The upfront costs of buying a property

The upfront costs of buying a property?

Purchasing a home in Australia can be a significant financial commitment. But it's not just the property's price tag you need to budget for, as there are various upfront costs to consider.?

In this blog, we'll break down the major expenses you'll likely encounter.

Stamp duty

Stamp duty is a mandatory tax applied to various acquisitions, including real estate. Its cost can vary greatly, as it's based on the property's purchase price, type, and intended use (for instance, investment properties generally attract higher rates than those that are primary residences).?

Different states and territories in Australia also have their own rates, with some offering concessions or exemptions for first home buyers. As such, it’s a good idea to use a stamp duty calculator to get an accurate estimation.?

Read this article to find out more about stamp duty.?

Home loan application fee

The home loan application fee is the initial cost you pay when applying for a mortgage. Depending on the lender, these fees can range from $0 to over $750. While some might offer a no-fee application, the home loan may have higher interest rates or ongoing fees, so it’s crucial to read the loan's terms and conditions and understand the long-term implications. A mortgage broker can help with this.?

Valuation fee

A valuation fee is charged by lenders to assess the property's current market value. A professional valuer will conduct this process, taking into account the property’s condition, location, and recent sales data of similar properties in the area. This process safeguards the lender from approving a loan amount higher than the property's worth.?

Typically, these fees can range from $100 to $300, depending on the property’s location.

Lenders mortgage insurance (LMI)

If your deposit is less than 20% of the property's purchase price, your lender will offer require you to pay LMI. This insurance protects the lender from potential losses should you default on your loan. The cost can range significantly, from a few thousand dollars to over $10,000, depending on the loan amount and deposit size. You can choose to pay this cost upfront or add it to your loan amount to spread the cost over the life of the loan.

It’s possible to sidestep LMI fees, depending on your circumstances. For instance, some lenders will waive the fee for certain professionals, such as doctors, dentists, accountants and engineers.

If you're buying your first home, you might qualify for the federal government’s First Home Guarantee. This scheme helps eligible first home buyers get on the property ladder with a deposit of as little as 5% deposit, while avoiding LMI, as the government will provide a guarantee of up to 15% of a property’s purchase price.?

Conveyancing and legal fees

Conveyancing refers to the process of legally transferring property ownership from the seller to the buyer. You can either hire a solicitor or a conveyancer to navigate this intricate process, which involves:

• Reviewing, preparing and lodging all legal documents, such as the contract of sale and the Transfer of Land instrument
• Researching property titles to check for? easements or any other third-party rights to enter or use the land
• Dealing with the vendor and estate agent on your behalf
• Coordinate with the lender to ensure all finances are in place for settlement

Building and pest inspection

Before finalising a property purchase, it's advised to conduct a building and pest inspection. This inspection can identify potential issues such as structural defects, water damage, or pest infestations like termites. Addressing these problems early can save buyers from costly future repairs.?

Building inspection costs vary, with no standard fee, as the charge primarily depends on the property's size. A smaller property typically costs $200–$300, while an average-sized house might be $400–$500. If you opt for a pest inspection simultaneously, it's usually an additional $100-$150.

Mortgage registration fee

This fee applies when the lender registers their interest in your property with the state's land titles office, ensuring they have a claim to the property if the loan isn't repaid.?

Again, the cost of the mortgage registration fee varies from state to state:

• ACT: $160
• New South Wales: $154.20
• Northern Territory: $155
• Queensland: $208.83

• South Australia:$179
• Tasmania: $145.35
• Victoria: $114.40 (electronic), $123.50 (paper)
• Western Australia: $187.60

Transfer fee

Another essential government fee is the transfer fee, which covers the administrative costs of transferring the property title from the seller to the buyer. This procedure ensures the legal shift of ownership, officially registering you as the new property owner in the government records.?

Moving costs

Moving can be more expensive than many anticipate. Professional removalists can charge from $100 to $280 per hour, depending on your area and whether the relocation is local or interstate.

?If you opt to move yourself, van hire, packing materials, and potential insurance can quickly add up. It's advisable to obtain multiple quotes and consider insurance to protect your belongings.

Connection fees

Remember to budget for the various connection fees associated with setting up utilities in your new home, such as electricity, water, and gas. Additionally, you might encounter fees for internet and cable TV installations. To avoid any disruptions, organise the connection of these services well in advance of your move-in date.

Home and contents insurance

Securing an insurance policy is not only to safeguard your investment but also a prerequisite by many lenders before approving the mortgage. Consider comprehensive policies that cover a range of damages, including natural disasters and theft.

Landlord and building insurance

Landlord insurance offers protection for property owners who rent out their homes. It protects against financial losses related to rental properties. Typical coverage includes damage to the building, loss of rental income, and legal liability. Unlike regular home insurance, it can also cover tenant-related issues like damage or unpaid rent. It's essential for landlords wanting peace of mind when letting out their properties.

Title insurance

Title insurance is a specialised insurance policy that safeguards property buyers and mortgage lenders against unknown defects or issues with a property's title. This could be unpaid rates, undisclosed rights of way, or fraud affecting the title. Unlike traditional insurance which protects against future events, title insurance covers past events that might impact ownership or cause financial loss. Purchasing title insurance offers a safety net for those unforeseen property ownership challenges. It's a one-off payment made when buying the property and lasts for the duration of ownership.

Purchasing costs –?examples

Upfront costs can quickly add up. To see how, let’s imagine you want to buy a $500,000 property in Queensland.?

The following table details your main upfront costs.?

The following table details your main upfront costs if you were buying a $1 million home in New South Wales.?

Looking to buy a high-quality investment property? Auswide Buyer’s Agency can help. To discuss your options, book a free consultation with Ashish Malhotra.