The hidden costs of buying a home that people often forget about -

The hidden costs of buying a home

Buying a new home is obviously more complicated than flipping through a catalogue and comparing prices. It’s unlike any other buying process because the sticker price of a home doesn’t give you the full picture. There are several layers of extras that are not included in the quoted price of a new property. You’re likely to be thrown off budget if you haven’t factored in all of them.

Here’s how to avoid nasty surpriseswhen you’re in the market for a new home.

The asking price is not the final cost

Unfortunately, the asking price of a home you see listed on a website or glossy brochure doesn’t tell you the full story. Several other costs have to be taken care of before you can get the keys to your new property.

And we’re not just talking about the ongoing costs such as rates, water, and maintenance that you’ll have to pay once you’re a proud homeowner.

That’s because buying a home comes with a host of unexpected upfront costs. These ‘hidden’ expenses can stack up, so it’s vital to factor them into your calculations.

To help you prepare, here’s a breakdown of some of the upfront costs of buying a home.

What are the hidden costs of buying a home?

Apart from saving an adequate deposit for your new home, you also need to make room in your budget for the following seven types of expenses. Some are fixed and unavoidable, others can vary depending on circumstances.

The cost of the property search (e.g. building inspections and solicitor’s fees)
Government fees and charges (e.g. stamp duty and title transfer fees)
Borrowing fees (e.g. loan application and valuation fees)
Adjustments on the settlement for local council rates, strata levies and utilities
Any costs not included in the contract if you are buying a house and land package
Moving costs
Unexpected repairs

That’s quite a few expenses and you probably hadn’t thought about them all! Let’s now break down these costs to get a better idea of what they entail.

1. House-hunting costs

Before buying a property, it’s a good idea to get an independent review of the structure in the form of a building and pest inspection.

These can cost up to $1,000 or more – depending on the size of the property and where it’s located. And you might have to pay for multiple inspections – not just on the home you end up buying but also on others you show serious interest in along the way.

So you might be wondering: is a building and pest inspection always necessary?

While you might baulk at the extra cost, it’s the only way to be sure that the home you're buying is structurally sound and free from damaging pests.

So, yes, I strongly advise buyers to invest in building and pest inspections.

Another expense you need to budget for is legal fees.

Conveyancing fees typically range from $500 to $2,500, depending on the particulars of your purchase.

On top of this, you’ll have to pay for ‘disbursements’. These are additional expenses the conveyancer pays to third parties on your behalf, such as title searches and mortgage registration fees.

Once again, you don’t need a conveyancer or solicitor only for the home you end up buying, but also to review the sales contracts for any properties you show serious interest in before finally buying the one.

You could end up spending up to $10,000 on legal and building reviews if you miss out on a few auctions. So be prepared!

2. Government fees and charges

When you buy a property in Australia, the State Government levies a tax, known as stamp duty, on the transaction.

How much stamp duty will you end up paying?

Stamp duty varies depending on where you’re buying, with each state having its own sliding scale. Your rate will also depend on several other factors such as the value of the property, whether you are purchasing an existing property, a new build or land only, and whether you are an owner-occupier or a property investor.

If you’re a first-home-buyer, you might qualify for a stamp duty waiver or concession. A good broker can help you determine how much you’ll need to pay, depending on your circumstances.

You also need to pay government fees to register your name on the title of the property (and remove the vendor’s name) and to register your lender’s mortgage on the title of your property (and remove the vendor’s mortgage details).

Make sure to research all of the Government incentives and stamp duty concessions you may be entitled to. A small difference in the value of the property you choose could make a big difference in how much stamp duty you end up paying as a first-home buyer.

Be careful of allowing Government  incentives such as stamp duty exemptions or grants to drive your choice of property. This could end up costing you more in the long run.

3. Borrowing fees

You might be surprised to learn there are multiple fees incurred when you take out a home loan. These may include:

Lender’s mortgage insurance (LMI): if you borrow more than 80% of the property’s purchase price, you generally have to pay LMI. LMI is a one-off fee that reflects the higher risk to the lender from lending you a bigger proportion of the purchase price.
Loan application fees: this is a one-off fee the lender charges to cover the cost of setting up your mortgage. The fee varies depending on how much you want to borrow and from which lender.
Valuation fees: when you buy a property, the lender gets a third party to value the property. This is to make sure the amount you want to borrow does not exceed the property’s worth.
Drawdown fees: if you are building a property rather than buying one, you’ll likely have to take out a construction loan which you can access in stages as the build progresses. In these transactions, you may be charged a fee for each drawdown you make.

4. Settlement Adjustments

Another set of expenses you’ll have to take care of, before you get the keys to your new home, is ‘adjustment costs'. These are your share of land tax, rates, strata levies and utilities that relate to your period of ownership but have been paid for by the vendor.

5. Hidden costs of buying a house and land package

A house-and-land package is when you buy a block of land and commission a builder to construct a house on it. While this can be a great way to build the home of your dreams, you need to do your homework on exactly what is and isn’t included in your package. Extra charges may include:

Council fees
Landscaping
Retaining walls
Floor and window treatments
Driveways
Fences

You should also put some money aside as a buffer in case your home takes longer or costs more to build than you originally estimated. This can be a riskier way to buy a home than purchasing an established home especially if you are working to a tight budget.

6. Moving costs

Remember, you also have to move into your new home – which generally means paying for a removal service. Depending on the amount of furniture you’re packing, hiring professionals could cost you anything from a few hundred dollars to over a thousand.

And while you might be keen to move in as early as possible, don’t try doing it on settlement day. Settlement day can be stressful enough without the added worry of finding backup accommodation should there be unexpected delays.

7. Unexpected repairs

The last hidden cost you need to budget for is unexpected repairs – because, no matter how well you plan, there’s always something that will come out of the woodwork. This could be anything from a heater or dishwasher not working to a vital piece of furniture not fitting.

Need to make sure if you’re calculating these extra expenses correctly? Schedule a discovery call with one of our licensed advisors.

The hidden costs of buying a home that people often forget about