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Why is it important to understand true costs before you purchase a first home?

Like any financial goal, defining your goal properly means that there won’t be any delays to achieving your goal, and you won’t be put in a position where you are stretched after taking on a major financial commitment.

We encourage you to take a goals-based investing approach, and that means to properly cost your goal to the best of your ability instead of assuming a 20% deposit and leaving it at that. Taking that approach means that you’ll just end up disappointed, and also means that if you’re taking a longer time frame to reach your goal, you’re not maximising the earning potential of your savings.

The outlay on my first property was over 35% above my deposit amount. It is a significant amount and a process that I’ve never done before so there were a lot of costs that I didn’t account for, but luckily had a buffer to be able to cover these costs as we didn’t use our full borrowing capacity. But I think it’s important to be transparent about the process and the costs because for first home buyers, it is their first time around.

What are some of the extra costs that first home buyers may incur that they may not think about?

So you start out with your deposit which in most cases would be 20% to avoid Lender’s Mortgage Insurance, but the classic extra cost is stamp duty. I was able to avoid stamp duty because I got in before the 30th of June, and that means that I was able to take the land tax route. Unfortunately that avenue isn’t open anymore to first home buyers in NSW, but the stamp duty exemption and concession amount has risen. But What this means for me is that I pay $2,464 yearly instead of $67,000 up front. Over 15 years, property tax would be $31,622 in today’s dollars.

Then, there’s the property lawyer – we paid about $3,000 for three contract reviews. If you’re a first home buyer, it’s likely you’re going to come close on properties that you like, and you might not be successful. So this involved getting a property lawyer to review the contracts of the property before we put any offers in. This fee in most cases, covers the contract reviews, liaising with agents and solicitors on any contract changes, liaising with the bank for settlement and funding and finalising settlement and any transfer of title.

Building and pest reports are in the same category – you want to make sure that your future home is structurally sound without any major faults. They can range between $200-500.

We didn’t pay for a mortgage broker – they receive a commission from the banks but you can shop around and find brokers that are fee for service as well if that is what you are comfortable with. We were happy with the rate offered by the broker so didn’t need to explore fee for service options.

Settlement fees, mortgage registration, bank property fees – this is just part and parcel of taking out a loan. It’ll vary bank to bank but we were at about $2,600 for this, plus about $850 for home insurance that was compulsory before we were offered the loan.

Then – there’s of course the frictional costs of moving – new furniture, removalists, boxes, any accommodation you have to supply between the end of your lease and your move in date. There’s a variety of costs that you’ll know best given your situation.

You mentioned the option of using a buyer's agent to navigate the competitive Sydney market. Can you share your experience working with a buyer's agent and how it impacted your property search and selection?

Yes – we were looking for a place for 18 months and just couldn’t compete at auctions – there were no houses for sale in the places that we were looking for, just auction. We decided to go to a buyer’s agent and were able to find everything that met our criteria within a month of looking. And I’m the first to admit that this was a complete luxury and is not an option for a lot of first home buyers. It cost about $33,000 which is a very large chunk of a deposit for a first home buyer – but we had come up completely empty handed in our prior searches. And this won’t always be the cost – it will depend on your purchase price and the area in which you are looking.

The buyer’s agent that was able to source off market properties and negotiate on our behalf prior to properties going to auction.

As well as negotiating, the buyer’s agent liaised with the property lawyer and the broker, the real estate agent and property management service, and the building and pest services. He was a licensed builder by background. This came in handy given my limited knowledge about anything construction related. He was able to help us understand any required works and assess any damage. And he was also able to attend inspections mid-week while we worked, leveraging relationships to get in prior to auction.

Houses and mortgages are a huge commitment and we were lucky to have help in a very tight market to find something to settle on.

Tips for first home buyers?

Build in a buffer for extra costs – like the ones I outlined, have a written plan and outline for the types of properties that you are looking for – including location, house specifications, any concessions for renos. It is an incredibly emotional process that can cause you to pay more than you can afford for an asset or purchase an asset that makes you compromise on the level of financial commitment you are comfortable with, or lifestyle that you are comfortable with. It’s incredibly hard not to feel pressure and stress to purchase, especially with the rental market in the state that it is. Use your outline to decide whether it’s what you’re after, or whether you’re feeling pressure to purchase in a tight market. It’s very easy for me to say now that having a house is not the be all and end all, but if you are in a position to buy, make sure that you have a detailed understanding of the circumstances in which you will purchase and be conservative with your deposit.