What are the upfront costs when buying a home?

What are the upfront costs when buying a home?

You’ve worked extra shifts, held numerous garage sales and maybe have even gotten a little financial help from family. But you’ve done it – you’ve saved up a home deposit.

While this is no easy feat, first time buyers need to remember that there are actually a number of expensive upfront costs that you may be hit with when buying a home. Some costs may be avoided, such as buyer’s agent fees, but there are some major costs you’ll have to consider.

Here is a comprehensive look at the major upfront costs you may be charged when buying a home, their average costs, and how you can potentially avoid them.

1. Stamp duty

The biggest upfront cost any homebuyer may face outside of a deposit is stamp duty or ‘transfer duty’.

This frustrating tax differs per state and territory in Australia, and may be charged when buying property, including your home, a holiday home, an investment property, vacant land or a farming property, commercial or industrial properties, as well as a business which includes land.

Stamp duty cost = $0 - $100,000+. State or territory exemption and concession dependent, and property purchase price or value dependent. Calculate the potential cost of stamp duty now.

How you can avoid it. There are exemptions and concessions to stamp duty. Many first home buyers may find their state or territory exempts them entirely from paying this tax. Some states or territories may offer exemptions or concessions, depending on the value of the property. Check your state or territory’s government revenue website for more information and consider purchasing property with values that are eligible for stamp duty exemption or concession.

2. Lenders mortgage insurance (LMI)

LMI is an insurance cost required of homebuyers when they want to borrow more than 80 per cent of the value of a property from a lender. This percentage is also referred to as the loan-to-value ratio (LVR) and LMI is calculated based on this.

Essentially, lenders view borrowers taking out a home loan with a deposit of less than 20 per cent (aka an LVR of over 80 per cent) as riskier. As this borrower type may be more likely to default on a loan, they are charged with paying an insurance for this loan to protect the lender.

LMI cost = $0 - $40,000+. LVR dependent. Calculate the potential cost of LMI now.

How you can avoid it. If possible, aim to save a deposit of 20 per cent or more to avoid this pesky cost. You may also get a family member to go guarantor on your home loan deposit to help bolster your LVR. Keep in mind that most lenders allow you to tack your LMI on to your home loan total, so you may not have to pay it upfront but over the life of your loan. However, this will increase your loan amount and therefore the amount of interest you pay in total – generally more than the original cost of LMI.

3. Establishment fees

This home loan fee is meant to cover the costs of creating your file and producing the necessary documents to set up your home loan. Whether a lender charges this or not, and the value of the fee, will depend on the financial institution you choose.

Cost of establishment fees = $0-$500+

How to avoid this cost. A range of home loans will either not come with this upfront cost or waive it for borrowers (especially refinancers) in order to get them on their books. Speak to your new lender directly and ask if this fee, if present, can be waived.

Home loans with low upfront fees

4. Conveyancing costs

A conveyancer will oversee the legal aspects of your property. Their role typically involves overseeing the Contract of Sale, obtaining the Certificate of Title, reviewing the Vendor’s Statement, representing your interest on settlement day and more. They will also help prepare legal documents associated with the property purchase as well as provide legal advice around the transactions.

Conveyancing costs = $700-$2,500 (NSW Govt.)

How to avoid this cost. This is a difficult cost to avoid unless you, or a close relation, are one. However, there are DIY conveyancing kits available online if you’re willing to attempt this yourself.

Hands holding a toy home banner

5. Property inspections

Paying for a professional property inspection, including pre-purchase inspections and building consultancy services can save you significantly in major repairs and financial stress. It’s generally considered a must-do for home buyers. If a current owner or real estate agent advices they’ve performed a property inspection, it’s still recommended you pay for your own independent inspection.

According to Sydney PrePurchase, there are a few types of property inspections with a range of costs, including:

  • Cost of combined building and pest inspections = From $399
  • Cost of pre-sale inspection = From $399
  • Cost of final inspection = From $399
  • Cost of technical reports = From $495
  • Cost of structural engineer report = From $800

How to avoid this cost. You may be able to avoid these costs by taking the word of the property owner/real estate if they’ve paid for their own reports. However, this comes with its own level of risk as they may only pay for one or two property inspection types that paint the property in a good light.

6. Removalist costs

You’ll also need to pay for professional removalists when moving into your new property. The cost of your removalist will depend on the size of your existing dwelling and its contents. This will influence how many removalists are required and the size of removalist truck needed. Removalist companies typically quote a flat rate per hour, with additional costs charged by minute, half hour or hour once you go over 3+ hours.

Cost of removalists = $500-$1,000. Size of dwelling and contents dependent.

How to avoid this cost. There are a few ways you can avoid paying for removalists but be prepared to find yourself (and any friends/family roped in) doing one or more days of hard manual work. Consider hiring a truck yourself, as well as buying removal boxes from Bunnings and renting or buying a trolley for heavier furniture. You may even be able to lessen this cost by outsourcing it to task websites, like AirTasker.

7. Home and contents insurance

While not always compulsory, homebuyers may also invest in home and contents insurance for financial piece of mind when buying a property. This type of insurance may pay for the cost of renovating or repairing a home in case of accidental damage, as well as recovering the cost of possessions that have been damaged, vandalised or stolen.

The premium you pay for this type of insurance will depend on the provider you choose, the coverage you prefer, any excesses, as well as your postcode if you live in an area prone to natural disasters or theft.

Cost of home and contents insurance = Depends on the individual and the property. Compare home insurance providers now.

How to avoid this cost. The only way to avoid this cost is to seek a very basic level of coverage, or either not take out home and contents insurance. However, you’ll be opening your property and belongings up to a level of risk.

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Can I get a NAB first home loan?

The First Home Loan Deposit Scheme of NAB helps first home buyers purchase a property sooner by reducing the upfront costs required. This scheme is offered based on a Government-backed initiative, with10,000 available places announced in October 2020.

Suppose your application for the NAB first home buyer loan is successful. In that case, you’ll only need to pay a low deposit, between 5 and 20 per cent of the property value and won’t be asked to pay lender's mortgage insurance (LMI). You’ll also receive a limited guarantee from the Australian government to purchase the property.

If you’re applying for the NAB first home buyer home loan as an individual, you need to have earned less than $125,000 in the last financial year. Couples applying for the NAB first home loan need to have earned less than $200,000 to be eligible. To be considered a couple, you need to be married or in a de facto relationship. A parent and child, siblings or friends are not considered a couple when applying for a NAB first home loan.

The NAB First Home Loan Deposit Scheme is currently offered only to purchase a brand new property, rather than an established property.

How can I apply for a first home buyers loan with Commonwealth Bank?

Getting a home loan requires planning and research. If you are considering a home loan with the Commonwealth Bank, you can find the information you need in the buying your first home section of the bank’s website.

You can see the steps you should take before applying for the loan and use the calculators to work out how much you can borrow, what your monthly repayments would be and the upfront costs you’d likely pay.

You can also book a time with a Commonwealth first home loan specialist by calling 13 2221.

CommBank publishes a property report that may help you understand the real estate market. The bank has also created a CommBank Property App that you can use to search for property.  The link to download this app is available on the same webpage.

If you are eligible for the First Home Loan Deposit Scheme, CommBank will help you process your application. The scheme helps first home buyers to purchase a home with a low deposit. You can read details about this scheme here and speak with a CommBank home lending specialist to understand your options.

How do I get a pre-approved home loan with Aussie?

Getting Aussie home loan pre-approval means receiving conditional support from Aussie Home Loans to borrow the money you need to buy a home. 

It’s an indication of the approximate amount Aussie may offer you, subject to some terms and conditions. Keep in mind, having a pre-approved home loan does not guarantee an actual approval of your loan when it comes time to buy.

Aussie home loan pre-approval often involves speaking to one of the lender’s brokers. You can make an appointment online. You’ll often have to submit your personal details and other information about your assets, income, liabilities and expenses.  It’s worth remembering that a pre-approved loan is usually valid for a few months.

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).

How do you qualify for a CBA home loan with casual employment?

Qualifying for a home loan without a full-time job may be challenging, but it can be done. The first step is to understand how a CBA home loan is assessed when you have casual employment.

Most lenders will assess your expenses and savings while checking your loan eligibility, checking on factors crucial to home loan approval, such as if your bills are paid on time and what your credit score presently looks like. 

Your income can be one of the most critical factors to determine your final approved home loan amount. As such, you’ll need to provide payslip copies to lenders to assist them in assessing your income during the loan tenure, regardless of your employment status, full-time, part-time, or otherwise.

Casual employees will want to be casually employed for at least 12 months to be eligible for a home loan. Alternatively, you want to have worked as a permanent casual worker (working for a fixed number of hours per week) for at least one month, or you should have been in your current job for a minimum of three months (if the hours are irregular) to be eligible for the loan.

Why should I get an ING home loan pre-approval?

When you apply for an ING home loan pre-approval, you might be required to provide proof of employment and income, savings, as well as details on any on-going debts. The lender could also make a credit enquiry against your name. If you’re pre-approved, you will know how much money ING is willing to lend you. 

Please note, however, that a pre-approval is nothing more than an idea of your ability to borrow funds and is not the final approval. You should receive the home loan approval  only after finalising the property and submitting a formal loan application to the lender, ING. Additionally, a pre-approval does not stay valid indefinitely, since your financial circumstances and the home loan market could change overnight.

 

 

What is the average length of a home loan?

Most Aussie lenders offer home loans with a 30-year term, meaning that you should pay back the full loan amount and the interest you owe on the amount in 30 years. 

However, home loans can also have a shorter or longer term. They may be as low as ten years or up to 45 years, depending on the product and lender. 

It’s worth remembering that a longer loan term usually means you’ll end up paying a lot more interest in total, but your scheduled repayments may be more manageable. In contrast, you could opt for a shorter loan term if you are comfortable making large repayments in exchange for paying less interest over the term of the loan.

Can I get a NAB home loan on casual employment?

While many lenders consider casual employees as high-risk borrowers because of their fluctuating incomes, there are a few specialist lenders, such as NAB, which may provide home loans to individuals employed on a casual basis. A NAB home loan for casual employment is essentially a low doc home loan specifically designed to help casually employed individuals who may be unable to provide standard financial documents. However, since such loans are deemed high risk compared to regular home loans, you could be charged higher rates and receive lower maximum LVRs (Loan to Value Ratio, which is the loan amount you can borrow against the value of the property).

While applying for a home loan as a casual employee, you will likely be asked to demonstrate that you've been working steadily and might need to provide group certificates for the last two years. It is at the lender’s discretion to pick either of the two group certificates and consider that to be your income. If you’ve not had the same job for several years, providing proof of income could be a bit of a challenge for you. In this scenario, some lenders may rely on your year to date (YTD) income, and instead calculate your yearly income from that.

Does UBank offer home loan pre-approvals?

If you’re applying for a home loan with UBank, you can first get an approval in principle. You’ll need to provide information about your job and earnings, your household expenses, the assets you own and the debts you owe. 

UBank will assign a home loan specialist to discuss these details over a phone call, which can take about 30 minutes. 

The bank will then confirm if you’ve received in-principle approval for your home loan. Depending on how you submit your documents, this could take a few days or a few weeks. If successful, the approval will be valid for 60 days. 

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.

What is a secured home loan?

When the lender creates a mortgage on your property, they’re offering you a secured home loan. It means you’re offering the property as security to the lender who holds this security against the risk of default or any delays in home loan repayments. Suppose you’re unable to repay the loan. In this case, the lender can take ownership of your property and sell it to recover any outstanding funds you owe. The lender retains this hold over your property until you repay the entire loan amount.

If you take out a secured home loan, you may be charged a lower interest rate. The amount you can borrow depends on the property’s value and the deposit you can pay upfront. Generally, lenders allow you to borrow between 80 per cent and 90 per cent of the property value as the loan. Often, you’ll need Lenders Mortgage Insurance (LMI) if the deposit is less than 20 per cent of the property value. Lenders will also do a property valuation to ensure you’re borrowing enough to cover the purchase. 

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).

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.

Will I have to pay lenders' mortgage insurance twice if I refinance?

If your deposit was less than 20 per cent of your property’s value when you took out your original loan, you may have paid lenders’ mortgage insurance (LMI) to cover the lender against the risk that you may default on your repayments. 

If you refinance to a new home loan, but still don’t have enough deposit and/or equity to provide 20 per cent security, you’ll need to pay for the lender’s LMI a second time. This could potentially add thousands or tens of thousands of dollars in upfront costs to your mortgage, so it’s important to consider whether the financial benefits of refinancing may be worth these costs.