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.
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.