The Costs Involved when Purchasing your First Home

Make 2022 The Year You Start Your Journey As A First Home Buyer

Transcript of: The Costs Involved when Purchasing your First Home

Buying your first home can be really daunting; there’s just so many unknowns in this process.

The purpose of this podcast is to educate First Home Buyers so that the process of buying a home isn’t as daunting.

Today I’m going to go over the potential costs involved in buying your first home. Let’s roll.

Hello, and welcome to the First Home Owner Concierge Podcast, where our sole target is to get you into your first home. Now, onto today’s topic!

Before I get into the weeds with all the costs involved in buying a house, I’d like to extend a hand of help.

If you have a 5% deposit saved, then get in contact with a good mortgage broker, like the team here at Will Bell Mortgage Broker because they will help you get into your first home.

A good mortgage broker will help coordinate the whole process and make your life a lot more easier!

A Significant Cost: Stamp Duty

Now on to the costs – the main cost is “stamp duty”.

Stamp duty is a tax on the purchase of a property charged by the state government.

In many states, there’s a concession for homeowners, and in Victoria where I am, you can purchase a property for up to $600,000 and get 100% of your stamp duty waived, which is awesome because it can be a massive amount of money.

What’s also handy to know is that when you’re buying above $600,000, so between $600,000 and I think the figure is $750,000, you also get a discount.

The lower it is to $600,000 or the closer it is to $600,000 means the lower amount of stamp duty you will have to pay.

There’s no set way of calculating the stamp duty in your head because of the way it’s calculated.

Stamp duties are pretty easy to find online though, so you can figure it out easily enough.

Another additional cost the state will make you pay is what’s called “land transfer registration” and “mortgage registration”. I would estimate about $2,000 to cover this.

Lenders Mortgage Insurance (LMI)

Lenders Mortgage Insurance or LMI as an abbreviation is a pretty common question. I get that all buyers, not just first home buyers, have a level of confusion with what this is.

Mortgage Insurance is basically an insurance policy that you pay for the loan amount.

If the loan is over 80% of the value of the property, most first home buyers would need to pay for mortgage insurance because in reality, they need a 20% deposit to avoid paying it, which is quite a large sum of money.

At the moment, if you have access to the First Home Loan Deposit Scheme, or I think it’s called now the New Home Guarantee (no, I can’t remember what it is), but they’ve just changed the name of it again into another confusing name.

A Home Guarantee Scheme (that’s what the name of it is), then if you’ve got access to the Home Guarantee Scheme, then you’re sweet and you don’t have to pay for it (LMI).

A word of know, if you’re listening to this in 2022, the federal government is about to release 35,000 spots to this scheme on July 1st. So if you’ve got somewhere between a 5% and 20% deposit, you’re probably ready to access this.

Now back to mortgage insurance. Mortgage Insurance is often misunderstood.

It’s a policy taken out so that in case the borrower doesn’t make the loan repayments, and the bank has to sell the house to get their money back and they don’t get all of their money back, then the insurance will cover the rest.

So basically, to dumb that down a bit is, if you don’t pay your loan, the bank is going to sell your house from under you if there is anything left owing.

So, if what they sell the house for doesn’t pay the rest of the loan and whatever legal fees are involved in foreclosing you, then they have that insurance policy to fall back on. It sounds like a bad deal having to pay for the banks insurance policy. But that’s how it is.

The cost of mortgage insurance will vary. It’ll be based on how much you’re buying the property for and what deposit you have.

There are online calculators out there, but this is best worked out with a mortgage broker because in most cases, the online calculators are actually wrong.

Essential Conveyancing Fees

The next fee you need to know about is your legal fees or your “conveyancing fees”.

Generally, you’d expect to pay $1,500 to a conveyancer.

For this, I must stress, it’s not one of those things where you want to find the cheapest out there, because at the end of the day, they’re delivering a result for you and it’s a particularly important result.

And if you pick someone cheap, you run the risk of them, stuffing things up and then having you settle late, which will result in you paying late fees.

The best way to find a good conveyancer is to ask your mortgage broker or use one that a family member or a friend has used before and had a good result with.

There may also be home loan fees such as application fees, establishment fees, legal fees, package fees. These will vary from lender to lender, but you’d expect to pay between zero and $600 on most loan applications.

Get Ahead through a Buyer’s Advocate

Buyer’s advocate is something we’ve seen first home buyers use more in recent times.

They can help source your property, which in the recent low supply environment we’ve been in can be a big asset, as many properties are sold off the market.

This means they’re sold before they get advertised on Domain and realestate.com.au.

Buyer Advocates are the best people to access these properties.

A buyer’s advocate charge will vary from business to business, and it will depend on the service they are delivering. Like anything, a good one is worth their weight in gold.

A Measure of Comfort: Building & Pest Inspections

Building and Pest Inspection reports are probably going to be required in most cases for first home buyers, especially if they’re buying an established property.

In my area, pests like termites can be quite common.

Unfortunately, if you buy a house that’s infested with termites, it’s not covered under insurance.

So this is just one important reason why you need a building and pest inspection done. For that you’re looking around $800.

Sneaky, Hidden Fees

There are a couple of hidden ones that most people don’t take under consideration and that is costs on the property.

So, specifically here in Victoria, there’s generally two, and they are “water rates” and “cancel rates.”

So, this is generally something people don’t budget for. But if you look in your Section 32 before you buy, you should be able to find information on what the potential costs are.

Normally, I recommend first home buyers to generally have around $1,500 to $2,000, just in case there are these fees payable at settlement.

You can figure out what these fees are once you’ve signed the contract, and you can get your conveyancer to check. Those are the major costs when you are buying your first home that you need to be aware of.

Post Settlement Costs

Another thing I think I should make you aware of is the potential costs after you settle the property because a lot of people kind of just ignore that.

So first one, the “council rate”.

You need to know how much these are and when they’re due because they aren’t cheap.

Generally, most councils will let you pay in quarterly instalments so it isn’t too hard on the bank account. Generally, for council rates you’re looking at $1,500 to $2,000 a year. 

What a lot of homeowners don’t know and what I kind of alluded to before is that they also have to pay “water rates” as well.

When I first bought my home, I remember the water costing twice as much as compared to when I was renting. That’s because when I was renting, the landlord was paying the water rates.

You will also have insurance to pay. The majority of this will come in the form of building and contents insurance.

Most lenders will ask for a copy of your building insurance policy prior to settlement. But in actual fact, a lot of conveyancers will recommend you take out that policy as soon as you put your deposit down.

The reason for that is that you’ve actually got a financial interest in the property now.

And if something bad happens, like the place burns down, and the original owner doesn’t have an insurance policy on there, well, it just creates a bit of a legal conundrum and you’re better off paying for the extra coverage that might be one or two months ahead of what you’d need to take out anyway.

The Wrap Up

That’s it. Thanks for listening to today’s episode of the First Home Owner Concierge Podcast.

If you’ve got any questions, or you’d like to get in touch or get into your own home, or if you just want to ask a question online, you can search Will Bell Mortgage Broker in Google or Facebook or Instagram or anywhere and you’ll find out details and we’d love to hear from you. Cheers!

Thanks for listening to today’s episode of the First Home Owner Concierge Podcast. If you’ve got any questions or you’d like to get into your own home, or you just want to stalk me online, you can search Will Bell Mortgage Broker on either Google or Facebook.

Will Bell

Will Bell

Will Bell has 15 years’ experience in the finance industry, the last 11 years he has owned and operated Will Bell Mortgage Broker. He specializes in residential home loans and over the years has carved out a trusted brand. This is proven by the reviews his customers have made regarding the service and the experience he has provided.