The process to buy a house is fairly simple however the time it takes to get there can be pretty long and it can be pretty expensive. My aim is to make this easier for you and show you ways you can get there faster.
Let’s talk about what you need to be able to buy a house. We’ll start with what you will need to pay for out of your own pocket.
Deposit:
Firstly, you will need a deposit of about 20% of the property value so if the house is worth $500,000, then you will need to have saved $100,000. Sound hard? – don’t worry, there are ways to reduce this, see my post on How to reduce the deposit needed to buy a house.
Stamp duty and Government fees
Other than the 20% deposit, you will need to pay for stamp duty which is a tax the state government charges you. Stamp duty is usually a percentage of the property value and varies by state. The good news is that if you’re buying your first home and plan to live in that home, most state governments exempt the stamp duty if your house is below a certain value – for example in NSW, houses below $650,000 don’t have to pay stamp duty. But if you did have to pay, then on a house worth $500,000 your stamp duty would be $17,835 in NSW or $21,970 in Vic !!!
Other than stamp duty, you have to pay some government fees to make sure you get the title of the property – usually a few hundred dollars.
Conveyancing and building inspections
When you are buying a property, you want to do a couple of things to make sure nothing goes wrong, you will need to hire a conveyancer or a solicitor to handle all the paperwork on your behalf and attend the settlement as well. The settlement is when the money and title/ownership of the house is exchanged. A conveyancer will cost you between $1000 and $2000 on average.
You also want someone to inspect the property you are buying to make sure it has nothing major wrong with it that may cost you a lot of money. For example, if you buy a house and then realise it’s infested with termites, it may end up costing you a lot more. So you would get a professional to do a pest and building report to make sure everything is ok. A pest and building report will usually cost you about $300-$500.
Home Loan
For a $500,000 house, you need about $105,000 if you don’t have to pay stamp duty or about $125,000 with stamp duty to be able to afford the house. You also need the bank to approve a $400,000 loan so that you can buy the house. The bank will see how much you earn, how much debt you have and how much you spend before deciding how much to lend you. Let’s suppose you have no other debts and no major expenses, the bank will lend you about $400,000 if you earn about $50,000 a year. For details on how the bank calculates your borrowing power, see my post: how do banks work out your borrowing power (Servicing position)?
So there you have it, to buy a house – you need to figure out what house you want and how much it will cost altogether. Then you need to factor in a 20% deposit, stamp duty and fees for title, conveyancers and pest and building reports.