The upfront costs of buying a home: Guide for first home buyers

It’s not just a deposit you’ll need to save for when planning to buy your first home. Here we look at some of the extra costs you need to factor in.

If you are planning to buy your own home, you might be saving for deposit. However, there are other upfront costs that also need to be taken into account.

Upfront and hidden costs can add as much as $40,000[i] to the purchase price of a property, according to realestate.com.au, so it’s critical that buyers understand them.

Stamp duty

Stamp duty, also known as transfer duty, is the biggest upfront cost beside the deposit. Stamp duty varies significantly from state to state. In NSW, stamp duty on a $500,000 home is around $17,500. ^[ii]However, most states have stamp duty wavers for first home buyers. In New South Wales, the government offers a full or partial exemption under the First Home Buyers Assistance Scheme for the purchase of homes valued at less than $800,000.

Lenders’ mortgage insurance

Depending on the size of your deposit, you may need to pay lenders’ mortgage insurance. You can expect to pay lenders’ mortgage insurance if you borrow more than 80% of your home’s value. This type of insurance protects the lender, not the borrower. Lenders’ mortgage insurance can be expensive: If you bought a $600,000 house with a 5% deposit of $30,000 then your insurance premium could cost more than $22,000.[iii]

If you are a first home buyer with a small deposit, it’s worth checking if you qualify for the First Home Guarantee, an Australian Government initiative to support eligible home buyers to purchase their first home sooner. With this scheme, the National Housing Finance and Investment Corporation (Housing Australia) provides a guarantee to participating lenders, which enables eligible first home buyers with a deposit of between 5 and 20 per cent to buy a home without paying for LMI. You can find out more about eligibility requirements for the guarantee by visiting the Housing Australia’s website.

Police Bank is a proud participating lender in the scheme. If you qualify for the First Home Guarantee, we’ll help you buy your first home with as little as 5% deposit.

Inspection fees

Building and pest inspections are critical when you buy a house in order to assess whether it has any costly hidden issues. Skimp in this area and these issues could cost you thousands of dollars down the track. The price of an inspection depends on the property and the time it takes to evaluate but as a general guide, the cost for a standard report on a typical residential property is around $500, according to LJ Hooker.[iv]

Conveyancing fees

If you are buying a property, you’ll need to satisfy a series of legal requirements to transfer legal title from the seller to you. It is important to pay a conveyancer to make sure these requirements are satisfied and do all the paperwork that goes with it. For most single dwellings, the cost of conveyancing is between $800 and $2,500, according to realestate.com.au,[v] but costs increase with the complexity of the sale.

Home loan fees

Finder estimates that the average cost of upfront home loan fees is $686[vi]. This can include:

Application fee – Also called an establishment fee, this is a fee that covers the cost of documentation of the new mortgage.
Valuation fee – This pays for a valuation of the property you are purchasing. The valuation helps the lender ensure the amount you are borrowing, and size of your deposit are appropriate for the value of the property.
Mortgage registration fee – This is the fee for the lender registering your mortgage with the relevant local government authority.

Building insurance

Your lender may expect you to take out building insurance before settlement. A survey by finder found the average home insurance cost is $143 a month. [vii]

Moving costs

The cost of moving varies depending on the number of items to be moved and the distance between locations. realestate.com.au estimates it can cost anything between $300 and $10,000.[viii]

As you can see, the upfront costs of buying a home go well beyond saving a deposit. For first home buyers, your costs may be eased somewhat by assistance schemes. But it’s important to have an estimate of your overall costs so that you can factor these into your savings plan and don’t find your deposit is eaten away by fees. Keep these extra costs in mind to avoid disappointment and purchase your first home faster.

The Police Bank team is here to support members through the entire home buying process. You can reach out anytime for assistance or advice. To get in touch, click here.

[i] https://www.realestate.com.au/advice/hidden-costs-buying-home/

[ii] Revenue NSW stamp duty calculator https://www.apps09.revenue.nsw.gov.au/erevenue/calculators/landsalesimple.php

[iii] https://www.finder.com.au/home-loans/lenders-mortgage-insurance

[iv] https://www.ljhooker.com.au/buy/the-importance-of-inspections

[v] https://www.realestate.com.au/advice/how-conveyancing-works/#cost

[vi] https://www.finder.com.au/home-loan-fees

[vii][vii] https://www.finder.com.au/home-insurance-cost

[viii] https://www.realestate.com.au/advice/how-much-does-it-cost-to-move-house/