Saving for a home is a long journey and unfortunately the price doesn't come in one neat package.
The costs involved in purchasing a house are more than just the home loan deposit and come from a variety of different sources. While the loan deposit is usually the largest component, home buyers often forget to factor in the other upfront costs and Government fees that make up the full cost of buying a house. It's important to be aware of these costs early so you can budget accordingly and so there are no surprises when you go to apply for a home loan.
Loan deposit
Usually, the deposit is the largest cost when buying a home. The minimum deposit required generally ranges from 5% - 20% of the property value, depending on a range of factors (e.g. location, type of property etc.). It's always encouraged to provide a 20% deposit as this helps you to avoid paying Lenders Mortgage Insurance (LMI) and means you will have less to pay back over the lifetime of your loan. The amount of your deposit also depends on the price of the home you're interested in. If you're a first home buyer, you could buy a home with a deposit of as little as 5% and on top of that, not have to pay LMI, as part of the First Home Guarantee.
Lenders Mortgage Insurance
If you aren't able to save enough deposit, you may be required to pay LMI. LMI is a once off payment which protects your lender should you no longer be able meet your loan repayments. The cost of LMI depends on how much you want to borrow and how much you have been able to save for your home loan deposit.
Government fees
Buying a home also comes with various Government fees. Government fees can come in the form of stamp duty (a property transfer tax on the property price or value, whichever is greater), mortgage registration fee (a fee to register the home loan to the property), transfer fee (a fee to transfer ownership) and a title search fee. Stamp duty is the largest government cost and varies from state to state. In some states there are stamp duty concessions available for first home buyers so make sure you check this out.
To get a better understanding of what these costs might be for you, check out our stamp duty and land tax calculator. Some states may have additional Government fees and charges so it's always best to chat to your Home Loan Adviser about what you may be required to pay.
Application fees
Securing a home loan may also come with application fees, paid to the lender to cover their internal costs of processing your loan application. This fee may also be referred to as an ‘Establishment Fee' or 'Up Front Fee'.
Conveyancing or legal fees
A conveyancer or solicitor will help you prepare your documents, provide legal advice and check for any anomalies in your contract so you can have peace of mind with your decision.
Home and contents insurance
Home and contents Insurance is an important consideration in the home buying journey. You've just spent your life savings on a beautiful new home and now you need to protect it. Home and contents insurance is protection should the unthinkable happen such as flood, storm, fire or theft. While it seems strange to pay to be protected from something you hope doesn't happen, if it does, you will be more than grateful you put your hand in your pocket to ensure you're covered.
Building inspection
While a building inspection isn't a compulsory cost, it's money well spent if it means avoiding a hefty bill down the track. A building inspection may allow you to sleep soundly in your new home knowing there are no major obvious or significant defects apparent or any repairs evident can be accounted for.
If you're buying your first home you may be able to take advantage of the first home owner grant to reduce the burden of some of these costs. Check out your local government website to find out if you're eligible and how much you could receive.
