Purchasing a new home is undeniably an exhilarating milestone, brimming with dreams of settling into a space that reflects your personal style and aspirations. Yet, as the excitement of homeownership takes centre stage, there’s a curtain veiling a complex interplay of costs that extend far beyond the initial down payment and mortgage and interest figures. In the quest for a place to call your own, it’s crucial to unveil the hidden costs that often remain overshadowed by the glamour of real estate listings. From the hidden expenses of maintenance and utilities to closing fees and other legal and regulatory costs, this blog post peels back the layers to illuminate the often overlooked financial intricacies of buying a home.
Before you sign on the dotted line, let’s step back a bit and consider the full and real costs of home ownership to determine if you can actually afford it.
P.S. This is all based on my own experience as a recent home buyer. Please consult with the relevant professionals to understand all costs relevant to your personal situation. This was written as a general guide only and is not to be taken as specific advice.
Mortgage + interest repayments
Whenever you apply for a home loan, the bank stress tests your finances to account for interest rate rises to see if you can still afford the proposed loan. Historically, they’re stress tested for 2.5%-3% increases in the interest rate. Now, with 12 consecutive interest rate rises, most people have already surpassed their maximum level at which they were stress tested for, which means, for some, they’re already in mortgage distress, which is defined as paying more than 30% of your take home salary on housing. It’s important to have open conversations with your bank or mortgage broker, to understand how much your mortgage repayments and interest may increase at the upper levels of the stress test (and beyond) to see if you can still afford it.
For more recent home buyers, or younger home buyers, who have stretched themselves to even get into the market, this period of high inflation, high cost of living and interest rates potentially continuing to rise in the foreseeable future, may be really feeling the squeeze and because you may not have enough equity in your home, may find yourself not being able to refinance.
In order to manage higher mortgage repayments, it may be important to see how you can either cut your costs or increase your income or both to ease the financial pressure.
- What areas in your budget could you trim to lower expenses? (streaming subscriptions, dining out, recreation, holidays, shopping, groceries etc)
- What skills do you have that would help you earn some extra money? (start a side hustle, driving uber/food delivery, pick up more clients, casual job etc)
For those in a position to potentially refinance, talk to your existing lender to see if you can get a better deal. If not, be prepared to do some leg work and find out what other better options might be available. Often, banks bank on people being too lazy to switch banks. Doing some admin work in this area by calling other bands, could save you thousands over the life of your loan. Loyalty in these instances do not pay!
In addition to mortgage repayments and interest, also add on these other costs:
- Home loan establishment fee
- Monthly service fee
- Legal/conveyancing fees
- Lender’s mortgage insurance (if applicable)
- Building/pest inspection
- Title search fees
- Stamp duty
- Land tax/title registration fees
- Buyer’s agent fee (if applicable)
- Moving costs etc.
Supply charges for gas/electricity/water
If you were a previous renter in an apartment, your landlord/rental provider would’ve paid these supply fees to connect the gas, electricity and water if there was no separate meter. These supply charges goes towards connecting your individual home to the network, but also towards paying for the maintenance of the network itself to ensure a constant and safe supply of the utility.
For water supply, you typically only have 1 supplier to choose from depending on the area you live in. For electricity and gas, there is scope to shop around and it certainly pays to. Given the cost to electricity is set to rise at least 21-30% on the east coast of Australia, every dollar saved in your own bank account is better than every additional dollar forked out! Most states in Australia have their own website to compare utility charges so you can find the more competitive deal for your situation:
- NSW: https://www.energymadeeasy.gov.au/
- VIC: https://compare.energy.vic.gov.au/
- QLD: https://www.energymadeeasy.gov.au/
Actual usage of gas/electricity/water
With the effects of climate change being at the forefront of the news more and more recently, it may be worth considering switching over to greener sources of energy and removing gas powered appliances from your home and switching to electricity only. Although there will be an initial cost related to labour to install the appliances (for example from gas cooktop to induction cooktop) and the cost of the appliance itself, in the long run, it will pay for itself and you’ll be saving. It’s greener for the environment, your health and removing gas appliances will mean you won’t need to pay for the connection anymore.
Similarly with older appliances that may not be as energy efficient, you may consider switching them out for more modern and more energy appliances (e.g. split system air con/heater, washing machine, dishwasher etc)
Is the home an older one with gaps in windows and under doors? How can you seal up these gaps to keep the cool/warm air in?
Owner’s Corporation (OC)/Strata fees
When you buy an apartment you join the building’s OC. You essentially become a part owner of the building. If you live in an apartment, it’s a fact of life that every quarter you will need to pay your OC fees. Part of the money you pay goes towards the person or company that manages the OC’s finances, who organises trades to fix anything that the OC owns, building insurance, maintenance of common areas and gardens, admin fund etc.
In the case, something unexpected comes up that needs fixing, a special levy may be raised in which all owners need to contribute to pay for it the item to be fixed. For example, if you live in an older building, it may mean installing an appropriate fire sprinkler system to bring the building in line with modern fire safety standards, fencing repairs, tree removal, security gate repairs, shared hot water leaks etc
Although these costs are typically adhoc, you should have an emergency fund consisting of 3-6 months worth of expenses, that you could draw upon to pay for these.
Council rates
Council rates goes towards paying for your community’s essential services such as maintaining parks and gardens, street cleaning and waste management, local laws compliance, business, community services, urban policy and design, recreation and leisure activities etc
These rates are based on your property’s valuation and are paid either yearly or quarterly.
Furniture
With a new home, comes the fun (but can be expensive) bit! Buying furniture to fit your space. Whether this is a new couch, dining table, book shelf, dining chairs etc there’s something about knowing you won’t have to move at the end of a typical 12 month lease, that could easily put you down a spending rabbit hole. Although when you just move in, you feel a flurry of excitement and want buy all the things, the reality is, with the cost of new furniture being expensive (especially if you want to buy something a little nicer, that will hopefully go the distance), you don’t need to buy everything new at once. From my own experience, it’s nice to be able to spend some time living in your space, to get a feel for what you need and what would fit.
Multifunctional furniture and modular furniture, as the name suggests, can fulfill more than 1 function. For example, bench seating in the kitchen or dining room, can not only fit many bums on seats, but may have hidden storage too. This kind of furniture may also change with you, as your life/family situation changes.
Best yet, there are loads of second hand shops and markets with perfectly good furniture and homewares. Not only are you helping the environment, by not buying new, but you’re giving an existing item a new life, saving it from potential landfill and you’re saving money in the process. Winning!
Local op shop
The old saying goes, one (wo)man’s junk is another (wo)man’s treasure. Op shops can be a treasure trove of goodies, and finding the gem can be a thrilling adventure! Op shops are constantly receiving new items, so it’s always worthwhile popping in every so often and checking things out. Typically the larger suburban stores house more furniture finds, though some inner city stores may house a smaller selection.
In Victoria, some local op shop choices are:
- Brotherhood of St Laurence
- Savers
- Red Cross
- Salvation Army
Vintage furniture shops
These shops are typically more curated than your local op shop, often centred around a particular theme or themes. As these are curated selections, it’s typically pricier than what you may find at a regular op shop.
Facebook marketplace
There are constantly people moving, upgrading or dealing with a deceased person’s belongings. With all this change, there is a constant stream of new items being added to Facebook marketplace. Items can move incredibly quickly, so if you spot something you like, make contact with the seller and organise to pick up the item ASAP.
- Always ask questions about the condition of the item – if the seller ignores you, do you really want to buy the item from them anyways?
- Don’t transfer money online, afterall, after the seller receives the money they could disappear. Insist on cash payment upon pick up.
- Consider your own safety, bring another person along if you’re picking it up from the seller’s home.
Renovation costs (minor to major)
Sometimes, buying a first home, means just getting your foot onto the property ladder even if the residence may not be your dream home. For example, the bathroom/kitchen may need updating, carpet replaced or removed etc.
Renovations can range from minor cosmetic changes like a new coat of paint, ripping up the old carpet and replacing with new carpet or floorboards to full on major renovations, where you completely gut the existing and rebuild from scratch.
Depending on your budget, as nice as it would be to splash out and deck out your home exactly as you want, in reality, sometimes this is not feasible. For example, if you want to do a complete renovation of your kitchen, here are some things to consider:
- Will you continue living in your home while the work is underway?
- What considerations/workarounds have you put in place to deal with the dust/noise?
- Are you going to be eating takeout for the entire duration of the renovation?
- Can you afford to move out temporarily – whether it’s short stay accommodation or with a friend/family member?
- Can you afford to continue renting in your current place and having all. the works completed before moving in? (This may involve paying rent and mortgage at the same time)
Sometimes, depending on your life plans, it may not be financially wise to “over-capitalise” on your home, especially if it’s your first home. What I mean by this, is to spend more money on it, than you will get back in the eventual sale price. If this is not your forever home, it may not be financially wise to spend tens of thousands of dollars on major renovations, as you may not be able to recoup costs when you come to sell. Obviously nobody wants to sell at a loss if it can be avoided. If this is your forever home, of course, do as you please, but for most people, their first home is most likely not going to be their forever home.
When things break – you gotta pay for trades to come through to fix
Leaky shower or toilet? A light in the kitchen needs replacing? Now as the owner, you obviously do not have a property manager/landlord to call upon and get them to pay for the item to be fixed, it’s all on you to organise trades and pay them.
Hopefully these sorts of problems are sparse and very far and inbetween, but nothing is forever, so once in a while, things will need to get fixed. Similar to before, it’s a good idea to have an emergency fund. tocover these unexpected costs.
Noise from neighbours
(Although not technically a financial cost, but if you do buy a home with noisy neighbours, this could be a cost to your emotional/mental/physical health.)
Especially if you’re living in an apartment, before you buy a property it can be difficult to gauge how noisy your neighbours might be. Typically open home inspections occur on Saturday mornings or else weeknight evenings, hardly the time for your neighbours to have loud, raging parties! Do your research and visit at different times of the day and different days of the week. Although you can never be 100% certain until you start living there, this strategy may help you suss out who lives in the building and how noisy/quiet your future neighbours may be.
I hope you found this guide helpful on your journey to home ownership! If so, please do share with your friends and family to spread the word, good luck!
