What is the average cost of buying a house?
A typical Australian house could set you back hundreds of thousands, or even millions of dollars, but that’s not the only reason you’ll need to reach for your wallet.
From home loan fees, to stamp duty, to conveyancing costs, to buyers agent commissions, home buying involves more than the ticket price.
That’s why we’ve pulled together a guide on all the common (and some of the not so common) expenses first home buyers, upgraders, downsizers, and investors might face.
Costs you might face before you buy a property
An early rise on a spring morning and a stroll through an open house, latte in hand, might sound idyllic, but after the fifth weekend, the process of finding an ideal property can get old.
However, at this point, there aren’t too many costs to bear (excluding the drive-through coffee bill you’ll inevitably rack up).
Loan pre-approval fees
Before you buy a property, you’ll probably want to make sure you qualify to take out a home loan. For that reason, any fees related to getting pre-approval or early application fees could be charged before you even start house hunting.
Not all lenders charge the same home loan fees, and some will waive the ones they do under certain circumstances, the majority don’t charge for pre-approval. Though, they might charge you to lock in your rate prior to your home loan settling or to extend your pre-approval past its expiry. While unusual, these fees could total a few hundred dollars.
Pest and building inspections
Unexpected problems can arise when owning a property, from pest infestation to mould to structural defects.
Getting a building and pest inspection before buying can help reduce the risk of larger costs if problems are left unattended.
In some cases, buyers could use this information to request the seller bring the property up to a certain standard or reduce the price. It could even be cause for you to walk away.
It's generally a good idea to set aside at least $200 to $500 for these inspections, according to the trades job listing platform Hipages.
Other professional inspections
In addition to a building and pest inspection, you might consider engaging a professional to perform the following before you buy a house:
- Surveyor’s report
- Swimming pool inspection
- Body corporate records search
- A builder’s inspection, which could come in handy if you’re planning a major renovation or knock-down-rebuild project
Buyers agent fees
A buyer’s agent is a professional who represents the prospective home buyer to find and negotiate the purchase of a house for them.
Buyers agents may charge a flat fee for their services or a percentage of the purchase price of the property, or both.
While this can depend on the service provided and the agreement entered into, buyers agents commonly charge an upfront fee and then take a commission based on the purchase price of the property they find. These can add up to a considerable amount.
For instance, a full-service buyer's agents may charge up to 3% of the purchase price, which on a $1.5 million home, is $45,000.
The risk of losing money before you've even bought
Even at this early stage, it's worth knowing that money you spend on inspections, early-stage conveyancing (like reviewing contracts), or a buyer's agent isn't guaranteed to lead to a purchase.
If a seller accepts a rival's higher offer before contracts are exchanged and returned, a practice known as gazumping, you generally have no right to a refund of costs already paid, even though the sale falls through.
Getting home loan pre-approval and completing inspections quickly can help shorten the window in which this can happen.
Costs you could face during the property settlement period
Once you’ve found your dream property, the real expenses start to roll in. First, you’ll either put down an offer or make a bid at auction.
If you’re successful, the real estate agent will likely hold their hand out for your initial deposit.
If you’re entering into a private treaty and plan to take out a mortgage to afford the property, a ‘subject to finance’ clause is recommended. This means you can claw your deposit back if your home loan lender denies your application.
Your deposit
This can sting. After all, many buyers save for years to build their deposit. Handing it over in a daunting, unfamiliar process can understandably spark nerves.
But remember, you don’t have to provide the real estate agent with your entire deposit. If you’re buying by private treaty (meaning, you’ve put in an offer), you’ll likely be able to negotiate how much you put down. If you place the winning bid at auction, you’ll usually have to put down 10% before leaving the vicinity.
The portion of your deposit (if any) you don’t provide the seller’s agent, you can keep in your bank account until your conveyancer or lender asks for it.
Legal and conveyancing fees
Speaking of, the process of buying a home requires transferring the legal title of a property from the current owner to a new one. This process is called conveyancing.
Depending on your location and the complexity of your purchase, you might expect to pay between $500 and $2,000 for conveyancing services.
A conveyancer or a solicitor can help represent you when buying a home and submit official documentation to various government departments on your behalf.
They’ll also likely perform a number of searches to ensure the property you’re buying is what you think it is, including:
- Title searches
- Registered plan searches
- Land tax searches
- Bankruptcy searches
- Contaminated land searches
- Council development and main roads searches
- Local authority and water searches
- Council zoning (town planning) searches
- Body corporate records searches
Stamp duty
Stamp duty, also called transfer duty, is a state or territory government tax on large transactions like vehicle or real estate purchases.
How much stamp duty you pay will depend where you’re purchasing property, how much the house costs, and whether you’re eligible for any exemptions or concessions.
If you do need to pay it, the cost can vary from thousands to tens of thousands of dollars, based on:
- Whether or not you’re a first time buyer
- How you’re planning to use the property; whether it’ll be your primary residence or if you’re using it as an investment property
- What type of property it is. 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 reference to work out how much it might cost you.
Loan application and establishment fees
Once your property purchase is under contract, it’s time to start getting final home loan approval, which can mean paying application and establishment fees.
Not all lenders charge these fees, but those that do can charge a broad range, anywhere between $150 and $1,000. Initial home loan fees like valuation, legal and settlement fees may also apply.
The majority of these fees, alongside a loan’s interest rate, are considered when calculating the comparison rate. You can use the comparison rate as a guide to how much the loan could cost when compared to other loans of the same type.
Mortgage registration fee
A mortgage registration fee is paid to the state or territory government and covers the cost of adding your lender as an interested party on your property’s title.
This fee is usually small (compared to others you pay during the home buying process) and varies depending on which state or territory you’re in.
Lenders Mortgage Insurance (LMI)
Lenders mortgage insurance (LMI) may be a mandatory cost, providing your lender with financial protection should you default on your home loan. It’s often required for buyers who borrow with a deposit that’s less than 20% of the property’s value—meaning they have a loan-to-value ratio (LVR) of 80% or more.
The cost of LMI can vary, but may come in at thousands, or even tens of thousands, of dollars. Borrowers working in certain professions or with home loan guarantors, might not have to pay it at all, even if they have less than 20% deposit. Government schemes like the 5% Deposit Scheme may also help borrowers avoid paying LMI.
The cost of backing out of a contract
Once you’re in the settlement window, backing out of a purchase can come with its own price tag.
Most states and territories offer a short cooling-off period after an unconditional contract is signed, during which you can withdraw, but usually not without forfeiting part of your deposit.
Here are the typical cooling off periods on the table around the country:
- NSW: five business days, and you forfeit 0.25% of the purchase price
- VIC: three business days, and you forfeit $100 or 0.2% of the purchase price, whichever is greater
- QLD: five business days, and you forfeit 0.25% of the purchase price
- SA: two business days, and you forfeit $100
- ACT: five business days, and you forfeit 0.25% of the purchase price
- NT: four business days, and the full deposit is refunded
- WA: no cooling-off period unless agreed with the seller
- TAS: no cooling-off period applies
Cooling-off periods generally don't apply to auction sales. And once the cooling-off period ends, pulling out of a signed, unconditional contract can mean forfeiting your entire deposit, plus potentially compensating the seller for costs they've incurred.
It pays to have a solicitor review the contract before you sign it, and consider a ‘subject to finance’ or ‘subject to inspection’ condition, if you feasibly could need to pull out for a specific reason.
Costs you might need to pay after you buy a property
Home loan settlement normally takes between 30 and 90 days from when contracts are exchanged. Once settlement day passes, legal ownership of the property transfers to you and the remaining purchase price is paid to the seller. From here, there's a new raft of costs to face.
Mortgage repayments
Most notable of your new costs is likely your ongoing mortgage repayments. Repayments are calculated based on your loan balance, interest rate, and loan term, and can include both principal and interest (meaning you’re repaying the debt) or interest-only (meaning you’re only repaying the interest accruing).
Canstar's mortgage calculator can give you an estimate of your repayments, based on your loan amount and rate.
Home insurance
While not usually a legal requirement, your home loan lender will likely require you have home insurance lest you void your mortgage contract. Depending on where you live, you might be responsible for home insurance from the day you sign the contract, so be sure you don’t get caught out without it.
Moving costs
If you’re planning to move into 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 the number of 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.
Connection costs
Connecting your home to essential services, like power, gas, phone and internet, typically involves a fee. The total cost of this can vary depending on where your home is located, what level of service you would like, and what access to the property is like. Factors like terrain, height and distance to the power grid, for example, can greatly affect the final price of energy connections.
