Buying Your First Home: The Costs Beyond the Deposit

Saving a deposit is often the first big goal when you’re preparing to buy your first home. It’s tangible, easy to measure and usually the number that gets the most attention. But the deposit is only one part of the money you may need to have available when it comes time to buy.

The deposit is only one part of the upfront cost

The amount you need as a deposit depends on your circumstances, the lender, the property and the loan options available to you. There is no single deposit percentage that applies to every first home buyer.

Some buyers may purchase with a relatively small deposit. Eligible first home buyers may also have access to government support. For example, the Australian Government 5% Deposit Scheme allows eligible first home buyers to purchase with a minimum 5% deposit through a participating lender, without paying Lenders Mortgage Insurance. Other programs, including Help to Buy, have different eligibility rules and structures.

The important distinction is that having enough for the required deposit does not necessarily mean you have enough to complete the purchase. You also need to allow for the costs that sit around the transaction.

Stamp duty can be one of the largest additional costs

Stamp duty, also known in some states and territories as transfer duty, is a government charge connected with the transfer of property ownership. The amount can vary significantly depending on where you buy, the purchase price, the type of property and whether you qualify for a first home buyer concession or exemption.

This is an area where first home buyer support can make a meaningful difference, but the rules are not the same across Australia and they can change. Before setting your final budget, check the current rules for the state or territory where you intend to buy rather than assuming a concession will apply.

It’s also worth separating stamp duty concessions from the First Home Owner Grant. They are different forms of support, with their own eligibility requirements. Depending on your location and the property you are buying, you may be eligible for one, both or neither.

You’ll need to allow for conveyancing or legal costs

Buying property involves a legal transfer of ownership, so most buyers engage a conveyancer or solicitor to review the contract, carry out the required searches and help manage the settlement process.

The cost will vary depending on the provider, the state or territory and the complexity of the purchase. There can also be additional search, registration or settlement-related charges. Rather than treating conveyancing as an optional extra, it is better to include it in your buying budget from the beginning.

Having the contract reviewed before you sign or bid can also be important, particularly because contract conditions and auction rules differ between jurisdictions. Your conveyancer or solicitor can advise you on the legal aspects of the purchase and the protections that may be appropriate for your situation.

Building and pest inspections can help you understand what you’re buying

For an established house, buyers commonly consider building and pest inspections before committing to the purchase. These inspections can identify visible defects, structural concerns or signs of pest activity that may not be obvious during a normal property inspection.

Apartments, townhouses and other strata or community-title properties may involve different due diligence, such as reviewing strata records, levies, building issues and the financial position of the owners corporation or body corporate.

The exact checks you need will depend on the property and location. While these reports add to the upfront cost of buying, they can provide useful information before you take on a much larger financial commitment.

There may also be costs connected with the home loan

The loan itself can come with costs that vary between lenders and products. Depending on the circumstances, these may include application, valuation, settlement, package or other fees. If your loan has a higher loan-to-value ratio and you are not using an eligible government guarantee, Lenders Mortgage Insurance may also apply.

Lenders Mortgage Insurance protects the lender rather than the borrower. Its cost depends on factors including the size of the loan and deposit, and it may sometimes be added to the loan rather than paid entirely upfront. Adding costs to the loan can reduce the amount you need immediately, but it also means you may pay interest on that amount over time.

This is why comparing home loans should involve more than the advertised interest rate. Fees, features and the overall loan structure can all affect the real cost of borrowing.

Don’t forget the costs around settlement and moving

The purchase price may be the biggest number, but smaller expenses can arrive quickly around settlement. Depending on the property and your circumstances, you may need to budget for moving, utility connections, insurance, immediate repairs or maintenance, and essential items for the home.

There may also be adjustments at settlement for items such as council rates, water charges or strata levies. Your conveyancer or solicitor can explain how these adjustments apply to the particular property.

None of these costs necessarily needs to be large on its own, but together they can put pressure on your cash position if every available dollar has already gone towards the deposit.

Keep some room in the budget after settlement

It can be tempting to use as much of your savings as possible to maximise the deposit. A larger deposit can have advantages, but becoming a homeowner also means taking responsibility for costs that may previously have been covered by a landlord.

Hot-water systems fail, appliances need replacing and unexpected repairs happen. Your regular expenses may also change once mortgage repayments, rates, insurance and other ownership costs begin.

Where possible, it can be useful to think about what your finances will look like the day after settlement, not just whether you can reach settlement itself. The aim is to enter home ownership with a structure that feels manageable rather than immediately feeling financially stretched.

Government support may change how much you need upfront

First home buyer assistance can affect both the deposit and some of the other upfront costs. At the Australian Government level, the 5% Deposit Scheme can help eligible first home buyers purchase with a minimum 5% deposit and without Lenders Mortgage Insurance. The First Home Super Saver Scheme can allow eligible buyers to use certain voluntary super contributions and associated earnings towards a first home deposit, subject to the scheme rules.

Help to Buy is a shared-equity scheme with a different structure: eligible buyers contribute a minimum 2% deposit and the Australian Government can contribute a share of the purchase price. State and territory governments may also offer grants, stamp duty concessions or other support.

Eligibility, property price caps and other conditions matter, and government programs can change. Rather than building your plans around a scheme you have heard about, it’s better to check what is currently available and how it interacts with your circumstances and proposed purchase.

Work backwards from the full amount you may need

A useful first home buying budget starts with more than a property price. Think about the deposit you expect to contribute, then allow for government charges, conveyancing, inspections, lending costs and the practical expenses of getting into the property.

From there, consider what you would like to keep available as a buffer after settlement. The result may change the price range you feel comfortable targeting, but that is useful information to have before you start making offers.

Buying your first home is not about having a perfect spreadsheet or predicting every expense. It is about understanding the main moving parts early enough that the costs do not come as a surprise.

Planning for your first home?

Nestia Financial can help you look at the bigger picture — from your borrowing position and deposit to the other upfront costs you may need to allow for, as well as first home buyer support that may be relevant to you.

General information only. This article does not take into account your individual objectives, financial situation or needs. Interest rates, fees, lender policies and product features can change. Consider your circumstances and seek appropriate professional advice before making financial decisions.