Minimizing the Unexpected Costs of Buying a Home in Australia: A Guide

Purchasing a home can be an expensive endeavour, especially with the rising costs of housing over the past 60 years. But if history is anything to go off, buying a home can be an extremely worthy investment in the long run.

There are some additional costs involved in buying a home that you should be aware of however, but there are also ways you can potentially mitigate these.

Let’s dive into the associated purchasing costs, how much you might need to cover them, and if there are ways to reduce or avoid paying these costs.

First up is the obvious one - stamp duty.

Stamp Duty

Stamp duty is a controversial and largely contested tax that the government charges whenever someone buys a home. 

There have been decades long debates regarding stamp duty, with some experts calling it an outdated tax system. That is because when stamp duty was first introduced, house prices were a fraction of what they are today.

The stamp duty payable on the median Sydney house prices of $1,333,985 is roughly $56,425. It’s obvious why stamp duty has been called a barrier for first home buyers and a deterrent to investors.

But unfortunately it still remains. There are however some ways around paying stamp duty.

For first home buyers, the NSW government has implemented the First Home Buyers Assistance Scheme. 

Under the scheme, first home buyers purchasing a home valued under $800,000 are fully exempt from paying stamp duty as long as they live in the home for 12 continuous months after settlement, if contracts were exchanged after July this year. 

If contracts were exchanged before July, then first home buyers must live in the home for 6 continuous months after settlement.

For homes valued between $800,000 and $1million, a concessional stamp duty rate will apply. For more information visit the NSW state revenue website. 

Pest and building

A pest and building report is imperative to secure before finalising everything. If you exchange contracts before arranging a pest and building inspection, it’s important to include a pest and building clause.

Pest and building reports tell you if there are any major issues or faults with your prospective property, giving you peace of mind that nothing nasty is likely to crop up in the near future.

They often cost around $550 to $650 for a combined pest and building inspection on an average sized house, according to HiPages.

While it’s another cost to add to the list, it’s well worth the output. Without a pest and building report, you essentially go into a sale blind, not knowing whether you’ll be forking out tens of thousands months later to repair a major flaw. 

Unfortunately there’s no getting out of this one, but it is worth shopping around and finding an expert who’s both affordable, and comes highly recommended.

Lenders mortgage insurance

This cost can act as a large deterrent to first home buyers, but the good news is that there are schemes to help you avoid it.

Lenders mortgage insurance is usually payable if your home deposit is less than 20 percent.

It insures the bank against lost money if you as the borrower are unable to pay your loan back.

If a home buyer purchases a $500,000 home with only a $50,000 deposit (10 percent), they would be eligible to pay roughly $11,000 in lenders mortgage insurance (LMI).

However, government schemes are in place that allow first home buyers to purchase with a smaller deposit, without paying LMI.

The First Home Guarantee allows eligible homebuyers to purchase a home with only a 5 percent deposit, without the need to pay LMI. A portion of the loan is guaranteed by the National Housing Finance and Investment Corporation.

Eligibility requirements apply, and can be found here.

Conveyancing fees

Conveyancers handle the legalities of property transfers, and take care of legal contracts for their clients. It’s important to engage a conveyancer because they help to untangle all of the legal jargon so you understand what you’re signing.

They can add clauses, make recommendations, and liaise with the other party on your behalf.

They can cost between $700 and $2,500, but their advice is incredibly valuable. We don’t recommend doing this part on your own, so unfortunately there’s no way around paying conveyancing fees.

Mortgage registration fee

This is a fee charged by your lender upon setting up your home loan. It's a once-off fee and can range from $150 up to $700.

To avoid paying mortgage registration fees it might be helpful to keep an eye out for lender promotions. Sometimes they waive fees to attract new customers, but it’s important to pay attention to the different interest rates on offer too. 

Land tax

Land tax applies only to properties that are not a principal place of residence, where the land value is over the current threshold set by the government. 

This year the threshold in NSW is $969,000. 

If the value of the land component of your investment property is $969,000 or more, you will have to pay land tax, but if it’s below this threshold then your property will be exempt. The value of your land does not include the dwelling that is built on it.

Home and contents insurance

Home and contents insurance is something that often slips the minds of first home buyers, but it’s an important expense to be prepared for.

Some lenders won’t allow you to settle on your property without building insurance. While you can’t escape this expense (and likely don’t want to), shopping around can help you to find the best possible deal.

Comparison sites like Canstar can help you compare the costs from multiple providers, and choose the right one for you.