What are the upfront costs of buying a house?
In general, under most circumstances you will need ~25-30% of the purchase price of the property upfront; 20% being the deposit if want to avoid an additional cost of lender’s mortgage insurance (LMI) and up to 10% “other” upfront costs.
This means, if you are looking buying a home for $1m, around $250k in savings (25% x $1m) would be beneficial to avoid LMI and cover other upfront costs. Or alternatively, if you have $100k in savings, it may be good to be looking at homes in the $400k price range ($100k / 25%).
These other costs vary greatly by state or territory and can be reduced if a first home owner. Let’s break these down…
The deposit is usually the biggest cost and having a deposit of 20% of the purchase price (or value of the property) or more, is ideal. The larger your deposit, the lower your loan to value ratio (LVR) which is your loan divided by purchase price.
For example if you buy a $1m home, you have $0.2m for your deposit and therefore need to borrow $0.8m: Your LVR would be $0.8m loan / $1.0 value = 80%.
LVRs of greater than 80% typically require lender’s mortgage insurance (LMI) which is an additional cost to you. This is covered below in other costs.
Other upfront costs beyond the deposit to consider include:
- Stamp duty – this is a large cost and varies from state to state (check out your state’s government website) and typically needs to be paid within 30 days of settlement. If you are a first home owner you may get a concession (check out First Home Owner Grant). Click here for a helpful tool, otherwise check out your local state website.
- Transfer fee – this covers the cost of transferring the title of the property. This again
varies depending on where the property located and can be as little as $137 (in the
Northern Territory for a $400,000 home) to $2,901 in South Australia.
- Mortgage registration fee – another fee which varies depending on your state, but not
too significant – a couple hundred dollars typically
- Legal and conveyancing fees – this is a fee for a licensed conveyancer/lawyer to do
and check all your paperwork. They review your contract, check the title and draft the
settlement documents. More details on conveyancing here.
- Lenders Mortgage Insurance or LMI – as mentioned above, if your deposit is below
20% value of home, you will need LMI which is a one off fee around 1-3% of value of
- Building and pest inspections – this should be done before exchanging contracts to
make sure there is northing structurally wrong with the home and that it isn’t housing
- Moving costs – depends on how many boxes you have and how far you’re moving
- costs associated with selling your old home
Two great tools to assist –
(1) Commbank’s upfront cost calculator
(2) REA’s home loan calculator