Between making an offer and getting the keys, there are plenty of extra costs along the way outside of just handing over the price on the tag. There’s a lot more involved than just the agreed purchase price.
From the obvious outlays to the subtle add-ons, every little piece can add up until the total feels much bigger than you initially expected. If you’re preparing to purchase property, you’ll definitely benefit from thinking beyond what that initial price tag you saw was and understanding all the extra expenses that come with the keys.
Hidden costs of buying a home can be especially surprising to first-timers. These are the fees and charges that aren’t always advertised in bold print but will definitely be there by settlement day. We’re talking about things like:
- Taxes
- Legal expenses
- Other home buying closing costs that tend to pop up during the process
So, it’s important to keep this in mind so you can budget properly and avoid any surprises. We’re going to be breaking down some of the major things to consider throughout this article, so keep reading to see what to expect when buying a house.
Upfront Costs of Buying a House
One of the biggest upfront expenses in Australia is the government charge known as stamp duty. Stamp duty (sometimes called transfer duty) is essentially a property transfer tax that you pay to the state or territory government when you buy real estate. It’s not just an Aussie thing, you see it in plenty of other countries.
It can be a hefty addition – sometimes as high as about 7% of the purchase price. That means on an already expensive home, the stamp duty alone can run into tens of thousands of dollars. The exact amount depends on the property’s value and location, but there are often a few concessions if you’re a first-home buyer.
No matter what, stamp duty is a major part of the costs of buying a house that you need to plan for early on.
Admin Charges
Aside from stamp duty, there are other government and administrative fees to budget for. Whenever property changes hands, you’ll have to pay title transfer and registration fees so the legal ownership can be recorded.
These fees aren’t huge individually – they tend to be flat charges that are set by your state or territory – but they’re unavoidable and will definitely be due at settlement.
Legal costs are another upfront item. Most buyers hire a conveyancer or solicitor to handle the paperwork and make sure the sale actually goes through properly. But obviously, these are professionals that charge for their services.
You might agree on a fixed fee or be billed according to how complex the transaction was. Either way, a good legal expert is well worth it to avoid mistakes in something as important as a home purchase, so remember to include this cost in your budget.
Building and Pest Inspections
It’s not uncommon for people to invest in building or pest inspections before finalising a purchase. It’s not exactly mandatory, but we’d highly recommend you do one for obvious reasons.
It’s a hidden extra that’s definitely worth including in your budget. A qualified inspector will check the property for structural issues or pest damage so you’re not lumbered with any major problems after you’ve already moved in. The inspection might cost a few hundred dollars, but it offers peace of mind – way better to pay that than to discover serious issues when it’s too late.
Financing and Mortgage-Related Fees
The lender you’ve went to is usually going to charge various different fees to set your home loan up. For example, many lenders charge a loan application or approval fee to cover things like:
- Credit checks
- Property valuation
- Paperwork
Some of them will waive this, but definitely still be prepared in case it applies.
If you’re borrowing most of the property price and your deposit is relatively small, you’ve now got Lender’s Mortgage Insurance (LMI) to deal with. What is this? Generally, if you have less than a 20% deposit, the lender will require this insurance.
LMI protects the lender (not you) in case you can’t repay the loan, and its premium is usually added to your upfront costs. This premium can be fairly significant and can get up to thousands of dollars. So it’s crucial to factor it in if it applies to you.
The exact amount varies with your loan size and ratio, but it unquestionably adds to the costs of buying a home when your deposit is low, so do try to make a deposit of over 20% if you can.
Prepaid Costs When Buying a Home
Some costs in the home-buying process are actually just prepayments for future bills. So what are prepaid costs when buying a home? Essentially, they’re items like property taxes or insurance that you pay in advance.
In Australia, this often means the seller has paid council rates (property taxes) past the settlement date, and you’ll reimburse them for the portion covering the period after you take ownership. It’s a cost that’s easy to overlook during budgeting, but again, it will definitely be on the final statement.
Home Insurance
Home insurance is another prepaid cost. Lenders usually make you get building insurance in place from the moment you settle – they want the house (their loan security) protected from day one.
So you often pay a year’s home insurance premium upfront before or at settlement. That insurance payment is money you’d spend eventually anyway, but paying it earlier than expected mkps it a purchase expense you naturally need to plan for.
You might also prepay some utility bills or body corporate fees to settle up with the seller at closing. If you’re wondering which are prepaid costs when buying a home specifically, tahink of basically anything where you’re paying now for a service or coverage you’ll luse later – like insurance, council rates or interest for the rest of the month.
All these prepaid items hit at the same time as your other fees, but they’re designated for future needs. It helps to set aside some budget for them so you’re not caught off guard. The bottom line here is that prepaids are part of the package, so just plan for them like you would with any other purchase cost.
Final Thoughts
Even after settlement, you might face extra expenses like:
- Moving your furniture
- Setting up utilities
- Buying a few essentials for the new house
So, it’s wise to have a small financial buffer for those. The good news is that with careful preparation, none of these costs really have to derail your dream. Just take the time to research and list out everything – upfront costs of buying a house, prepaid expenses, etc. – so you know exactly what to expect.
When you plan for the full picture, you can go about the whole purchase confidently and don’t have to worry about the financial side of things.
How Upscore Can Help
Ready to take control of your home buying journey? Consider signing up for Upscore’s Finance Passport – it’s free, and a smart way to use your financial history to get your mortgage process started and get expert support.
