Understanding the upfront costs when buying a home
Buying a house is an exciting time, but when you’re on a budget, it’s worth knowing all the extra costs involved to avoid any surprises later.
On top of the deposit amount, there are several additional upfront costs and fees you should consider before purchasing a home.
To help our members better understand these costs, we have explained some common terms you’ll hear when entering the housing market and how RACQ Bank can help manage the costs, including:
Lending fees
Lending fees are additional costs that may be added to your home loan such as loan establishment, setup and annual fees. An establishment fee may be charged to cover costs involved in processing the application and fulfilling the loan through to funding. This includes credit checks, and administrative costs.How much is it?
Lending fees can vary depending on the type of loan. You may be charged a once-off establishment fee or an ongoing fee over the life of the loan (this fee could be charged annually or monthly). In some cases, you could be charged both an establishment fee and an ongoing fee.How can RACQ Bank help with this cost?
RACQ Bank has reduced its lending fees to help members when buying a home, including reducing the Establishment Fee to $0 and introducing a streamlined Document Preparation and Settlement Fee of $550 on new home lending applications. RACQ Bank will also cover the cost of valuations for any new properties and has no ongoing annual or monthly fees.
Visit our home loans page to find out more.
Lenders Mortgage Insurance
Lenders Mortgage Insurance (LMI) is typically required if you have a deposit of less than 20% and need to borrow more than 80% of the cost of your home – so if your loan-to-value ratio (LVR) is more than 80%.
LMI is an insurance policy that protects your lender from financial loss in the event that you can’t afford to pay your home loan repayments. It helps cover the lender if the home loan is in default and there is a shortfall. A shortfall happens when the property is sold but the proceeds are not enough to cover the outstanding loan balance.
How much is it?
LMI is a one-off payment. How much it costs will depend on a range of factors that collectively affect your lender’s risk assessment of you as a borrower. Some of these factors include the size of your home loan, your deposit amount and whether the property is for investment purposes or to live in.
How can RACQ Bank help with this cost?
If you’re looking to buy a house to live in, but don’t have much of a deposit saved up, RACQ Bank has an option for buyers to get into the housing market without having to outlay LMI costs upfront. With an RACQ Bank owner occupied home loan, the LMI amount can be capitalised into your home loan account. This means those looking to enter the housing market sooner could purchase a home with just a 5% deposit˜ and pay off their LMI cost over time.
Interest rate
A bank will charge you a fee for borrowing money from them - this is called an interest rate. Your bank will determine their home loan interest rate based on several internal and external factors, with the main factor being the cost of funds, that is, the cost the bank must pay to acquire the money to lend out. The cost of funds is largely determined by the official cash rate set by the RBA which is reviewed regularly.
Head to our home loans page to view our current home loan interest rates.
How much is it?
In the current interest rate environment, it is important to know what you will be paying over the term of your loan and have confidence that it’s within your budget. You can use our home loan calculator to forecast your repayments based on the size and type of loan you choose.
How can RACQ Bank help with this cost?
An option for Queenslanders entering the housing market is that RACQ Bank offers extended loan terms of 40 years for First Home Buyers. This option makes a first home loan more affordable, as a longer term means smaller repayments, but you can still pay off your loan faster when you’re ready to pay more later on.
Government costs
Transfer Duty
This is the government tax levied on the purchase of a new property and is likely to be the single biggest additional cost you’ll need to pay.
Transfer registration fees
Transfer registration fees are a one-off fee paid to the Titles Office (State Government) to cover the transfer of the title of your new property from the seller to you the buyer.
Registration fees
Registering the mortgage on the title of the property is an additional fee to be aware of and is also payable to the Titles Office.
We know these additional costs may seem daunting, but owning your first home is still an achievable goal. By keeping these additional costs in mind, you can budget accordingly and avoid any surprises when you buy your home.
Are you wondering if you have enough for a home loan deposit? Use our cost of buying and selling a house calculator to estimate how much you’ll have left for a home deposit after allowing for upfront costs.
To find out more about entering the housing market, read our Buying my first home guide.
~5% deposit of the property value excluding LMI and all other government fees & charges.
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