Buying your first home is a big adventure but don’t just save for the deposit. While the deposit is a big upfront cost, there are many other costs to consider to make sure you can afford your new home long-term.
It’s easy to focus on the deposit and forget about the other costs of homeownership. Know and plan for these costs and you’ll avoid financial stress and enjoy your new home.
Key Costs
Mortgage Repayments
Your mortgage repayment will be your biggest ongoing cost. Make sure you can afford these payments long term. Here are some key points to consider:
- Affordability: Calculate your monthly repayments based on different interest rates, especially if you have a variable rate mortgage. Think about how future changes, like having a family, might impact your ability to pay.
- Fixed vs. Variable Rate: Understand the difference between fixed and variable rate mortgages.
A fixed rate gives you stability, a variable rate might be lower initially but can increase over time. - Extra Repayments: If you can, make extra repayments to pay off your loan principal faster. This will save you a lot of interest over the life of the loan.
A mortgage broker can help you find a mortgage that suits your situation and needs. They can also advise on how to manage your repayments.
Insurance
Insurance is non negotiable with homeownership. You need to budget for the following types of insurance:
- Home and Contents Insurance: This covers your home and belongings against damage or loss. You must have this cover to avoid financial loss if something unexpected happens.
- Lender’s Mortgage Insurance (LMI): If your deposit is less than 20% of the property’s value, your lender will likely require you to have LMI. This insurance covers the lender if you default on your loan.
- Mortgage Protection Insurance: This insurance covers your mortgage repayments if you lose your job, become ill or can’t work due to injury.
- Landlord Insurance: If you’re going to rent out your property, landlord insurance is essential. It covers rental income loss, property damage by tenants and legal expenses.
Make sure to shop around and compare different policies to get the best cover at the cheapest price.
Body Corporate Fees
When buying into a complex with a body corporate you’ll be required to pay body corporate fees. These fees are for the maintenance of common areas and shared facilities like pools, gyms and gardens. Here’s what you need to know:
- Fee Range: Body corporate fees can vary widely from as low as $15 per week for basic complexes to over $200 per week for luxury developments with lots of amenities.
- Annual Increases: Expect these fees to increase annually. Check the complex’s financial history to get an idea of past fee increases.
- Special Levies: Occasionally body corporates will impose special levies for unexpected expenses or major renovations. Factor this into your budget.
Council Rates
Council rates are a regular expense that all homeowners have to budget for. These rates fund local services like waste collection, parks and road maintenance. Here’s what to consider:
- Payment Frequency: Council rates are usually billed annually or quarterly. Make sure to include these payments in your budget planning.
- Rate Calculation: Rates are often based on the land value of your property. Higher land values mean higher rates.
- Increases: Expect annual increases in council rates. Check the historical rate increases in your area to estimate future costs.
Electricity, Water and Gas Bills
Utility bills are a big part of ongoing homeownership costs. Make sure to budget for the following:
- Electricity: Consider your household’s energy usage and look for ways to reduce consumption, like using energy-efficient appliances.
- Water: Water usage can vary especially if you have a garden or pool. Be mindful of seasonal changes in water consumption.
- Gas: If your home uses gas for heating, cooking or hot water include this in your monthly expenses.
To manage these costs compare different utility providers to get the best rates and consider energy-saving measures.
Repairs and Maintenance
Maintaining your home is an ongoing responsibility that requires both time and money. Here’s what to consider:
- Routine Maintenance: Regular tasks like cleaning gutters, servicing heating and cooling systems and maintaining gardens are essential to keep your home in good condition
- Unexpected Repairs: Set aside an emergency fund for unexpected repairs. Big ticket items like a leaking roof or faulty plumbing can be very costly.
- DIY vs Professional Help: Some maintenance tasks can be done yourself, others may require professional assistance. Budget for professional services when needed
Renovations
Planning to renovate your home? Make sure to include renovation costs in your budget:
- Cost Estimation: Get multiple quotes and plan for contingencies, renovation costs often exceed initial estimates.
- Project Scope: Clearly define the scope of your renovation to avoid unnecessary expenses. Focus on improvements that add value to your property.
- Buffer Fund: Have a buffer fund for unexpected expenses during the renovation process.
Internet, Telephone and Home Entertainment
In today’s connected world utilities like the Internet are essential. Budget for these ongoing costs:
- Internet and Phone: Choose plans that suit your usage needs. Bundled plans can often provide better value.
- Home Entertainment: Services like Netflix, Foxtel or streaming subscriptions should be factored into your monthly budget.
Lifestyle Considerations and Contingencies
Owning a home may require lifestyle adjustments. Here’s what to consider:
- Budget Adjustments: Be prepared to cut back on discretionary spending like dining out, holidays and shopping.
- Emergency Fund: Keep an emergency fund for unexpected events like medical bills or urgent home repairs.
- Long Term Planning: Think about how homeownership will impact your financial plans and lifestyle long term.
Conclusion
Being prepared for the costs of owning your first home goes beyond just saving for the deposit. By knowing and planning for all these expenses you can have a smoother and more enjoyable homeownership experience.
Choose a property that fits your budget and long term plans and always have a financial buffer for unexpected costs.
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FAQs on ‘Preparing For the Costs of Owning Your First Home’
How much deposit do you need for a first time home buyer in Australia?
For first-time home buyers in Australia, a deposit of 20% is ideal as it avoids the need for lender’s mortgage insurance. Consider using the First Home Super Saver Scheme for savings up to $30,000, and establish a dedicated savings account to systematically set aside funds each week.
How much money do you need to have to buy a house in Australia?
To buy a house in Australia, it’s advisable to save as much as possible. The minimum deposit often required is 10%, but aiming for 20% is beneficial to avoid additional insurance costs like Lenders’ Mortgage Insurance or a Low Deposit Premium if borrowing more than 80% of the property value.
How to buy a first home in Australia?
To buy your first home in Australia, start by saving for a deposit. Next, determine your borrowing capacity to see what you can afford, then search for the best home loan rates. Find a property within your budget and proceed to negotiate the purchase.
What is the average age of a first home owner in Australia?
The average age of first-time home buyers in Australia has been trending upwards, currently around 36 years. This represents a significant increase from the average age of 25.7 years in the 1970s.
