The hidden costs of buying a home

Most first homebuyers know that the two main costs of their first mortgage are the upfront cost of the deposit on the property, and the ongoing expense of mortgage repayments. But what other costs will you need to budget for when you apply for your first home loan?

Search costs

These costs hit your hip pocket before you even put down a deposit for your new home or investment property. Spending your Saturdays driving from one property inspection to another may not seem like it’s costing you money, but you could end up paying hundreds of dollars in petrol before you find the perfect property.

Pest and building inspections

It’s a risky strategy to buy a home without conducting a pest and building inspection first. If you are buying an apartment, it is important to also conduct a strata search to get a better idea of the state of the building and the strata fund.

An inspection can cost between $500 and $1000 depending on the property, and you may end up paying for this more than once if you make offers on multiple properties over the course of your search. Sometimes a vendor will offer to cover the initial cost of an inspection to encourage more prospective bidders to an auction, though the auction winner may need to stump up the final cost.

Stamp duty

This is a big one to budget for – also known as transfer duty, this is the tax applied to the value of your property by the state government when the title changes hands. The amount you pay will depend on where you live and the price you pay for your new home. First-home buyers often receive a concession on stamp duty (you may receive a discount or see the duty waived altogether), but this depends on the state in which they buy.

Legal costs

You need a lawyer, solicitor or conveyancer to legally transfer ownership of the property you are buying or selling. These professionals can also help with your paperwork, conduct title searches and arrange strata inspections. Legal fees vary depending on your state, but can be upwards of $1500 depending on the complexity of your contract.

Loan fees

Once you apply for a home loan, the fees start to kick in. Different lenders charge different fees so it’s important you do your homework and be aware of what costs are involved.

Most loans carry a one-off application fee – also called loan approval fee – which averages a bit under $600. Yet RateCity lists more than 1200 loans with no application fee, so research your options before you apply for a loan.

Some home loans also charge ongoing fees, whch average around $260. There are over 700 home loan options on RateCity with no ongoing fees, so be sure to compare different mortgage deals.

Lender’s Mortgage Insurance (LMI)

If your deposit is less than 20 per cent of the property value, your lender will take out a lender’s mortgage insurance (LMI) policy to cover themselves (and not you) against the risk that you may default on your mortgage repayments. Most lenders will pass the cost of LMI on to the borrower – the lower your deposit, the more you may have to pay for LMI, potentially adding tens of thousands of dollars to your budget.

Getting connected

Another cost to include in your budget when buying a home is the cost of connecting electricity, gas and the phone line in your new home. In total, this can set you back a couple of hundred dollars.

And of course there are ongoing costs to consider – as well as power, water, phone and internet bills, there may also be council rates and strata fees to budget for.

Compare home loans in Australia