Pay what now?! Our guide to the costs & fees involved in buying property.
So you have your deposit in your pocket and your pre approval ready to go….
Think you’re ready to sign a contract? Think again.
There are seemingly endless costs associated with buying a home, it can feel overwhelming to say the least. Though the list looks extensive, it’s nothing to be afraid of. Here we break down all the costs along the way to make sure you’re completely prepared.
Legal / conveyancing fees – between $500 - $2,200
Having a strong legal representative will help you navigate the often confusing world of property ownership. Conveyancing fees range depending on who you use and if they’re a conveyancer or a lawyer. Solicitors are usually more expensive than conveyancers as they are qualified lawyers, so they can offer a full range of legal services. Licensed conveyancers specialize in property but will not be able to handle complex legal issues should you come across them. Who you should use will depend on the type of property you’re looking at buying and the circumstances surrounding your purchase. Most conveyancers will charge a flat fee plus disbursement costs (set out below).
Stamp duty – See case study below
The biggest cost by far, is our favourite friend - stamp duty. This is paid to the government when you buy a property, it’s simply a tax on the transaction. The exact amount you’ll be up for depends on the value of the property, where you are purchasing (inner or regional) whether you will live in or lease out the property and whether or not you’re a first home buyer. It is a hefty fee, so you will need to calculate your stamp duty costs prior to purchasing any property.
Calculate your potential stamp duty here
Transfer fee – See case study below
The transfer of land fee is associated with transferring the property ownership when buying a home. As the new owner, the cost of transferring the property into your name falls to you. Forms will need to be filled out and lodged with the titles office, your conveyancer should handle this for you.
Transfer of land fee calculator
Mortgage registration fee – Approx $100 - $200
The mortgage registration fee is charged by the state government to register the security for a home loan. It is paid when a mortgage is established or discharged (paid out) against a property. The Land Titles office collects the fee for registering the lenders mortgage on the title record for the property. This allows any future buyers to check any claims that exist on a property. This will also be handled by your conveyancer.
Mortgage application fee – Approx $150 - $700
This fee can also be called start-up cost, set-up fee, or establishment fee. Lenders will charge you an application fee when you apply for a new loan, get additional funds, or change your loan to cover the cost of the documentation. Application fees start at around $150. You can ask your lender to waive application fees. Some banks won’t charge an application fee at all.
Lenders mortgage insurance – See case study below
Lenders mortgage insurance or ‘LMI’ is a one-off premium that's added to your home loan. It protects your lender in the event that you default on your home loan and there is a shortfall. The cost is calculated based on the size of your deposit and how much you borrow, the more you contribute up front - the lower the cost will be. It also differs between lenders so make sure you ask how they calculate it.
To avoid paying LMI, you typically need a deposit of 20% or more. So if housing prices are on the rise, it can pay to get into the market sooner and focus on equity growth rather than waiting to save up a larger deposit.
Get an estimate on your LMI here.
Inspection fees – Approx $700 - $800
Depending on the property type and condition, inspections such as general building, pest, timber, dilapidation reports and new home inspections are an important way to avoid nasty surprises in the future. We recommend the right building inspection on most to all properties we intent to purchase prior to negotiation or bidding at auction. They can unearth issues that are not obvious to the untrained eye, and also give a maintenance plan of sorts which will help with future finance management.
Compare the best building inspectors in Melbourne.
Moving costs – Approx $1,500
Don’t forget you’ll need to need to pay for movers and a vacate clean on your previous residence. There are enough stressors involved in moving house, lifting fridges and scrubbing toilets are easy ones to outsource and well worth the cost in our experience. You also need to budget for a potential crossover of mortgage or rental payments. We always do our best to avoid this but in some cases it is unavoidable. We advise our clients to plan for at least one month of crossover. Whether that be rental payments while finding a new tenant after breaking a lease or perhaps your settlements were not able to be aligned.
Home building and contents insurance - $1,000 - $3,000 per annum
The average cost of a home insurance policy is around $112 a month, that is based on a home worth $500,000 and contents of $100,000 - in a suburban city. The price of your home and contents insurance can vary based on many factors - including the age, value and location of your property, so make sure to compare policies and quotes.
Case study
33yro first home buyer and owner occupier looking to buy inner city Melbourne.
Likes: long walks on the beach and spicy margaritas.
Budget - $800,000
Deposit saved - $80,000
Stamp duty - $43,070
Lenders mortgage insurance - $17,712
Conveyancing - $880
Transfer fee - $1,962
Mortgage registration fee - $111
Mortgage application fee - $150 - $700
Building, timber & pest inspection – $590
Moving costs - $1,500
Actual purchase price = $866,025
So make sure you’re prepared before you start bidding!
Until next time,
Sam Davenport