What are the costs associated when applying for a home loan and buying a house?

From establishment fees and upfront costs to the ongoing expenses that come with buying a home, there’s more to buying a house than simply paying your deposit and taking out a mortgage. It’s important to know exactly what you’re up for so you can crunch the numbers and make sure you’re not overextending yourself.  

So, to help you navigate all those extra expenses that are associated with purchasing a property, we’ve pulled together this list to help you with your calculations.

Home loan costs

While securing a home loan might seem like a significant cost itself, there are often several different fees you need to pay to even set up a home loan in the first place. It’s worth noting that individual banks and lenders will have their own fees, so the following figures are a rough guide.

Application fees

Application fees or establishment fees are one-off fees that cover the set-up of your mortgage. Depending on how much you’ll be borrowing from your lender, you can expect to pay an application fee of anywhere from $150 to $700.

Valuation fees

Banks and lenders will often complete a valuation on the property before granting your home loan. And rather than foot the bill themselves, they usually pass on this cost to you. Property valuations are completed to help your lender determine the level of risk for your home loan. They’re also used to work out your loan to value ratio (LVR) to determine whether or not you’ll need to pay lender’s mortgage insurance (LMI) or a low deposit premium (LDP) to help offset the extra risk.

While some lenders offer free valuations, a property valuation can cost between $100 to $300.

Legal fees

The business of property ownership transfer can be a complex one to navigate, which is why many lenders will often call in a legal professional for help. Their legal team takes care of all things to do with the settlement documents and contracts, which will usually set you back upwards of $100.

Just keep in mind that these legal fees are completely separate from the fees charged by your own solicitor or conveyancer. You’ll still need to cover those costs, as well as the legal fees charged by your bank to set up a home loan.

Settlement fees

As part of the home loan setup, you’ll also need to cover settlement fees. Lenders will often charge a settlement fee when you top up your home loan or refinance. Settlement fees tend to range from $100to close to $1000, but if you opt for a home loan package you might be able to get the fee waived.

Lender’s mortgage insurance or a low deposit premium

When it comes to buying a house, it’s usually best to try and save up for a 20% deposit. But that’s often easier said than done. If your deposit is a little on the small side, you can still get a home loan, but chances are it’ll cost you a little extra.

To offset the risk that higher LVR loans pose to the bank, they charge one-off fees like lenders mortgage insurance (LMI) or a low deposit premium (LDP). These fees are calculated based on the size of your deposit compared to how much you’re planning on borrowing. So, the bigger your deposit the smaller your LMI or LDP.

But that’s not all, some banks and lenders also charge ongoing fees over the life of your home loan.

Annual package fees

More often than not, home loan packages come with annual fees. These fees can range anywhere from $300 to $400 depending on your bank, but it can be worth stumping up this annual bill for the reduced interest rates and other promotional discounts that tend to come with these types of packaged loans.

Monthly home loan fees

Alternatively, you might be charged a monthly fee to cover the servicing and administration of the loan. Monthly home loan fees tend to fall between $5 to $15.

Redraw fees

If you opt for a home loan with a redraw facility, it’s worth checking whether you could be up for a fee each time you use the facility. While some lenders charge around $50 each time you redraw funds, others either waive the fees or don’t charge them at all.

Late payment fees

Depending on your lender, you could be slugged with a late fee if you miss your repayment due date. With that said most banks have a 5 business day grace period. Once that period is up, you’ll be charged a late fee until you’re back in the green or you contact the bank to set up a payment plan.

Upfront purchasing costs

Besides the various costs that come with setting up a new home loan, you’ll also have to foot the bill for a stack of other expenses that come with buying a home. These can include:

• Stamp duty,
• Building and pest inspections,
• Government charges, like land tax and title registration fees,
• Legal or conveyancing fees,
• Mortgage registration fees,
• Building and contents insurance and landlord insurance (if applicable), and
• Moving costs.

Read our blog on the seven upfront costs to consider before buying a home to learn more about how these expenses work.

Once you finally buy a home, you might think that the big expenses stop there. Instead, you’ve just signed yourself up for a lifetime of ongoing costs that come with owning a property. From repayments and rates to repairs and utilities, while it’s important to make sure you’ve got enough in the bank to cover the purchase of your new home, it’s just as essential to ensure you can afford to continue to service your loan and maintain your property.

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This article is intended to provide general information only. It does not have regard to the financial situation or needs of any reader and must not be relied upon as financial product advice. Please consider seeking financial advice before making any decision based on this information.‍