Costs of Home Buying in Australia: Everything You Need to Know
Buying a house isn’t cheap. We all know how mortgage repayments can eat away at our income over the years, but how many other costs are there? Once you factor in stamp duty, conveyancing fees, real estate agent commission, land tax, and contents insurance, the costs of buying a house creep up and up.
To properly budget for your house-buying venture, you need to know the upfront and ongoing costs. After all, you don’t want to get a home loan that stretches your budget to the limit without factoring in any additional costs involved. Otherwise, you may end up financially struggling.
We’ve put together all the various expenses home buyers have to face so you can adequately prepare yourself.
Save for a House Deposit
Saving a deposit for a house is one of the most considerable upfront costs you’ll have to face. Deposits must be around 20% of the purchase price. You can use the equity to buy your new property if you own another property.
If you cannot reach the 20% mark, don’t worry, many lenders offer home loans to buyers with a loan to value ratio as high as 95%. However, it’s worth bearing in mind that you’ll need to pay Lenders Mortgage Insurance LMI, which could increase the overall costs significantly.
Your deposit size depends on where you plan to buy in Australia. The average Australian property costs $801,570, although it’s significantly more in some capital cities. See the median house prices below:
- Sydney: $1,389,948
- Canberra: $1,032,331
- Melbourne: $1,002,464
- Brisbane: $809,813
- Hobart: $759,697
- Adelaide: $636,853
- Darwin: $562,729
- Perth: $555,851
Therefore, deposits could range from $111,170 to $277,989 if you want to avoid paying LMI.
Get a free Australian mortgage assessment today.
Work Out What You Can Afford to Borrow
Not all of us have a million dollars lying around to purchase a house in Sydney or Canberra. However, we might save up a few thousand dollars and borrow the rest from the bank. Lenders look at the following factors to assess your eligibility:
- Deposit size
- Credit score
Lending criteria for expats or a foreign person might differ slightly. For example, if your primary source of income is in a foreign currency, then the Australian lender might look at less than 100% of it to account for fluctuating exchange rates. Accordingly, you could find your borrowing power lower than expected.
How Much Is It All Going to Cost?
So, how much will the whole venture cost? Beyond the deposit and purchase price, buying a house in Australia has many hidden costs. Let’s unpack them.
Deposit, Purchase Price, and Interest
So, we’ve covered how much you might realistically expect to pay for a house. If you have a deposit of $140,000 for a home valued at $700,000, then you’d expect to borrow $560,000 from the bank. However, you won’t only repay this amount. When you borrow money from a lender, it accrues interest over the home loan term.
Your interest rate depends on several factors. The stronger your borrowing capacity and reliability, the lower your interest rate. As an expat or foreign national, lenders may increase your interest rates to account for the added risk. Let’s say you have a fixed-rate mortgage of 3%. With borrowings of $560,000 over a 30-year term, you’d pay an extra $289,954 in interest.
Your monthly home loan repayments would be $2,360.98.
Remember, you’ll need to conduct a property valuation to ensure the property is worth what the seller asks. The bank will also value the property – if it’s worth less than you wish to borrow, they might not lend you the total amount. A valuation fee might cost between $200 – $600.
You technically don’t have to pay a lawyer or conveyancer to manage the legal aspects of buying a house. However, if you choose to go it alone, you might run into serious legal trouble. Unless you’re an expert in the law, it’s best to trust a professional with the legal documents.
Your legal representative handles the preparation of the sale contract, the exchange, and completion. As most house sales are pretty standard, there is typically a fixed fee – an average of $1,800. However, as an expat or foreign national, you might expect to pay more legal fees than the average buyer if your situation is slightly more complex.
You’ll also need to consider other aspects, like a settlement fee.
Australian citizens and permanent residents might expect to pay between 4% to 5% in stamp duty. Our earlier example of a property worth $700,000 equates to around $28,000 – $35,000. Stamp duty rates vary between states and depend on the cost of the property. First home buyers might be eligible for a stamp duty exemption.
However, foreign buyers must pay a Foreign Buyer Stamp Duty Surcharge. Again, the rate differs between states – it’s 8% in New South Wales and Victoria and 7% in Western Australia, Queensland, Tasmania, and South Australia. The Northern Territory and the ACT don’t impose a foreign buyer’s surcharge. It could be an extra $49,000 – $56,000.
And don’t forget, the surcharge is on top of the initial stamp duty. If you’re an expat with a foreign spouse, then it might be cheaper to buy solely rather than jointly to avoid the stamp duty surcharge.
Building and Pest Inspection
Typically, home buyers conduct property inspections before making an offer on the home. However, you can also complete a building and pest inspection after making a conditional offer if it’s a clause within the contract. It’s best to conduct a building inspection to avoid any nasty surprises once the property is yours.
While you can waive the building inspection, it’s not advised. Especially if you’re living overseas, you won’t get a chance to examine the home yourself. Therefore, it’s wise to get an expert’s opinion. Otherwise, repairs and maintenance could end up costing you far more in the long run.
Building and pest inspections cover everything from damp and cracked walls to termite infestations. The building inspection should cover the level of damage and the costs involved to repair it. The cost of building and pest inspections differ between states, and more metropolitan properties usually cost more. On average, it’s around $600.
Get a free Australian mortgage assessment today.
Mortgage Registration and Transfer Fees
The mortgage registration fee refers to the cost of formally registering your mortgage. You pay it once the lender establishes and pays out the home loan. The transfer fee is the cost of transferring the property’s ownership. These fees differ between states. In some states, the transfer fee rises with the purchase price.
For example, in New South Wales:
- Mortgage registration fee: $154.20
- Transfer fee: $154.20
Loan Application Fees
Most lenders charge a loan application fee. The cost depends on your lender, the size of your home loan, and the loan type. The loan application fee might be a fixed fee or a percentage of your home loan amount. They could be anything from a few hundred dollars to $1,000.
However, if you find your home loan with a mortgage broker, your lender might waive loan application fees. Mortgage brokers have a panel of lenders. If you find a mortgage through your mortgage broker, they might offer certain benefits, such as lower interest rates and waived loan establishment fees or other bank fees.
Moreover, you won’t need to pay your broker as they work on an agent’s commission from the lender.
Lenders' Mortgage Insurance (LMI)
We briefly mentioned Lenders Mortgage Insurance. LMI is an additional charge for high-risk home buyers. If you have a deposit of less than 20%, then your loan to value ratio is too high for many lenders. The lack of savings suggests that you’re more likely to default on your home loan repayments. Therefore, they charge LMI to protect the lender in such situations.
Remember, it’s different from mortgage protection insurance, which protects the borrower.
LMI is an upfront fee. However, as it often reaches thousands of dollars, you can capitalise it onto your home loan. There are two leading mortgage insurance providers, QBE and Genworth. Each has a different way of calculating LMI – you can find an estimate on their websites.
Using Genworth’s calculator, we input a property worth $700,000 with a deposit of $80,000. The LVR is only 88.57%. Therefore, we would need to pay $14,269.87 upfront LMI costs. If you capitalise it onto your home loan, you also pay interest on this fee.
Accordingly, it’s best to buy property within your budget. If you have a deposit of $80,000, look at a property market with an average house price of $400,000. Or consider waiting a few extra years to save up enough for your dream property – although, you risk house prices increasing if you wait.
Note: a first home buyer might be eligible for the first home-owner grant, saving you from LMI.
Council and Water Rates
Council rates and water costs are ongoing expenses that every buyer needs to consider. If you’re purchasing an investment property, you might decide to leave these costs to the tenants or factor them into your weekly asking rent price.
Council rates depend on your local council, typically more expensive in more affluent areas. Generally speaking, the seller will pay up to the end of the quarter.
Water rates also vary. Unlike other utilities (gas and electric), the water isn’t cut off but crosses over to the new resident. Likely, the seller will pay up to the settlement date, on which you take a metre reading. After that, you’re in charge of the water costs.
Additionally, if you’re purchasing a unit, consider body corporate fees. This cost depends on the age of the property, its value, condition, and maintenance. It could be as low as $30 a week to a few hundred a week.
Home insurance, also known as building insurance, depends on the property value. It typically covers the main building, garage, and any other dwellings on your land that you can lock. You might also want to invest in contents insurance, which covers everything not permanently attached to the home.
Your insurance costs depend on how much the property and its contents are worth. The insurer might complete a property valuation and give a personalised quote. Consider how the following factors will affect your insurance premium:
- What you’re covering – home, contents, or both
- Are you covering the sum insured or total replacement cover?
- Additional cover, such as accidental damage
- How much excess
- Your claims history
- Property location – for example, if you live in an area with a risk of natural disasters or has a high crime rate
- Any security features
Covering home and contents could cost anywhere between $1,000 to $6,000 or more.
Get a free Australian mortgage assessment today.
If you intend to move into your new Australian property yourself, then you’ll need to factor in the cost of moving. This cost varies greatly depending on where you’re moving from. For example, if you’re moving from one property to another within New South Wales, you might pay around $200 an hour.
However, moving home is significantly more expensive if you currently live abroad. Are you paying to ship furniture to Australia? Do you need to pay for a visa as a temporary resident? Have you thought about flights?
Buying property in Australia while living overseas involves many extra costs. You may want to hire a buyer’s agent to ensure you settle on the perfect property.
Investment Property Costs
On the other hand, if you’re purchasing an investment property, you need to think about other buying costs. These might include:
- Additional legal fees
- Maintenance and emergency repairs
- Property management fees
- Capital Gains Tax (CGT)
- Land tax
- Landlord insurance
- Advertising costs
- FIRB approval application fee
These costs all vary and depend on a range of factors. A good rule of thumb is to assume it’s around 1-2% of the property’s value.
The good thing is that you can make some money back by charging higher rental prices to cover these costs. However, remember that the more you charge, the less competitive your property is.
You also need to consider how your financial situation would look if the property remains empty for any period. Depending on your personal objectives, you could negatively gear your property. This is when a property investor makes a loss (buying costs and other expenses outweigh rental income) and deducts this from their taxable income.
Find the Best Home Loan
The estimated costs above depend primarily on the property and your situation. For example, a foreign resident buying an investment property will face very different expenses to an Australian citizen moving into a new home. Similarly, buying a house in New South Wales is very different to one in Western Australia.
Therefore, you must find the right home loan to suit your situation. Speak to a mortgage broker about what you can reasonably expect to borrow. When comparing home loans, look at the interest and comparison rate to find the actual cost. Also, think about the loan term. The longer the loan repayments continue, the more interest accrues.
Remember to keep the purchase price of your prospective property within your budget. And, don’t forget to factor in stamp duty and other expenses, such as pest inspection costs.
An Example of the Costs Involved
Let’s say John is an Australian resident living in Singapore. He wants to buy a property in NSW worth $100,000,000 and plans to rent it out. He has a deposit of $200,000.
- Deposit: $200,000
- Home loan (interest and principle): $4,216.04 a month
- Valuation: $300
- Buyer’s agent: $30,000 (based on 3% of the property’s value)
- Real estate agent: $20,000
- Legal fees: $1,800
- Stamp duty: $40,502.40
- Pest and building inspection: $600
- Mortgage registration fee: $147.70
- Transfer fee: $147.70
- Loan application fee: $300
- LMI: $0 (John has a 20% deposit)
- Council and water rates: $710 (based on NSW current rates)
- Moving cost: $0 (John is renting is property out)
- Investment property costs: $10,000
While the costs of buying an investment or residential property might seem expensive, it’s worth the expense in the long run.
When buying a house, we don’t always think about all the additional charges. Stamp duty alone could add hundreds of thousands onto your investment venture. Accordingly, when shopping for home loans, ensure you think about all the extra expenses so you don’t find yourself struggling to keep up with the monthly repayments.
Get a free Australian mortgage assessment today.
Frequently Asked Questions
How Much Deposit Do I Need to Buy a House in Australia?
To avoid paying LMI, you need a deposit of 20% of the purchase price. Some lenders accept LVR as high as 95%. However, you’ll have to pay LMI, which is a costly addition to your home loan.
Are Homes in Australia Expensive?
The Australian property market is one of the most expensive in the world. If you’re looking to buy in Sydney, Canberra, or Melbourne, you could expect to pay upwards of $1,000,000. However, regional areas and the less popular capital cities (Perth, Darwin, and Adelaide) are more affordable.
What Are the Steps to Buying a House in Australia?
To buy a house in Australia, you need to organise your team of professionals – a buyer’s agent, real estate agent, mortgage broker, and solicitor. Next, get your loan pre-approved. Then, confirm you qualify with FIRB. Find a property and make an offer. Finally, obtain formal mortgage approval from your lender.