Costs of Buying Property
The Initial Deposit
The house deposit is one of the largest upfront costs when buying a home. This usually ranges anywhere from 10-20% however can vary based on funds available, occupation, which government scheme is used or comfort with debt.
Stamp Duty
This is a state based tax which applies to properties purchased. It is a mandatory upfront cost which is paid to the state’s revenue office during settlement and is usually around 3-5% of the property’s value.
I like to use https://www.realestate.com.au/home-loans/stamp-duty-calculator/
For first home buyers, there are state based scheme which sometimes waive this fee if certain conditions are satisfied so something worth looking into.
Best way to find this is by googling you state + first home buyers stamp duty eg NSW first home buyers stamp duty
On a $800,000 purchase in NSW, this would approx be $31,000.
Lenders Mortgage Insurance
This is a one off insurance premium paid by the buyer to the bank, usually when deposits are less than 20%. This protects the bank/lender against financial loss as a buyer who has less deposit is seen as a higher risk.
LMI usually ranges from 1-5% of the purchase price.
There are certain occupations with certain banks/lenders which waive the LMI fee even with less than a 20% deposit as these jobs are seen as lower risk eg doctors, dentists, optometrists, physiotherapists, lawyers, accountants etc. Speak to a broker to see if you qualify.
Legal Fees
During a house purchase, the buyer generally pays for a lawyer, solicitor and/or conveyancer. They manage the legal transfer of property ownership from the seller to buyer and help to review contracts, find relevant information about the property and coordinate the final settlement/transfer.
This will set you back approximately $1000-$3000.
Building and Pest Inspection
Buying a house is going to one of the largest purchases you make, and ensuring that the property you purchase is free from major defects is important. It’s important to know if the foundations are about to collapse or if you wood is termite ridden as this will mean additional costs in the future for yourself.
A building and Pest Inspection in most states range from $500-$800 dollars
Upfront settlement adjustments
On settlement, you may have to pay upfront for payments/costs the seller has already paid for.
For example if the seller has already prepaid for the next 3 months of council rates, you will have to reimburse the seller with the cost of these 3 months.
This applies to other utilities and fees including council rates, water rates, water bills etc.
It is best to budget for approx $1000 however this number can be higher or lower depending on the seller.
Registration, Transfer, Mortgage Registration Fee
This cost is usually paid to the bank/lender and/or state revenue office during settlement. It is the cost associated with taking out a mortgage and transferring this mortgage into your name.
This usually costs approx $600-$1500
Repairs/Maintenance/Renovations
When purchasing a new home, you may decide to repaint the house, change the tapware, replace the carpets or change the light fittings.
If you are planning to rent out the home, you may by law be required to carry out some of these tasks to bring the property up to the state based rental standards.
This cost can vary greatly based on how much you need to do.
I would leave at bare minimum approx $2000 for this.
Depreciation schedule
If you are planning to rent this house out and turn it into an investment property – it is important if applicable to order a depreciation schedule.
As things get older – the value of these items or building decrease – this is called depreciation.
As an investor, this cost is tax deductible meaning that by claiming these as a tax deduction, you increase your tax refund or decrease your tax payable.
Speak to an accountant or an experience tax depreciating service to see if this is worth it’s costs.
This normally costs $600-$800.
Summary
It is important to understand all the costs associated with purchasing a property as to not be caught out.
On a $800,00 property – purchased in NSW with no government concessions and a 20% deposit.
- Deposit = $80,000
- Stamp Duty = $30,873
- Legal Fees = $2,000
- Building and Pest Inspection = $700
- Upfront Settlement Adjustments = $1,000
- Registration, Transfer and Mortgage Registration Fees = $900
- Budget for Repairs/Maintenance = $2,000
Total Upfront Cost Required = $117,473