Costs you haven't factored in when buying a home

by AB01 Nov 2017
Buying your first home will be something you will remember forever. It’s an exciting time of your life, but it is also a big financial commitment. The last thing you want is any unexpected costs catching you by surprise. Here’s a list of a range of extra costs you may not be aware of that come with most property transactions.

Stamp duty

If you have never bought a house before, stamp duty can be a big, expensive surprise. Stamp duty is a tax on written documents and certain transactions. Existing mortgages attract stamp duty and, depending on which state you live in, can be quite substantial. It is calculated on the value of a property, and usually includes the duty itself, a transfer fee and a registration fee. Sometimes, governments use the stamp duty lever as a way of encouraging first-home buyers into the market. In Victoria, for example, there are stamp duty concessions if you are buying your first home. In New South Wales, stamp duty for a $500,000 home can be more than $18,000. In Queensland, first-home buyers only pay the transfer and registration fees. As a result, they can pay a little over $1,000 for the same priced home. The good news is that generally, you can add stamp duty to the principal amount of your home loan. To find out how much you can pay in stamp duty where you live, check on Mortgage House’s stamp duty calculator.

Lenders mortgage insurance

Lenders Mortgage Insurance is a one-off cost that usually applies if you are borrowing more than 80% of the purchase price of your house. As the name suggests, it protects the lender, not the borrower, against loan defaults. Without LMI, your loan could be considered too risky. Therefore, it can be a great tool to help you get into the property market. According to the Reserve Bank, more than one quarter of Australian loans are estimated to be covered by LMI. The cost of it can vary from lender to lender, depending on the amount of the loan and the level of risk. You can purchase it upfront if you wish, or you can capitalise it as part of your loan.

Legal fees

There can be a raft of legal and conveyancing fees that come with a mortgage, whether it is your first home or not. They can range from the hundreds of dollars for valuation or loan application fees, to the low thousands of dollars for conveyancing work. A good rule of thumb can be to budget for anywhere between 5% and 10% for all the extras you may not see coming, including stamp duty and legal fees.

It’s not all bad news

For most of the past 20 years, Australians have had access to first-home-owner grants, to encourage people to move into the property market and help stimulate the national economy. These grants can be quite substantial, and can offset any unexpected fees and charges when you buy your first home. The grants vary in different states, and often even within states. Grants can be higher if you build your first home than if you buy an existing one, and they can also be higher to encourage house construction in regional areas.

All these considerations are important things to know when you are buying your first home. Hop on Mortgage House’s site to find out more about buying your first home, including how much you may be able to borrow, what other calculations you need to know about, and what all the terminology means.