 in some cases. Lenders are legally required to display the comparison rate alongside the product’s interest rate. A comparison rate is an estimate of a loan’s total cost when interest and extra fees are added in. You can use this as a guide to how much the loan could cost when compared to other loans of the same type. For example, the Canstar Home Loan Comparison tool displays both the interest rate and the comparison rate for each loan.

Explore further: Home loan fees

Keep in mind that sometimes loan fees can be waived under certain circumstances. Remember to check the details of who you’re applying with, some banks often waive the fee entirely for first-time home buyers, so make sure to stay on top of useful deals that are available. Also remember that getting home loan pre-approval can greatly increase your odds of receiving a deal in the long run.

Mortgage registration fee

Technically speaking, a mortgage is a legal agreement that describes the terms of the home loan and the conditions under which the borrower is entering into with the lender.

This fee is usually smaller and varies depending on which state or territory you’re in, with the average cost ranging from $150-$200.

Lenders mortgage insurance (LMI)

Lender’s mortgage insurance, otherwise known as LMI, is an often mandatory cost that protects the bank from default.

LMI is a common insurance home-buyers are required to purchase when they want a home loan to buy a property but they have a deposit that’s less than 20%. The cost of LMI can vary depending on the circumstances at play. For example, some higher risk purchases or borrowers may require LMI regardless of how much deposit is being paid, while borrowers in low risk categories, such as those working in certain professions, might not have to pay it at all, even if they have less than 20% deposit.

The cost of the insurance depends on the loan-to-value ratio (LVR) which is another way of stating what percentage of the property you’re buying outright with the deposit. If you are buying a property worth $100,000 and you have a deposit of $20,000, then the LVR is 80%. If you only have $10,000, your LVR is 90%. If the LVR is more than 80%, you’ll most likely be required to purchase LMI. The more you need to borrow, the higher your LMI will be.

Home insurance

While it’s not typically a legal requirement to have home insurance to cover a property you are buying, lenders may require the borrower to get home insurance as further security on the loan. This could be required from the day that you sign the contract, so be sure to ask your lender what their expectations are in regards to insurance.

Keep in mind that this can vary state to state, as contract laws can differ depending on the nature of the contract. For more information, please refer to Canstar’s Home Insurance resources.

Explore further: What insurance do you need when buying a house?

Pest and building inspections

Unexpected problems can arise when owning a property. From pest infestation to mould to general defects with the property, it’s important to consider obtaining pest and building inspections, as they can help you to work out if the property needs money spent on it in the short or long term. For example, there could be termite damage hidden from view, issues with insulation or building code problems that only an expert builder or pest inspector could identify. In some cases, buyers could use this information to request the seller bring the property up to a certain standard, or to reduce the contract price as compensation for having to do the work themselves. It could even be cause for the contract to crash.

While house inspections may not be mandatory, they are highly recommended as a necessary cost, according to the Australian Government’s Moneysmart website. It’s generally good to set aside at least $400-$600 for these types of inspections.

Moving costs

If you are planning to live in the property you intend to buy, it’s a good idea to incorporate the cost of moving into your financial planning.

Removalist costs can vary depending on how many belongings you have, how much moving you plan to do yourself, where you are moving to and what access is like in your new place. Please refer to Canstar’s article on removalists for further information.

Connection costs

Connecting your home to essential services, such as connecting power, gas, phone and internet, involves fees that you can expect when purchasing a home. The total cost of this can vary depending on where your home is located, what level of service you would like and what access is like. Factors like terrain, height and distance to the power grid, for example, can greatly affect the final price of energy connections. You may like to compare options, such as browsing Canstar Blue’s Energy and NBN comparison tools, before making a purchase decision.

The overall cost of buying a house in Australia involves more than just saving for a deposit and working out how to cover repayments. Associated costs may range into the five-figures, so it could be a wise idea to plan ahead as much as you can when working out your home buying budget.

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