Budgeting for Buying a New Home

May 7th 2019 by Andrea Kirkby

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If you're buying a home, it's easy to get fixated on the purchase price. You're going to pay $620,000 for a house? Naturally, many of us assume that's exactly what you're going to pay.

But it's not quite as easy as that. There are all sorts of other costs that you need to consider. You'll need to find substantially more than $620,000 to buy a house at that price. Admittedly, you won't see it all in cash—if you have a mortgage, your money will go straight from your lender to your vendor's conveyancer without you ever getting your hands on it.

The Cost of Searching

For instance, before you even make an offer, you're going to need to budget for the cost of attending all those open days and going to see properties that appeal to you. If you live in a heavily built up district and you're not looking to move far, that might not cost much, but if you live in a less densely populated area or you need to move to another suburb because of your work, it could end up costing you quite a bit in travel expenses.  

Once you've made an offer and it's been expected, your costs really start to rack up. You'll want to pay for a building inspection and pest inspection—it's best to combine the two. They're particularly important for older homes. Some buyers are reportedly cutting them out. However, for the average house, $600 will have you sorted; that's only about a tenth of one percent of the cost. So it's hardly worth the risk of missing out the inspection. If the place does turn out to be nothing but a thinly decorated termite mound, you'll be glad you paid for the inspection.

You'll also need to pay for legal work. Conveyancing is likely to cost well over $1,000, possibly more if there are complex issues such as encumbrances that need to be sorted out. You'll also need to pay for searches to make sure, for instance, that the property complies with council conditions. There's a good article about searches and inspections on Findlaw that goes into a bit more detail. Average conveyancing fees in most states run between $1100 and $1450, with Victoria the cheapest (starting at $870 in Melbourne) and WA the most expensive (range up to $1,900 in Perth) according to ThinkConveyancing.

Don't Forget Finance Fees

If you're getting a mortgage, you'll need to pay a financing fee which can be between $500 and $1,000, depending on the lender and the type of the loan. However, some lenders will negotiate and may even waive the fee entirely. It's always worth asking if you can get a special deal; the worst a lender can say is 'no'. Depending on the amount you're borrowing, you could also need lenders mortgage insurance (LMI),

You'll also need to think about removals cost. If this is your first house, you may not need to pay much for removals, as you don't have a lot of furniture and white goods to take with you. However, removals generally cost a bigger sum than you'd think; a study by ING found that the average Aussie spends $1,618 moving house, and that includes people using their own cars or trailers. The average cost if you ask a removalist to handle everything, including the packing and unpacking, is more than twice that at $3,655.

Of course, if you're a first time buyer, you should also budget for the cost of furnishing your new home. You'll want to set aside a few thousand for that, unless you're buying with a fully fitted kitchen.

You also need to ensure you've got enough cash to settle up with the vendor for any council and utilities costs that they have paid up front, and to pay for insurance from the day of settlement.  

Stamp Duty - the Biggest Cost for Many Buyers

But there's another really big cost you need to think about; that's stamp duty. Every time a land transaction is made, the government takes a cut. It's not a huge cut, in terms of percentage, but it can add up to several tens of thousands of dollars—$22,490 on a home in NSW costing $600,000. Good news for first time buyers is that in many states, you're entitled to a concession or even exemption from stamp duty on properties up to a certain price. The legislation is complex, so we won't go into all the details here; you're better off using a stamp duty calculator.

So What's the Average?

It's difficult to give an average, because your purchase costs will differ depending on where you live, the price of the property you're buying, and certain choices you make. You might choose a cheaper conveyancer, and you might decide to rent a van for your move rather than hire removalists. You might manage to get your lender to waive the arrangement fee; you might get a stamp duty exemption as a first time buyer, in which case your costs will come in way, way below average.

But to give you a flavour of what you might need to budget for; Realestate.com.au estimates that you'd pay costs of between $12,717 and $21,557 to buy a $500,000 property in Queensland.

And yourmortgage.com warns that purchase costs can go up to 11% of the purchase price for some buyers. Make sure you budget for these costs properly, or you could end up with a lovely house, but no money to furnish it!

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