The hidden cost of buying a house in Melbourne

When you’re buying property, you need to have a good understanding of some of the hidden costs. It can be challenging to set a budget or know what you can comfortably afford if you don’t know about these costs.

Most people will look at the price of a specific property and think that is all they need to pay. But there are some additional costs that you need to budget for to avoid being caught short on funds.

The costs associated with buying property will vary from state to state, and this article focuses on buying property in Victoria. 

If you’re living in Victoria and buying property interstate, you’ll need to complete additional research to ensure you’re meeting all the costs of that particular state.

What are the upfront costs of buying property in Victoria?

When discussing the upfront costs, we must precisely note what we mean. The upfront costs of a home are what you must pay, including government taxes, legal fees, and charges as determined by your loan provider. In Victoria, your upfront costs will include the following:

Stamp Duty

In Victoria, stamp duty (or land transfer tax) is payable in any transaction that involves property or land. Stamp duty is determined by the dutiable value of the property in question. The dutiable value of a property is noted as the market value or the purchase price (whichever is highest).

The amount you pay in stamp duty is calculated on a sliding scale, and the more the property is valued, the high percentage it attracts. A property valued at $25,000 will have a stamp duty of 1.5%, and properties over $960,000 will have a stamp duty of 5.5%. You can use the Victorian Government stamp duty calculator to find out precisely how much stamp duty you’ll pay on a specific property.

If you’re buying a home for the first time, you may be eligible for the stamp duty concession. Under this concession, you won’t pay stamp duty on a property worth less than $600,000. For properties valued between $600,000 and $750,001, the stamp duty concession is calculated on a sliding scale. For properties valued over $750,001, there are no concessions available.

Lenders Mortgage Insurance (LMI)

If you have a deposit of less than 20% of the value of the purchase price, most lenders will require you to have lenders mortgage insurance. A 20% deposit ensures you’re a low-risk customer and can comfortably repay the loan. However, if you don’t have this amount saved, taking out lenders mortgage insurance will help qualify you for the loan.

Your lender may allow you to include the lender’s mortgage insurance premium in your loan. The amount of LMI you need to pay is calculated on how much you’re looking to borrow and the size of your deposit. If possible, it is best to avoid paying an LMI, but if the property is more than your deposit can cover, you need to factor this additional cost into the final price.

Conveyancing Fees

Conveyancing fees (or legal fees) are generally unavoidable when you buy property. Drawing up a sale contract for a property takes special knowledge; conveyancing will also review contracts and process all the documentation.

Solicitor fees for purchasing a property in Victoria can range from $800 to $2500. The exact amount you are charged will depend on the transaction complexity. You can save some money by working directly with a specialist conveyancer. These fees will cover the cost of the conveyancer and any fees or charges that apply to the transfer process. You can ask your chosen solicitor or conveyancer for an exact quote.

Building and pest inspection costs

Checking if the property you’re buying is sound and free from pests is vital to avoid problems. A professional inspector will examine the property and ensure it is built to the required specifications and that no unauthorised works are completed. The cost of an inspector will vary based on the size of the property and what services you require. A professional building and pest inspection will cost $350-$800.

Mortgage application fee

If you’re borrowing money to purchase your new property, you’ll find that most lenders will charge a mortgage application fee. This fee will cover the administration that is required to process your application. Some lenders will waive this fee to incentivise people to sign up for their services. A mortgage application fee can cost from $500-$750.

Valuation Fees

Most home loan providers will require an independent valuation of the property. This is completed so they can understand the property’s value and provide a correct final amount for your loan. An independent valuer will cost around $200, but it may increase for larger properties. Your lender may include the valuation cost in your loan, so it is best to check.

Registration of Title

If a property has a mortgage attached, it must be registered against the title of the property. After the property is registered, it can be viewed through a title search, identifying you as the owner. In Victoria, the fee for title registration is $119.

Home and Contents Insurance

The average cost of home and contents insurance in Victoria is $1500. If you split these insurances, you can expect around $1200 for the house insurance and $300 for contents insurance. When taking out home insurance, you have several options, including complete replacement. Full replacement insurance will provide you with enough funds to demolish a damaged home and rebuild.

Building insurance is covered if you’ve purchased a property under strata title, and you are not required to have it yourself. However, you may still require contents insurance if you plan on moving into the property.

The Ongoing Costs of Buying a Home

After you purchase the property, there are several ongoing costs that you need to factor into your budget. The main cost of buying a home are the loan repayments, utilities (electricity, gas, water, etc.), and any renovation or repair costs.

Regular loan repayments are likely to be the highest ongoing costs. A mortgage repayment calculator is suitable for determining what your repayments will cost each month. To use the calculator, you’ll need to know how much you’re borrowing, the interest rate, and the length of the loan. When using the calculator, it is best to enter the comparison interest rate of your chosen lender, as that includes all the bank fees associated with the loan.

If you’ve bought a property that needs updating, you’ll need to include a budget for renovation and repairs. Your renovation budget can range from a few thousand for fresh paint and fixtures to over a hundred thousand for a complete remodel.

When you first move into a property, you may be required to pay connection fees for your utility services. These fees can range from $200 – $500 based on the type of connection and your supplier. The ongoing costs of utility services depend on how much you use, but you can budget around $1000 – $1500 each quarter to pay for connected services (electricity, internet, gas, water, etc.).

After reading through this article, you should have a clearer picture of how much a home in Victoria will cost. If you’re looking into entering the property market or moving to Victoria, then you can use this as your research base. The amounts discussed in this article are estimates and shouldn’t be taken as an exact costing. You can use this as a guide for completing more detailed research.

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