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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Learn more about home loans

When does Commonwealth Bank charge an early exit fee?

When you take out a fixed interest home loan with the Commonwealth Bank, you’re able to lock the interest for a particular period. If the rates change during this period, your repayments remain unchanged. If you break the loan during the fixed interest period, you’ll have to pay the Commonwealth Bank home loan early exit fee and an administrative fee.

The Early Repayment Adjustment (ERA) and Administrative fees are applicable in the following instances:

  • If you switch your loan from fixed interest to variable rate
  • When you apply for a top-up home loan
  • If you repay over and above the annual threshold limit, which is $10,000 per year during the fixed interest period
  • When you prepay the entire outstanding loan balance before the end of the fixed interest duration.

The fee calculation depends on the interest rates, the amount you’ve repaid and the loan size. You can contact the lender to understand more about what you may have to pay. 

Cash or mortgage – which is more suitable to buy an investment property?

Deciding whether to buy an investment property with cash or a mortgage is a matter or personal choice and will often depend on your financial situation. Using cash may seem logical if you have the money in reserve and it can allow you to later use the equity in your home. However, there may be other factors to think about, such as whether there are other debts to pay down and whether it will tie up all of your spare cash. Again, it’s a personal choice and may be worth seeking personal advice.

A mortgage is a popular option for people who don’t have enough cash in the bank to pay for an investment property. Sometimes when you take out a mortgage you can offset your loan interest against the rental income you may earn. The rental income can also help to pay down the loan.

What are the features of home loans for expats from Westpac?

If you’re an Australian citizen living and working abroad, you can borrow to buy a property in Australia. With a Westpac non-resident home loan, you can borrow up to 80 per cent of the property value to purchase a property whilst living overseas. The minimum loan amount for these loans is $25,000, with a maximum loan term of 30 years.

The interest rates and other fees for Westpac non-resident home loans are the same as regular home loans offered to borrowers living in Australia. You’ll have to submit proof of income, six-month bank statements, an employment letter, and your last two payslips. You may also be required to submit a copy of your passport and visa that shows you’re allowed to live and work abroad.

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. 

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 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.

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 apply for a home improvement loan?

When you want to renovate your home, you may need to take out a loan to cover the costs. You could apply for a home improvement loan, which is a personal loan that you use to cover the costs of your home renovations. There is no difference between applying for this type of home improvement loan and applying for a standard personal loan. It would be best to check and compare the features, fees and details of the loan before applying. 

Besides taking out a home improvement loan, you could also:

  1. Use the equity in your house: Equity is the difference between your property’s value and the amount you still owe on your home loan. You may be able to access this equity by refinancing your home loan and then using it to finance your home improvement.  Speak with your lender or a mortgage broker about accessing your equity.
  2. Utilise the redraw facility of your home loan: Check whether the existing home loan has a redraw facility. A redraw facility allows you to access additional funds you’ve repaid into your home loan. Some lenders offer this on variable rate home loans but not on fixed. If this option is available to you, contact your lender to discuss how to access it.
  3. Apply for a construction loan: A construction loan is typically used when constructing a new property but can also be used as a home renovation loan. You may find that a construction loan is a suitable option as it enables you to draw funds as your renovation project progresses. You can compare construction home loans online or speak to a mortgage broker about taking out such a loan.
  4. Look into government grants: Check whether there are any government grants offered when you need the funds and whether you qualify. Initiatives like the HomeBuilder Grant were offered by the Federal Government for a limited period until April 2021. They could help fund your renovations either in full or just partially.  

Can first home buyers apply for an ING home loan?

First home buyers can apply for an ING home loan, but first, they need to select the most suitable home loan product and calculate the initial deposit on their home loan. 

First-time buyers can also use ING’s online tool to estimate the amount they can borrow. ING offers home loan applicants a free property report to look up property value estimates. 

First home loan applicants struggling to understand the terms used may consider looking up ING’s first home buyer guide. Once the home buyer is ready to apply for the loan, they can complete an online application or call ING at 1800 100 258 during regular business hours.

What is a loan-to-value ratio (LVR)?

A loan-to-value ratio (otherwise known as a Loan to Valuation Ratio or LVR), is a calculation lenders make to work out the value of your loan versus the value of your property, expressed as a percentage.   Lenders use this calculation to help assess your suitability for a home loan, and whether you need to pay lender’s mortgage insurance (LMI). As a general rule, most banks will require you to pay LMI if your loan-to-value ratio is 80 per cent or more.   LVR is worked out by dividing the loan amount by the value of the property. If you are looking for a quick ball-park estimate of LVR, the size of your deposit is a good indicator as it is directly proportionate to your LVR. For instance, a loan with an LVR of 80 per cent requires a deposit of 20 per cent, while a 90 per cent LVR requires 10 per cent down payment. 

LOAN AMOUNT / PROPERTY VALUE = LVR%

While this all sounds simple enough, it is worth doing a more accurate calculation of LVR before you commit to buying a place as there are some traps to be aware of. Firstly, the ‘loan amount’ is the price you paid for the property plus additional costs such as stamp duty and legal fees, minus your deposit amount. Secondly, the ‘property value’ is determined by your lender’s valuation of the property, not the price you paid for it, and sometimes these can differ so where possible, try and get your bank to evaluate the property before you put in an offer.

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.