The true costs of buying a home

When I bought my first property, I didn’t have a huge deposit. In fact, I had less than 5%, so I could only just afford the property and definitely couldn’t afford any expected costs.

If you’ve been paying attention so far, you know that overextending yourself is a bad idea, and I almost got caught out.

Here are some additional costs that you need to consider when buying your home.

Borrowing Costs

In my case, I got to settlement assuming that the bank was happy to charge my just a fat interest rate and no other fees— but that just wasn’t the case.  I had to scramble to find an extra $1200 on the settlement to cover my bank and settlement fees which was money I just simply didn’t have. In the end, I had to stick it on my credit card.

But could have been all avoided if I had factored it in upfront.

It might seem illogical, but some lenders may charge you a fee for the privilege of applying for a loan. Banks have to pay processors and lawyers to do the loan. Even for so-called “fee-free” loans, there are sometimes settlement and documentation fees.

The application fees are generally around $500-$600, though they can be more than $1000 depending on the loan and lender.

Borrowing fees can include:

• 1. Loan application/establishment fees—some lenders charge on the initial draw down of your loan
• 2. Document preparation fees—lenders may charge this to prepare your home loan contracts before approval
• 3. Bank valuation fees—usually waived but if you need a valuation they may charge you
• 4. Other fees—annual fees! Sneaky annual fees can cost up to $400 per year.

How much you would need to contribute to a $300,000 property purchase without the first home owners’ grant in Brisbane, including a few minor bank fees.

Fortunately, it is super easy to manage these fees, and in most cases, you can get them waived.  Talk to your broker and make sure they take you through all the upfront borrowing costs to ensure your budget works. With our clients at Hunter Galloway, nine times out of ten we get the annual fee waived.

Government Fees

Government fees are one of the secret stings It is different to stamp duty—which we will talk about in a minute.

Government fees when buying a home in Queensland include:

• 1. Registration on the mortgage—typically $187 in Queensland
• 2. Registration of discharge of mortgage—$187 in Queensland
• 3. Registration of transfer—ranges from a few hundred to a few thousand dollars

You’ll pay for the privilege of formally registering your mortgage, while the cost of transferring the property into your ownership will also fall to you, as the new owner.

Registration of transfer fee is the biggest sting.

For example, if you are a first home buyer in Queensland purchasing a brand-new home for $400,000—where the stamp duty is being waived—you will still need to pay $957 in transfer duty!

Think of transfer duty as just another tax when buying a home. Unlike bank fees, there isn’t any way around these and no discounts to be had.

Just be aware of them, and make sure your broker factors them in upfront because it can be another few hundred to a thousand dollars that you didn’t know you needed!

Stamp Duty

This is one of the few non-optional upfront costs for buying a house.

Stamp duty on property purchase is a state government tax. As such, the amount that is payable will vary from state to state. The dollar amount payable also depends on the value of your property—but it can be thousands or tens of thousands of dollars.

The good news is that first home buyers get some relief, provided you are living in the property.

On a $500,000 house, first home buyers will pay nothing in Queensland and for those buying their second or third home, you can expect to pay around $8750 on a Brisbane home of the same price.

Dutiable value	Duty rate
Not more than $5000	Nil
More than $5000 up to $75,000	$1.50 for each $100, or part of $100, over $5000
$75,000 to $540,000	$1050 plus $3.50 for each $100, or part of $100, over $75,000
$540,000 to $1,000,000	$17,325 plus $4.50 for each $100, or part of $100, over $540,000
More than $1,000,000	$38,025 plus $5.75 for each $100, or part of $100, over $1,000,000

For example, see below or refer to the Queensland Office of State Revenue website.

The more expensive the home, the more you’ll pay, with a $1million purchase attracting stamp duty as high as $55,000.

Council and Water Rates

Councils need to charge rates to raise revenue so they can provide services and infrastructure to their communities.

Each year, as part of the budget process, councils  decide the rates and charges for the financial year. The level of rates that landowners must pay is at the sole discretion of their council.

The person selling the property will have paid any rates owing to the council—generally to the end of the quarter.

You may need to pay the person the remaining yearly/quarterly rates. For example, if you are settling in June, but the previous owner has paid until July, you need to pay them for that one month—and this is payable on settlement.

This is another cost that isn’t negotiable, but worth being aware of to budget into the costs of owning your home.

The rate increases per year will depend on where you live.

To give you a bit of an idea, here are a few suburb examples: Source.

Suburb	2016 Average Rates	2017 Average Rates
BRISBANE CITY	$1288.18	$1288.71
EAST BRISBANE	$1880.95	$1902.56
SOUTH BRISBANE	$1445.17	$1444.38
KELVIN GROVE	$1560.96	$1588.20
ASHGROVE	$1920.27	$1975.44
FORTITUDE VALLEY	$1185.03	$1215.11

Estimate: $1000 to $2000 per year, depending on suburb.

Strata (or Body Corporate) Fees

If you are buying a stand-alone house, you won’t need to pay strata fees. But if you are buying a unit, apartment or townhouse in a complex you will need to pay strata fees.

Strata fees, also called levies, are contributions generally paid quarterly into the strata (or body corporate) bank account. These fees are used to fund the ongoing expenses of your building complex, such as cleaning, gardening, electricity, building maintenance, and plumbing.

Knowing the strata fees is critically important because once you buy the place, you are responsible to make these contributions every three months until you sell the place.

If you are buying a home in a complex, you need to get a copy of the strata reports.  This can save you big bucks.

When I was buying my first home, I almost didn’t bother getting the strata report—I didn’t want to pay. Luckily I sucked it up and spent the money.

If I hadn’t paid for the strata report, I would have been up for $9,000 in special levies in the first year of owning my property.

Yeah, it would have cost me over $9,000

I was buying into a building that had massive water leaking issues, and serious concrete cancer—all stuff that you couldn’t see from the outside or in a building and pest report.

But the strata report detailed this, and also went on to explain that the strata was needing to raise additional contributions from the unit owners.

Needless to say, I moved on to a different property and avoided the financial heart attack.

Your lawyer can arrange a strata report. In some states you need to pay for these and in others you can request a copy from the body corporate manager. Either way, it’s worth the effort—if the strata fees are really high, or they are getting raised up, you can bet your bottom dollar they will be coming out of your pocket. Best be prepared.

Home and Contents Insurance

A lot of buyers think that they don’t need home and contents insurance, but it’s vitally important. Home and contents insurance will protect you house if there is fire, theft, flood, or accidental damage. We’ll cover this in more detail in our SETTLE section. For now, just be aware that you will need home and contents insurance before settlement is complete.

The good news is you can go online to source or arrange to speak with your mortgage broker. At Hunter Galloway we work with Allianz and can help arrange home and contents insurance for you—Allianz gives our clients 90 days free cover until settlement.

Legal Costs (Solicitor/Conveyancer fees)

You’ll need to pay a legal professional or conveyancer to conduct title searches, make a strata report (if you’re buying a townhouse or a unit), review a contract of sale not always required in Queensland), and arrange settlement details.

Why isn’t a review of contracts required in Queensland?

Because we have contracts of sale with standard terms and conditions. In other states like New South Wales, contract terms and conditions can vary from contract to contract.

If you are buying at auction you need to engage a solicitor or conveyancer before you bid.

Whereas if purchasing by private treaty (i.e. a normal purchase) you can engage a solicitor or conveyancer during the cooling-off period.

In general, conveyancers charge a flat fee, while solicitors commonly charge by the hour—with the amount paid depending on how complex your purchase is.

A few tips we give our Hunter Galloway clients on legal costs are:

1. Obtain the searches recommended by the solicitor.
2. We don’t recommend one-person operations—if the solicitor/conveyancer is away or sick there is no one to attend settlement for you!

Approximate cost is $1000 to $2000, depending on the searches conducted. 

Building and Pest Reports

Building and pest reports are what I would consider the most common, and almost mandatory cost when buying a house. These reports look at the building (structural soundness) and pests, to check you aren’t flatting with termites or white ants. A typical building inspection for a four-bedroom home can cost $400 – $500 and pest inspection $200 –$300. The good news is, you can save a few hundred dollars by getting a combined building and pest report for around $500 – $600.

You’ll learn more about building and pest reports in the SEARCH section. For now, just be aware of the cost and factor this into your budgeting process.

Moving and Connection Costs

Moving costs might seem like an obvious one, but have you budgeted for it?

Okay, wise guy, if you have, then have you also factored in connection costs?

Depending on how far you are moving (and how much stuff you have to move) removalist fees can also add a few thousand dollars to your upfront costs when buying a home.

For a local move (i.e. within the same city), Home Improvement Pages recommends you set aside anywhere from $300 to $3500. For an interstate move, removalist costs can be several thousand dollars more than this.

Backloading is great for moving interstate; I used it when moving from Sydney to Brisbane and it was under $1000 to move a bunch of stuff.

The downside of backloading is it takes ages for your stuff to arrive.

One thing you probably didn’t know is when moving into an apartment you need to organise with the building manager beforehand to book out lift/elevators—and be aware of where you can and can’t park. 

Another good news story is on connection costs.

With the increase in competition in the energy market in Brisbane, I have found you can get any connection costs waived provided you sign up for a 12-month contract. Phone around and see what you can do, but companies like Origin make this pretty easy when moving into a new home.

Example of the Costs When Buying a Home in Brisbane for Over $500,000

Let’s go through an example to show exactly what it would cost to buy a first home in Brisbane. This is a house that Nathan (one of our customers) was looking at buying when he came to us for help with his home loan.

Nathan isn’t a first home buyer, so he only gets a partial stamp duty concession on his home purchase and finds the perfect unit on Margaret Street in Brisbane for $555,000. He has around $75,000 in savings, so a little bit over 10%.

In this example, Nathan is wanting to capitalise or add the lenders mortgage insurance to the loan amount so he doesn’t need to pay this upfront.

Table of Costs of Buying a $555,000 House in Brisbane

Property	New Home in Brisbane
Purchase price	$555,000
Loan amount	$499,500
Lenders mortgage insurance	$9080
Total loan amount	$508,580
Purchase stamp duty	$10,825
Transfer fees	$1517
Registration fees	$187
Discharge of mortgage fee	$187
Costs of borrowing	$400
Client legal fees	$1500
Discharge costs (if applicable)	$300
Other/Sundries: Contents insurance Strata and body corporate fees Building and pest reports Moving and connection costs	$2000
Total Costs	$16,729

 

The total deposit amount required is the total costs, plus his 10% deposit. 

Total Costs	$16,729
10% home loan deposit	$55,500
Total Amount Required	$72,229

In this example, while Nathan paid a 10% deposit, or $55,500, once you factor in the stamp duty and other costs his deposit is actually closer to 12 – 13%.

A simple rule: You will typically need to budget around 3% of the purchase price of your house for additional costs in the buying process.

Read More: 11 Hidden Costs of Buying a Home in Brisbane