Buying a property is a big commitment, and many of the costs associated with purchasing real estate depend on the property’s market value. Whether you are here because you are ready to buy your first home or you’re looking for a fresh start after speaking with debt counsellors or recovering financially from debt struggles, here is a comprehensive outline of the financial costs of buying property in Australia. 

Costs of Buying Property in Australia

Property Price and Deposit

The biggest cost of buying a house in Australia is the property price itself, followed by the deposit. Aussie home buyers are usually required to cough up a 20% property purchase cost deposit upfront. However, many mortgage lenders and big banks will allow you to get a mortgage with 5% deposit, in which case you will then be subject to Lenders Mortgage Insurance (LMI) or a Low Deposit Premium (LDP) fee which can be paid upfront or added to your home loan amount.

Note that the LMI rate varies between lenders. As of 2023, under the First Home Guarantee (FHBG) administered by Australia’s National Housing Finance and Investment Corporation (NHFIC), eligible low and middle-income first home buyers can get a loan with a 5% deposit and have the LMI requirement waivered subject to eligibility requirements. Refer to the NHFIC website for more information. 

Property Research Costs‍

In addition to your time, you may incur further costs in property research. These include paying for subscription property research services like CoreLogic’s RP Data, and the costs of conducting open home inspections (travel, tolls, fuel, parking, etc.).

Also, consider the possibility that if you are inexperienced in negotiation or don’t really understand what a property is worth, you are susceptible to overpaying and might not always get the best deal when negotiating with real estate agents (who act on behalf of the seller).

In such case, a Property Buyer’s Agent, (aka. Buyer’s Advocate), may be able to assist you in the process of searching, evaluating, and negotiating (or bidding) for property to get a better deal and secure a property at the right price.

Be aware that Buyer’s Agent’s fees can range from 1-2.5%. So you need to weigh up whether having someone advocate on your behalf will cover the amount that you are likely to save on the final purchase price. For more information about Buyer’s Advocates, check out the Real Estate Buyers Agents Association of Australia (REBAA).

Building & Pest Inspections

Be sure to do a building and pest inspection before signing a contract on your property. If there’s a serious issue to the property’s underlying structural integrity (or termites), you need to know because you can’t negotiate when it’s too late!

Mortgage Brokerage Costs

‍With so many lenders to choose from, a mortgage broker can help you decide which lender to go with. A mortgage broker is not compulsory, but a good one will make you feel comfortable enough to ask them questions, help you understand your needs and goals, figure out how much you can afford to borrow, assess loan options based on your circumstances, explain how each loan works and the costs involved (i.e. interest rates, fees and features).

They can also help you apply for the loan and manage that process until settlement. Mortgage brokers often get paid a commission by the lender, so many won’t charge you any extra fee. However, the commissions payable by lenders can vary, and this could influence your broker’s recommendation.

In addition to the lender’s commission, mortgage brokers can also charge you an upfront fee for their services. Remember to double-check that your broker is properly licensed, get all quotes in writing, and regardless of whether you use a mortgage broker or do it yourself, make sure to do your research so you get a good deal and don’t simply agree to the first loan you’re offered!

Insurances

‍‍Insurance costs should be considered early in the property journey, as real estate property is often going to be your biggest asset! Again, you may wish to use an insurance broker, or even check with your financial planner or bank. Nothing could be worse than being inadequately insured when something goes wrong!

1. Building Insurance (aka. Home Insurance)

‍Building insurance can vary between insurers and should cover you for property damage as a result of fire, flood, storm, impact or explosion, earthquakes, landslides or vandalism. Some comprehensive policies also cover legal liability (in the case that somebody gets injured at your property), emergency repairs, clean up fees, building modifications, temporary accommodation and even funeral expenses if a household member dies as a result of the insured event.

Take the time to consider the risks to your property, read the fine print, and make sure you are adequately insured so that you can rebuild if disaster strikes. Surprisingly, there is no legal requirement in Australia to have building insurance. But state laws differ as to what date the buyer becomes liable for damage to the property, and many lenders require you have building insurance before settlement as a precondition regardless. ‍

2. Contents Insurance

‍Contents insurance provides a level of protection against damage, theft or loss, and covers the financial cost of replacing the contents of your home, including household goods and furnishings, personal possessions, appliances, electronics and equipment.

Contents insurance premiums depend on such factors as the cost to replace your belongings, and aspects related to the safety and security of your property, such as where you live and whether you have fire protection or security system in place. Quite often, you can save by bundling your building (home) and contents insurance through the same insurer. It could cost you hundreds if not thousands of dollars to replace your belongings if you aren’t adequately insured.

3. Life/Income Protection/Mortgage Protection Insurance

‍The only asset more valuable than your home is you and your family. So if you are going to the trouble of insuring your property, it’s probably a good idea to ensure your ability to maintain your mortgage repayments should something go wrong!

Many people don’t realise that they may currently have an active life insurance policy covering them through their super. Reach out to your financial planner or superannuation fund to double-check whether you are currently (and adequately) life insured. Otherwise, an insurance broker or your mortgage lender might be able to help you get a good (or bundled) deal.

Mortgage Loan Costs

‍‍There are several fees to look out for when it comes to getting and maintaining a mortgage! 

1. Interest Rate

‍Interest rates fluctuate due to the Australian Reserve Bank’s cash rate and lenders’ costs of funding. And due to the increased risks associated with investing in a property in Australia, investment loans are often more expensive than mortgages for owner-occupied properties.

Other factors that impact the interest rate include whether you opt for fixed or variable interest, principal plus interest or interest only, and of course the principal amount you borrow. The good news is that you can reduce the amount of interest you pay in a few ways.

First and foremost, shop around and negotiate with lenders to get a good deal. Once you are in the loan, you can make extra repayments to reduce your overall cost or set up a redraw offset account which allows you to make extra repayments whilst accessing funds when you need them. As of January 2024, interest rate in Australia is 4.35%.

2. Mortgage Application Fee

‍When you first apply for a mortgage, you will likely be charged a one-off upfront mortgage loan application fee – this can also be called a loan establishment fee or a mortgage origination fee. These range from $150-$1000, averaging at $600.

In 2020, NAB announced that it had dropped its $600 mortgage application fee for a limited time. So it pays to shop around, and if you’re savvy with your research and come to the table with a competitor’s loan offer, you may be able to negotiate with your lender for a reduced fee or waiver!

3. Guarantee Administration Fee‍

Payable if your lender accepts a guarantee as security (from your guarantor). This cost covers the additional administration required throughout the loan process. Expect anywhere from $100-1000 for this cost.

4. Search Processing Fee‍

Some banks may charge a fee to perform a property title search in relation to your mortgage application. Expect $10-$100 per search.

5. Valuation Fee‍

This is the cost of having the property valued by a third-party professional property assessor and varies depending upon the property’s location. The cost is usually quoted upon application and ranges between $100-500, but some banks may offer this free of charge.

6. Document Preparation Fee‍

In addition to a mortgage application fee, you may also be charged for the cost of preparation of your loan documents. It might be a flat fee, or you may be charged by the hour, and varies from $100-$1000 total dependent upon the complexity of your loan application.

7. Building Loan Fee

If you have opted to build instead of buying your property, you might be liable for the additional administrative expense of a building loan and the administration of progress payments. This could range from $100-$500.

8. Redraw Fees

‍You will be charged for the courtesy of being able to redraw money from your mortgage. Different lenders and loans have different redraw terms and conditions, so it is recommended to do your research if you would like this loan feature.

You are likely to be charged an upfront fee for this privilege and might also be charged transaction fees every time you redraw. Compare lenders to get the right set of redraw features for your needs and refer to the terms and conditions on your lender’s PDS for the exact costs.

9. Settlement Fee‍

This fee is charged by the lender for processing the settlement of your mortgage. Settlement fees usually range from $100-$500.

10. Agent Lodgement Fee‍

Payable for the attendance of a bank agent at property settlement, or for the lodgement of loan security interests. Agent lodgement fees can range from $50-$500.

11. Repayment Charges

Just as you get charged for withdrawing money out of your mortgage, you also get charged for making extra home loan repayments. Depending on the terms of your loan, you may be charged a flat fee or percentage amount for making extra repayments. Refer to the terms and conditions on your lender’s PDS for the exact costs. 

12. Ongoing Service or Annual Fees

‍Standard bank charges that apply to basically all bank accounts. No surprises here. 

Government Charges

‍‍Refer to your State or Territory Government website for the relevant schedule of fees, or speak to your conveyancer.

1. Property Stamp Duty‍

State or Territory Government tax based on the value of your property, and payable on settlement. Stamp duty is usually one of the biggest expenses in purchasing a property. You can usually get a good idea of your fee with an online calculator such as Commonwealth Bank’s Stamp Duty Calculator. Otherwise, your conveyancer should be able to advise you.

Also, note that you may be eligible for a waiver of stamp duty under the Australian Government’s First Home Buyer scheme. Check out firsthome.gov.au for more information.

2. Mortgage Registration

State or Territory Government fee to legally register the new mortgage on the property title, through the property titles office. 

3. Registration of Discharge of Mortgage

A State or Territory Government fee to legally remove the seller’s mortgage from the property title, through the property titles office.

4. Registration of Title Transfer‍

A State or Territory Government fee to legally transfer the property title from seller to buyer.

Conveyancing and Legal Fees‍

This cost can vary from $800-2000. This fee covers the expertise of a legal professional or conveyancer to prepare and lodge the property transfer documentation. Your conveyancer should also cover expenses such as Strata, Body Corporate Fees and Council rates, but always double-check which expenses have been paid and which are deferred. 

You can save by shopping around, but make sure you choose a reputable conveyancer; you don’t want any trouble being chased for unpaid fees later down the line if your conveyancer hasn’t done their due diligence. 

Whilst the costs of buying property in Australia can be extensive and expensive, don’t let that get in the road of building your wealth. At the end of the day, whether you currently own or are renting, you are effectively paying for somebody’s mortgage – so you might as well pay off your own and build equity which is YOURS!

If you are struggling with debt, it might be worth it to seek debt assistance from a debt counsellors service. If you feel like property ownership isn’t on the cards for you because your debt is out of control, don’t despair - it can take quite some time to regain control of a bad financial situation, but in the long run, it’s absolutely worth it!

Our team of experts has turned thousands of people’s lives and finances around. Call us on 1300 003 328 for an obligation free consultation, where we will assess your debt situation and help you find a way out!