Calculating the costs of purchasing a home can be difficult, especially if you are a first-time buyer. But despite its complexity, this purchase is perhaps one of the largest ones you have to make, so it’s an absolute necessity to stay informed about what you’re getting into.
For starters, the cost of a house isn’t merely in its purchase price. There are other costs to factor in, such as stamp duty, legal fees, mortgage application fees and the ongoing costs of actually owning a home.
If you’ve ever wondered how much it really costs to buy a house, this guide will take you through some of the key costs associated with buying a house so that you can be financially and mentally prepared to purchase your first home.
To build or to buy?
The first cost you need to consider is whether you want to build or buy a house. Buying a house is more expensive than building one, but it’s also a lot less work. If you’re not handy with tools and don’t want to deal with the hassle of builders, then buying a house is probably your best bet.
If you’re buying a new home, more often than not, these homes have been refurbished and sold by developers or individuals who have included the costs of these improvements plus a markup in the overall purchase price.
However, if you’re building a new house, you may be able to save some money as you have the freedom to shop around for construction materials, furniture, and land to suit your budget. This will, of course, require that you have a fair bit of construction knowledge or engage the services of an architect or builder.
The other key factor to consider is time. If you need to move into a house quickly, it might be better to buy an existing home. However, if you’re willing to wait a little longer for your dream home, then building one can be a more cost-effective solution.
Upfront costs of owning a house
If you’re set on buying a house, you should be aware of the upfront costs that are associated with this purchase.
Generally, these are the costs you’ll have to keep in mind when buying a house:
- closing and solicitor costs
- stamp duty
- legal fees
- mortgage registration fee
- transfer fees
- inspection fees
- lender’s mortgage insurance
- moving charges
- utility connection fees
The most notable cost you’ll need to factor in is the deposit, which is usually 10 to 20% of the purchase price of the house. So, if you’re buying a $500,000 house, your deposit will be anywhere from $50,000 to $100,000.
An overlooked cost when buying a home is stamp duty, which is a tax that you need to pay when you purchase a property. The payment depends on the state or territory in which you’re purchasing the property, as well as the purchase price of the house.
For example, in Australia, a property valued at $83,000 would have a transfer duty rate equivalent to $430 plus $1.75 for every $100 over $31,000.
You may also have to pay for certain insurance fees, such as lender’s mortgage insurance (LMI). This is a one-off premium that protects the lender in case you default on your loan. Homebuyers who have a deposit of less than 20% will be required to pay LMI.
Some transfer fees may also apply when you’re buying a property. These are generally paid by the purchaser and can depend drastically depending on your state. South Australia transfer fees tend to cost a few thousand dollars, whereas Northern Australia transfer fees tend to not exceed $200 at most.
Ongoing costs of owning a house
Once you’ve purchased your house and moved in, there are still some costs that you need to consider. The most notable of these ongoing costs are the mortgage repayments.
The amount you’ll need to pay each month will depend on the size of your loan, the interest rate, and the repayment period. For example, a $300,000 loan over 30 years with an interest rate of 5% will have monthly repayments of approximately $1,610.
There are other recurring costs you may face when owning a house. These include:
- mortgage repayments
- utilities (gas, electricity, water, and internet)
- council rates
- land tax
- body corporate fees
- strata fees
- building and contents insurance
With all that said, it can be time-consuming and frustrating to keep track of all these costs. Fortunately, there’s an abundance of online home loan repayment calculators like the one you can find by Homestar Finance that can help you estimate costs and identify lower rates.