A guide to the upfront costs of buying a home

Yes, everyone is well aware that buying a home is an expensive process. But with so many extra costs on top of the actual amount for the house, you need to have your finances in order to avoid any costly surprises.

In some cases, the upfront costs for a property valued at $400,000 could be up to 11% of the property's value.

To make sure you’re not caught off guard with hidden fees, we’ve listed all of the upfront costs to look out for when purchasing a property:

#1. The property itself

Let's start with the big one!

The largest and most notable expense will be your property deposit. Of course, this cost will vary depending on location, size, space, location and the owner’s own valuation of their property.

• Related: Read our guide to home loan deposits

When negotiating the purchase price remember that some additional costs (e.g. stamp duty, LMI) are based off a percentage of the property value. So, not only would you be saving for the actual property cost, but also helping reduce additional costs later down the track.

Most buyers aim to save 20% of the purchase price to avoid any extra charges such as Lenders Mortgage Insurance. However, it’s hard to have that kind of savings, especially in Australia's capital cities, so there are other options available if you don’t have that 20% deposit saved.

Depending on your situation and the specific lender, some lenders provide loan for borrowers with as little as 5% deposit, but keep in mind you're likely to pay Lenders Mortgage Insurance (LMI) with a low deposit, which we will talk about next.

#2. Lenders Mortgage Insurance

Lenders Mortgage Insurance (LMI for short) is a flat fee that is usually required to be paid to a lender if your deposit for a loan is below 20% of the property's purchase price.

The LMI exists as a protection for lenders should you (the borrower) be unable to pay off your loan. It’s an extra cost that can be avoided by regularly saving and paying at least 20% of the property’s value. See if you might need to pay LMI using our LMI calculator.

The payment is usually 1-3% of the property’s value and does not go towards repaying the home loan, it is generally paid on top of your monthly repayments to your lender.

#3. Stamp duty

Stamp duty is a once-off fee or tax you are required to pay when you purchase property or land. This tax is enforced by the state and territory government, so it varies depending where the transaction occurs.

See what the stamp duty rules and rates are for your state or territory.

For example, a $400,000 property’s stamp duty in NSW will range from $16,000 - $20,000, which is about 5% of the property value.

There are some exemptions depending on which state you live in. For example, first time home buyers in NSW and QLD are exempt from stamp duty fees, as well as ‘off-the-plan’ properties valued up to around $600,000.

Stamp duty is perhaps the largest additional cost after the purchase of a property, so make sure to take this tax into account with any purchase of a property.

#4. Legal fees

The transfer of property contracts can involve complex legal requirements, so it is worth considering hiring a conveyancer or solicitor to act as your legal representative and make sure all the documents are up to scratch.

Conveyancers are generally more affordable than solicitors as their expertise is specifically the conveyancing process while solicitors may be needed in more complex property transfers. The NSW Housing guide states that conveyancers usually charge from $800 - $2,500.

In most cases, conveyancers will be able to get the job done and they usually charge a flat fee compared to solicitors that are likely to be paid on an hourly basis.

#5. Home loan application & establishment fees

When you apply for a loan, some lenders will charge a fee for establishing the loan with the price varying from lender to lender. These costs range from $0 - $1,000.

Additionally, there might be extra costs for preparing and registering a home loan with the lender. These might include the valuation fee and survey report as well as the lender's own legal fees.

Make sure you consider all fees while comparing home loans. Additionally, if you think you might refinance in the next few years, look for a loan that has affordable exit fees when switching lenders. Ask your Home Loan Specialist for help negotiating these fees.

If the exit fees are high, it can make it more difficult to get out of a loan and force you to stay in a mortgage that doesn’t work for you as your needs change.

#6. Property inspections

Before purchasing a property, your conveyancer or lender will usually require a property inspection to make sure that the home is in good condition and structurally sound.

The usual inspections include:

• Building inspection - This looks at the structure of the house and makes sure there are no issues with the skeleton of the house as well as any visible defects that need to be repaired. Cost: $300 - $700
• Pest inspection - A pest inspection ensures that there are no pests inside the property currently, as well as finding out whether there have been any pest infestations previously. Cost: $200 - $350
• Strata inspection - According to the NSW Business website, “A strata inspection examines and reports on the written records of the owners’ corporation. It is additional to the certificate that the seller supplies, providing relevant information about strata levies, insurances.”. Cost: $200 - $350

#7. Moving fees

If you’re planning to move into your new house, there are multiple different fees you’ll need to take into account. These include:

• Removalists - Depending on how far you are moving and how much furniture you have, removalists can costs upwards of $150 per hour.
• Connecting phone line - Approximately $59 (where phone was connected previously) $299 (where phone was not connected previously).
• Connecting internet/broadband - Connection can cost $99 upwards, while professional installation in a newly developed area can cost around $140.
• Electricity connection - Some providers will charge approximately a $180–$200 security deposit for new customers.

Ask us anything

If you have any further questions regarding the hidden costs of buying a home, choose a time to chat with one of our Home Loan Specialists.

The information in this post is general in nature and should not be considered personal or financial advice. You should always seek professional advice or assistance before making any financial decisions.