Buying a house is probably going to be the most expensive purchase of your entire life. Especially considering the Australian property market is at a record high. Fronting up a 10-20% deposit is just one of the factors to take into consideration when preparing to buy your home. It is important to be aware of the other costs that you need to factor into your budget, to ensure you are not leaving yourself short of funds at any point in the process.
- Stamp Duty. If you are buying a house in Australia then you will be required to pay Stamp Duty. Stamp duty is a tax on a property transaction that is charged by each state and territory and the amounts do vary. The rules for stamp duty are different in each state so you will need to research this throughly and make sure you are aware of the laws relevant to your purchase. Some states offer a stamp duty exemption for first home buyers but only up to a certain property value. Other states don’t have any concessions for first home buyers. The good thing is that stamp duty is not required to be paid up front, it will be rolled into your loan amount. You can calculate your approximate stamp duty costs here.
- Building and Pest inspection. Unless your dad is a builder or a pest man it is advised that you get a building and pest inspection on the property you are about to purchase. In most cases depending on the amount you are borrowing from the bank, they will actually require you to have this before they approve you loan. Building and Pest inspections in Australia will vary depending on location but this will most likely set you back between $350-$500. This is usually money well spentin the event that you uncover hidden damage or a live infestation of termites.
- Lenders Mortgage Insurance is a required to be paid if you are not able to provide a 20% deposit. In this day and age with prices for a house in the outer suburbs of any Australian city easily pushing 800K it is unlikely that most people will have 20%. Unless of course you have capital from a previous investment. This insurance can be quite substantial when you think about how difficult it is to save $10000, the thought of it going to insurance to protect the bank might want to make you scream. There are some ways around this listed in a previous article I wrote about how to avoid lenders mortgage insurance. If you are not able to use one of the tips to avoid LMI unfortunatley it is sometimes a necessary evil to get your foot on the property ladder.
- Solicitor costs. You are going to need a solicitor to organise the contract of sale and ensure that everything is in order relating to your home purchase. Providing the purchase is standard without any problems this will most likely set you back anywhere between $1200-$2000.
- Government Fees. Yes that is right, the government are still not finished putting their greedy hooks into your wallet. Not only will you have to pay the stamp duty tax (unless you are eligible for one of the first home buyer exemptions) you will also have to pay some government fees. These fees relate to the registration of your mortgage as well as the transfer of the property title. Depending on a few different factors this will most likely set you back up to $500.
- House and contents insurance. As soon as the property settles and it belongs to you, you need to have house insurance. When I bought my home I had pre organised the insurance to be activated on settlement day. Even though it is unlikely your home will burn down the same day you officially own it, it is not worth the risk. This home will most likely be one of you biggest financial assets so it is imperative to protect it. House insurance prices will range depending on the value of your home, location, and excess fee but it is usually not cheap. I would budget at least $1000 minimum for a one year policy.
- Furniture costs. Keep in mind that you do not need to buy everything for your new house all in one go. You can live for many months without a lounge or dining table but you will probably need appliances such as a fridge and washing machine immediately. If you do not own these things already these will set you back a bit of cash as well. I would suggest checking our facebook marketplace for cheap appliances as often people will upgrade and sell their perfectly good white goods for very cheap. Your furniture in the first couple of years after buying a house is probably not going to your dream decor but you can work your way up to that. Furniture is one of those things that lose their value very quickly after they leave the store and there is not much margin of error. For example a second hand dining table or dresser from market place is not really going to break easily, so there is no great risk of faults when buying these types of items on the cheap.
- Unforseen renovation costs. Home ownership can be expensive. What is worse is that it can have unforseen expenses relating to serious maintence issues within the home. Roof replacements, re stumping, old pipe replacementsor electrical rewiring can all cost serious money. Some of these types of serious maintence issues are also not necessarily able to be put off for a long period of time. It is always a good idea when you are buying a home for the first time to ensure that you have a buffer of some available cash for emergencies. This is particularly relevant when relating to the purchase of an older house, especially if it was built in the 50’s or 60’s like mine was.
Conclusion
We have heard it time and time again, owning your own home is the great australian dream. I bought my house in 2019 in a regional town in NSW. I never would have dreamed that a worldwide pandemic would result in an influx of cashed up city dwellers moving to the country, resulting in an increase of property prices by 50%. Looking at the prices now across Australian cities as well as coastal australian regions, it really makes me question how much longer we can hold onto the great australian dream for. I feel happiness that my main financial asset has increased so much in value but also saddness for people like my younger sister who will be burdened by a much larger mortgage debt for an equivalent property in the same area. With all the talk of interest rates rising it will be interesting to follow what happens to the prices by the end of 2024.
