Hidden Costs When Buying Property in Australia

Purchasing a home in Australia does not seem difficult. You save to get a deposit, you take a loan, you find a place you like... well, that is it. Not quite.

The first time buyers are unaware of the fact that the buying price is only the start. It is the additional expenses that creep up in the process that are the real shock. There are the ones that are anticipated and the ones that are not. I have witnessed individuals planning their deposit budget to the latter and then suddenly run out of funds at the last phase since they failed to include such miscellaneous costs. It's frustrating. And avoidable. So now we have the expenses that no one ever discusses in a proper way.

Stamp Duty — The Largest Surprise

Stamp duty in Australian property is one expense that surprises the buyers. It is a type of tax imposed by the government as you transfer ownership of property. And it's not small.

Stamp duty may not only be tens of thousands of dollars depending on the state and property value. It can be one of the biggest initial expenses on top of your deposit in some places such as the NSW or Victoria. First home buyers Australia are exempt or have a discount on certain things although not everyone is eligible. And even then, the savings may not be all. The tricky part? You tend to pay it shortly after settlement.

Lenders Mortgage Insurance (LMI)

This is a bit unjust, now I tell you. Lenders mortgage insurance in Australia will be necessary in case the deposit is not 20% of the value of the property. It safeguards the lender and not you against default of your loan. Yes, you read that right. You are insured against the bank.

Depending on the loan size and deposit, the cost may be a few thousand dollars up to more than 20,000 dollars. Others allow you to add it to your loan but that will only mean that you are paying interest on it as well. And in case you can afford to deposit 20 percent of what you have, you can get out of LMI altogether. Easier said than done, I know.

Home Loan Establishment Fees

It is also not free to get a home loan. The majority of lenders impose home loan establishment fees which include the establishment cost of your mortgage. These can include:

• Application fees
• Valuation fees
• Settlement fees

When taken separately, they may not appear to be much, a hundred or two dollars here and there, but when added together, they may amount to $500 and more or less. There are lenders who offer no initial charges, but they usually recuperate the charge by charging higher interest. So... you're still paying. Just in a different way.

Solicitor and Conveyancing Fees

You will also require a lawyer to do the formalities. The latter is where the solicitor fees in property purchase come in. A conveyancer or solicitor will:

• Review the contract of sale
• Handle legal checks
• Regulate the change of ownership
• Make sure that it is all in compliance

Their charges can be between 800–2500 dollars depending on the nature of the transaction. The allure of the cheapest is tempting but in actual sense, this is no time to save a penny. An excellent solicitor is able to spot problems that could cost you a lot in the future.

Building and Pest Inspections

Not hidden technically... but usually underestimated. Most of the people organize a building and pest inspection before purchasing. This usually costs around $400 to $700. It may seem a luxury cost particularly when the house appears to be okay. Don't skip it. That ideal house may have structural problems, water damage or termite problems lurking beneath. And those repairs? Much more costly than the check-up.

Moving Costs and Setup Expenses

This is where it becomes somewhat unclear. Following settlement you have:

• Moving costs
• Utility connections
• Initial repairs or cleaning
• Furniture or appliances

They do not form part of the property purchase but they strike your wallet right after. And at that stage, a majority of buyers are already stretched financially.

The Small Costs That Add Up

Then there are the minor details. The ones no one talks about.

• Loan account fees
• Home and contents insurance (established)
• Council rate adjustment
• Strata fees (if applicable)

On their own, they appear trivial. They can increase your bill by several thousand dollars.

A Quick Reality Check

The fact is as follows — property purchase in Australia is not only about saving a deposit. It is all about being ready to all that is around it. When your budget is constrained, these indirect expenses may put off your purchase or compel compromises in the property itself. On the other hand, when you prepare them in advance, it seems much easier. Less stressful. More predictable.

Final Thoughts

Property buying is exciting. No doubt about that. But it is also one of those things that the details are more than the number on the headline. The additional expenses can be readily in the thousands — in some cases tens of thousands, between stamp duty in Australia property, lenders mortgage insurance Australia, home loan establishment fees and solicitor fees property purchase. Don't, then, simply budget the house. Spend money on anything surrounding it. Since the smartest buyers are not necessarily the highest spenders.

It is them who know what they are getting into.