Buying your first home? Prepare to pay $15,000 before moving in

Buying your first home? Prepare to pay $15,000 before moving in

RateCity investigates the real cost of buying a home.

July 30, 2010

There is sometimes more than meets the eye when it comes to the cost involved when buying a home and taking on a mortgage. Aside from saving for the deposit (which is generally 5 to 10 percent of the purchase price), you will need to outlay additional money for costs before you even buy the house, during the home loan process and then once you have purchased the property, including:

  • Stamp duty: this property tax will depend on which state the property is in, if you are a first home buyer or not, the value of property, your loan amount and whether you will live in the dwelling or rent it out. For instance, if you are a NSW first home buyer purchasing a home valued at $300,000 with a loan size of $270,000, stamp duty will cost you nothing however you will still be up for registration and transfer fees of approximately $295 and if you are not a first home buyer it will cost you approximately $9285. Whereas in Victoria using the same details it could cost you over $12,300 regardless of whether you are a first home buyer or not. For a $300,000 property and a $270,000 loan size, the current national average cost of stamp duty for a first home buyer is $4647 and non first home buyers is $9736.
  • Conveyance fees: depending on the conveyancer or solicitor the cost usually ranges from $600 to $2500 (average $1550). Ask them to disclose the cost upfront so you know what you’ll be up for.
  • Building and pest inspections: building inspections range from $250 to over $2000, depending on the size of the property. Pest inspections can cost between $200 and $400.
  • Mortgage establishment fees: this will depend on the lender and the amount you borrow. The average cost is $666 which includes application fees, legal fees, valuation fees and administration charges.
  • Lenders Mortgage Insurance (LMI): if you borrow more than 80 percent of the purchase price you will need to pay LMI which is usually an upfront fee. For example, for a $300,000 mortgage borrowing 90 percent ($270,000) LMI would cost about $3800.
  • Removalist fees: moving will cost you between $200 to around $1500 depending on how far you have to travel, whether you do it yourself or hire removalists and how many trips are required.
  • Home and contents insurance: depends on a number of factors including the price of your home, location, value of your properties contents and the insurance company. The cost can range anywhere from $700 to thousands. It’s recommended to sign up for insurance straight after the cooling off period and before settlement because if the house burns down for instance it’s your responsibility.
  • Council Rates: calculated based on the value of your home multiplied by the rate in the dollar (which is determined by the council according to their revenue and total capital improved value of properties in the area). For instance if your property is valued at $300,000 and the council rate in the dollar is 0.42 cents, your rates will be $1260.

The total cost estimated for a first home buyer before the outlay of buying a property is about $15,000 and for non first home buyers it’s about $20,000! Before you fall off your chair, there are ways of reducing the cost.

  • First Home Owner Grants (FHOG): depending on which state your property is in, you may be eligible for a FHOG. For instance in NSW you could receive $7000 to use towards purchasing your home and fees involved. Visit www.firsthome.gov.au for more information.
  • First Home Plus Scheme: some states offer an exemption from stamp duty which could save you a significant amount of money. For example in NSW you may receive an exemption of stamp duty of up to $17,990.
  • DIY: drastically reduce costs by investigating ways of doing things yourself. For example, purchasing your own conveyancing kit for around $200 could save you hundreds. However, there can be some risks involved so make sure you do your research beforehand.
  • Become your own removalist: hire a truck and do the moving yourself. Truck rental varies but usually around a couple of hundred dollars per day.
  • Compare home loans online to find a mortgage with a low interest rate and low fees which will make the costs involved with buying a home well worth it.

 

 

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Learn more about home loans

What fees are there when buying a house?

Buying a home comes with ‘hidden fees’ that should be factored in when considering how much the total cost of your new home will be. These can include stamp duty, title registration costs, building inspection fees, loan establishment fee, lenders mortgage insurance (LMI), legal fees and bank valuation costs.

Tip: you can calculate your stamp duty costs as well as LMI in Rate City mortgage repayments calculator

Some of these fees can be taken out of the mix, such as LMI, if you have a big enough deposit or by asking your lender to waive establishment fees for your loan. Even so, fees can run into the thousands of dollars on top of the purchase price.

Keep this in mind when deciding if you are ready to make the move in to the property market.

Interest Rate

Your current home loan interest rate. To accurately calculate how much you could save, an accurate interest figure is required. If you are not certain, check your bank statement or log into your mortgage account.

Savings over

Select a number of years to see how much money you can save with different home loans over time.

e.g. To see how much you could save in two years by switching mortgages,  set the slider to 2.

Remaining loan term

The length of time it will take to pay off your current home loan, based on the currently-entered mortgage balance, monthly repayment and interest rate.

Monthly Repayment

Your current monthly home loan repayment. To accurately calculate how much you could save, an accurate payment figure is required. If you are not certain, check your bank statement.

How much is the first home buyer's grant?

The first home buyer grant amount will vary depending on what state you’re in and the value of the property that you are purchasing. In general, they start around $10,000 but it is advisable to check your eligibility for the grant as well as how much you are entitled to with your state or territory’s revenue office.

What is a low-deposit home loan?

A low-deposit home loan is a mortgage where you need to borrow more than 80 per cent of the purchase price – in other words, your deposit is less than 20 per cent of the purchase price.

For example, if you want to buy a $500,000 property, you’ll need a low-deposit home loan if your deposit is less than $100,000 and therefore you need to borrow more than $400,000.

As a general rule, you’ll need to pay LMI (lender’s mortgage insurance) if you take out a low-deposit home loan. You can use this LMI calculator to estimate your LMI payment.

What is an ongoing fee?

Ongoing fees are any regular payments charged by your lender in addition to the interest they apply including annual fees, monthly account keeping fees and offset fees. The average annual fee is close to $200 however there are almost 2,000 home loan products that don’t charge an annual fee at all. There’s plenty of extra costs when you’re buying a home, such as conveyancing, stamp duty, moving costs, so the more fees you can avoid on your home loan, the better. While $200 might not seem like much in the grand scheme of things, it adds up to $6,000 over the life of a 30 year loan – money which would be much better off either reinvested into your home loan or in your back pocket for the next rainy day.

Example: Anna is tossing up between two different mortgage products. Both have the same variable interest rate, but one has a monthly account keeping fee of $20. By picking the loan with no fees, and investing an extra $20 a month into her loan, Josie will end up shaving 6 months off her 30 year loan and saving over $9,000* in interest repayments.

How much deposit do I need for a home loan from ANZ?

Like other mortgage lenders, ANZ often prefers a home loan deposit of 20 per cent or more of the property value when you’re applying for a home loan. It may be possible to get a home loan with a smaller deposit of 10 per cent or even 5 per cent, but there are a few reasons to consider saving a larger deposit if possible:

  • A larger deposit tells a lender that you’re a great saver, which could help increase the chances of your home loan application getting approved.
  • The more money you pay as a deposit, the less you’ll have to borrow in your home loan. This could mean paying off your loan sooner, and being charged less total interest.
  • If your deposit is less than 20 per cent of the property value, you might incur additional costs, such as Lenders Mortgage Insurance (LMI).

What is a comparison rate?

The comparison rate is a more inclusive way of comparing home loans that factors in not only on the interest rate but also the majority of upfront and ongoing charges that add to the total cost of a home loan.

The rate is calculated using an industry-wide formula based on a $150,000 loan over a 25-year period and includes things like revert rates after an introductory or fixed rate period, application fees and monthly account keeping fees.

In Australia, all lenders are required by law to publish the comparison rate alongside their advertised rate so people can compare products easily.

How much deposit do I need for a home loan from NAB?

The right deposit size to get a home loan with an Australian lender will depend on the lender’s eligibility criteria and the value of your property.

Generally, lenders look favourably on applicants who save up a 20 per cent deposit for their property This also means applicants do not have to pay Lenders Mortgage Insurance (LMI). However, you may still be able to obtain a mortgage with a 10 - 15 per cent deposit.  

Keep in mind that NAB is one of the participating lenders for the First Home Loan Deposit Scheme, which allows eligible borrowers to buy a property with as low as a 5 per cent deposit without paying the LMI. The Federal Government guarantees up to 15 per cent of the deposit to help first-timers to become homeowners.

What are the pros and cons of no-deposit home loans?

It’s no longer possible to get a no-deposit home loan in Australia. In some circumstances, you might be able to take out a mortgage with a 5 per cent deposit – but before you do so, it’s important to weigh up the pros and cons.

The big advantage of borrowing 95 per cent (also known as a 95 per cent home loan) is that you get to buy your property sooner. That may be particularly important if you plan to purchase in a rising market, where prices are increasing faster than you can accumulate savings.

But 95 per cent home loans also have disadvantages. First, the 95 per cent home loan market is relatively small, so you’ll have fewer options to choose from. Second, you’ll probably have to pay LMI (lender’s mortgage insurance). Third, you’ll probably be charged a higher interest rate. Fourth, the more you borrow, the more you’ll ultimately have to pay in interest. Fifth, if your property declines in value, your mortgage might end up being worth more than your home.

How do I refinance my home loan?

Refinancing your home loan can involve a bit of paperwork but if you are moving on to a lower rate, it can save you thousands of dollars in the long-run. The first step is finding another loan on the market that you think will save you money over time or offer features that your current loan does not have. Once you have selected a couple of loans you are interested in, compare them with your current loan to see if you will save money in the long term on interest rates and fees. Remember to factor in any break fees and set up fees when assessing the cost of switching.

Once you have decided on a new loan it is simply a matter of contacting your existing and future lender to get the new loan set up. Beware that some lenders will revert your loan back to a 25 or 30 year term when you refinance which may mean initial lower repayments but may cost you more in the long run.

How can I get ANZ home loan pre-approval?

Shopping for a new home is an exciting experience and getting a pre-approval on the loan may give you the peace of mind that you are looking at properties within your budget. 

At the time of applying for the ANZ Bank home loan pre-approval, you will be required to provide proof of employment and income, along with records of your savings and debts.

An ANZ home loan pre-approval time frame is usually up to three months. However, being pre-approved doesn’t necessarily mean you will get your home loan. Other factors could lead to your home loan application being rejected, even with a prior pre-approval. Some factors include the property evaluation not meeting the bank’s criteria or a change in your financial circumstances.

You can make an application for ANZ home loan pre-approval online or call on 1800100641 Mon-Fri 8.00 am to 8.00 pm (AEST).