So you want to buy your first home, you are ready to start making a plan, but you don’t know where to start? There are many costs to consider, not only the house deposit but a range of other costs, many of which are significant figures, when it comes to buying a first home.
Here is a guide to the costs you need to consider, and how much you should budget for them. Then you’ll be one step closer to moving into your dream home!
This cost is not only the most obvious, but also the largest amount. One of th most common questions of first home buyers is how much do they need as a house deposit?
This is not a set amount, as different lenders while work with various deposit amounts. However a smaller deposit, or specifically smaller as a percentage of your house’s value, while mean you get a worse deal on your loan. A low deposit can mean you will pay a higher interest rate on your loan.
It may also mean you will need to pay lender’s mortgage insurance. This is linked to your ‘loan to value ratio’ or LVR, which is the value of the loan divided by the purchase price or value of the house. As a general rule, if you have a LVR over 80% (or in other words if your loan is more than 80% of the purchase price of the property) you will required by the bank to buy lender’s mortgage insurance, adding another cost to this list!
Ideally, your deposit should be 20% of the purchase price of your new home, plus enough to cover ongoing costs you will have after you buy the house.
Stamp duty is a state tax which applies in all states, which you need to pay at the same time as you buy your home. The amount various state to state, and is based on the value of the property, its location and the type of property (apartment, unit, house etc). Luckily, it is a one of payment, so you only need to pay it once, but it can be a significant amount so make sure you factor it into your budget! Each state has an online stamp duty calculator where you can estimate the stamp duty for the property you want to buy.
Legal and conveyance
There are a multitude of legal requirements associated with buying a new home. You will need a solicitor or conveyancer to navigate these. Their role is to handle most of the legal paperwork and administration, examine and explain the terms and conditions of the contract, and answer any questions you may have. As with any professional, they charge fees for their services, so this needs to be part of your budget.
There are range of other costs associated with buying and moving into a new home, such as removalists, and in some cases you may need professional cleaning services either for your old or your new home. It is also recommended that you have a qualified building inspector assess your new home before you make a final agreement on the contract. This involves a cost, but can save you money in the long run in case of potential problems or issues with the property!
How to save for a house deposit
With ever-rising house prices, saving 20% of the price of your new home can be pretty daunting. This is not something you will be able to do overnight, but will require long term planning and a fair dose of self-discipline.
One thing which can help is setting up a savings account specifically for your house deposit. This should be a high-interest account which will help you maximise your savings. The savings accounts with the best rates usually require a regular monthly deposit and will not let you take money out over a set period. However, since you will be watching your savings grow and not touching them until your deposit is complete, this won’t be an issue!
Another good tip is to budget a set amount which you can spare every month, and then set up a direct debit which will transfer this amount into your dedicated high-interest savings account, preferably on the day your salary is paid in. This will make sure you don’t ‘accidently’ spend it and instead put it towards buying a first home.