A For sale sign in front of a residential property
  • 21 Dec 2023
  • 7 min read
  • By a contributor

Hidden costs when buying a house

House sales, Hidden costs

Making your Great Australian Dream come true by purchasing a home is one of the biggest achievements you’ll ever make. Not only can it give you peace of mind with the promise of housing stability, but it could turn into an investment property down the track. At the same time, it's important that any prospective homeowner is aware of the full financial picture in front of them – beyond just the purchase price and into all the hidden costs associated with buying a house.

If you’re not prepared for them, there are a number of fees and expenses that might catch you off-guard. So let’s pull back the curtain and investigate all the different hidden costs when buying a property. Once you are aware of both the obvious upfront expenses and the lesser-known financial considerations, you can make the most informed decision that aligns with your financial situation and future goals.

What are the most obvious upfront costs of buying a home?

Before beginning the exciting journey towards home ownership, take some time to learn about the main upfront costs of purchasing a property. These expenses lay the foundation for your investment and set the stage for your financial commitment over the next several decades. Here's a closer look at the two most prominent costs buyers can expect:

1. Purchase price

The purchase price is the figure that represents the value of the home itself. Whether it’s a standalone house, a duplex or townhouse, an apartment or anything in between, this amount will depend on where you are buying, the size of the property, the amenities, the condition of the home, the current demand for property and various other market conditions.

It’s easy to look at the purchase price only. After all, it’s the figure that’s up in lights during real estate advertising and it’s what will fuel negotiations between prospective buyers and the vendor. However, while the purchase price itself is very significant, it's not the sole determinant of your overall financial obligations.

2. House deposit

As a portion of the final purchase price, buyers will be required to put down a deposit to secure the deal and place the property under contract. The deposit is a percentage of the purchase price and serves as your commitment to seeing the sale through. While the exact percentage will depend on the contract of sale, it’s common practice in Queensland that the deposit is up to 10% of the total price.

The deposit plays a dual role when buying a home. First, it’s a safeguard for the vendor – putting up this lump sum will assure them of your genuine interest in the property. More importantly for you, it contributes to your overall equity in the home and reduces the amount you need to borrow from your lender. A higher deposit can also influence the terms of the loan in your favour, potentially leading to better interest rates, reduced lenders mortgage insurance and lower monthly repayments.

What are some hidden or unknown costs beyond the purchase price?

Beyond the initial purchase price, there are several hidden costs that have the potential to catch buyers by surprise. Let's explore a few of them in greater detail:

1. Transfer fee

The transfer fee or transfer duty rate, for example, is a cost that’s fixed by the state government. The actual cost of this fee can vary greatly and will be influenced by state regulations and the purchase price. It facilitates the official transition of the property's title from the vendor (seller) to you (buyer). This fee is non-negotiable when buying a property, as it ensures the new ownership is properly recorded and legally recognised. There is an online calculator available on the Titles Queensland website to assist you in calculating the fee.

2. Mortgage registration fee

The mortgage registration fee is directed towards registering your mortgage with the state government. In other words, it cements your legal claim to the property. The purpose of a mortgage registration fee is to ensure the property is held as security against the loan you're acquiring. The mortgage fee is a flat registration fee - in Queensland this is currently $224.32.

3. Loan application fees

Unless you are able to purchase the home outright with your own cash savings, you’ll need to apply for a home loan to fund your property purchase. In most cases, this will involve a loan application fee. This home loan fee is charged by lenders to cover the administrative costs of processing your application. The specific price will depend on whether you go with a traditional lender (i.e. bank) or alternative lender, and can stretch from a few hundred dollars to several thousands of dollars. While it's an additional upfront cost, it's a necessary one to initiate the financing process and secure your dream home.

4. Ongoing costs

Ongoing loan fees cover things like account-keeping fees, annual charges and service fees – all of which are required as part of your long-term financial commitment to property ownership. Over the life of the loan these fees can add up, which may affect the overall cost of the mortgage and influence your decision to buy in the first place. Be mindful of these recurring expenses in order to manage your budget effectively.

5. Lenders mortgage insurance (LMI)

If your deposit falls short of the 20% mark (e.g. $130,000 for an $800,000 home), then lenders mortgage insurance (LMI) will usually be mandatory. This insurance is designed to protect the lender in the event you default on the loan. The cost of LMI hinges on variables like the amount you’ve borrowed and the size of your deposit. Be aware that it’s a necessary financial safeguard, but it can add a substantial amount to how much you end up paying for the property.

6. Conveyancing and legal fees

Conveyancing is the beating heart of the property-transfer process. Because it’s in intricate legal task, you’ll want a professional – such as a solicitor or dedicated conveyancer – to help ensure a seamless transition of ownership. Their services do come at a cost, generally referred to as conveyancing and legal fees, but many Australians would say they are well worth the price. Their legal fees cover all the necessary processes to make the ownership change legitimate.

Because the amount you’ll end up paying in legal fees will depend on the complexity of the transaction and who you decide to hire, it’s recommended that you get multiple quotes about all the potential legal fees you’ll be on the hook for in order to make the most informed decision.

Is stamp duty waived for first home buyers in Queensland?

In Queensland, first home buyers can take advantage of stamp duty concessions and exemptions, which can provide a lot of relief from the upfront costs. What you are eligible for will depend on your individual circumstances, as well as factors like the property's value and whether it's a new or established home.

If you’re keen to buy vacant land upon which you will build your first home, Queensland is a great place to do it. For vacant land purchases below or equal to $250,000, you pay absolutely no stamp duty. If instead your preferred vacant land is between $250,000 and $400,000, concessional benefits still apply. This initiative is to encourage new home ownership while also freeing up your financial resources to make your dream home a reality.

First home value up to $500k: No stamp duty

Queensland has exemptions for first homes that are valued up to $500,000. If your first residential purchase falls within this range, you won’t pay any stamp duty at all. That’s a potential saving of up to $15,925 (the maximum stamp duty rebate available to first home buyers in Queensland).

Even if your first home value ranges from $500,000 to $550,000, you still stand to make big savings. Say the property is worth $530,000 – in this case, the payable stamp duty is just $6,300, which is $3,500 less than if this wasn’t your first home purchase.

Be aware that as the value of your first home surpasses the $550,000 threshold, these stamp duty benefits phase out. There are also eligibility requirements, such as the recipients need to move in within 12 months and need to reside in the property for 12 months to maintain eligibility.

Extra costs to ensure your property's purchase price is worth it

If you want to make sure the property is truly worth the purchase price, you might want to invest in a few additional expenses:

  • Building inspection: Hiring a professional building inspector is basically a necessity for modern home buyers, as their advice will help you better understand the property's structural integrity. Their assessment will reveal any hidden defects and issues that could impact the home’s value and subsequently influence your final decision. While it is an extra upfront cost, it’s can potentially protect you from substantial repairs and replacements down the line.
  • Pest inspection: Especially with things like termites and rodent infestations a common threat across Queensland, the significance of a pest inspection – or a combined pest and building inspection – cannot be overstated. An expert can help uncover termite and other pest-related concerns that might be lurking beneath the surface of the home. This means you can address any issues at an early stage, or pull out of the purchase so you don’t invest in a property that requires major – and expensive – fixes.
  • Hiring a buyer's agent: While engaging a buyer’s agent isn’t something every prospective home owner does, they can provide invaluable expertise throughout the purchasing process. Their insights will guide you through the sometimes-complex transaction process and negotiations, ensuring you get a fair price.

Time to move in: How many 'hidden costs' will you be paying?

After the purchase is finalised, there are some final costs associated with moving in and getting settled:

Building and contents insurance

Building and contents insurance should be arranged early as, in Queensland, risk passes to the buyer at 5pm on the first business day after signing the contract. You can get a cover note from the insurer that payment is due to them when the contract becomes unconditional so that you can easily pull out if the contract falls over. Also, most banks will need a Certificate of Currency from the insurer as a condition of finance. The cost of this insurance isn't fixed – rather, it depends on the location of the property (e.g. near bushfire-prone areas or flood plains), its overall value and the level of coverage you opt for.

Furniture removal costs

Whether you hire professional removalists or rent a truck for a DIY move, you can expect the physical move itself to be an added expense. It will cost more if there’s a long distance between your old and new residences. The amount of furniture and belongings you have will also influence the cost, as well any extra services you require (e.g. taking old furniture to the tip).

Making necessary renovations

If the condition of the property is less-than-satisfactory, you might need to make some necessary renovations or repairs before you can actually move in. So make sure you inspect the property closely and factor any future changes into your budget.

Setting up or installing essential utilities

Transferring your utilities accounts to your new home shouldn’t make much of a dent in your bank account, but it can if some of the services aren’t currently connected. Whether it’s electricity, water, gas or the internet, make sure you get everything sorted beforehand so you can rest easy once you’ve moved in.

Repairs and refurbishments

After the honeymoon period is over and you are comfortable in your new property, you may find that you uncover things that need minor repairs or aesthetic changes. Setting aside money for a ‘refurb budget’ can help you address these issues quickly so you continue to be satisfied in your new home.

Buying a house involves more than just the purchase price. Hidden costs – whether they are something that’s easy to forget like government fees and council rates, or lesser-known expenses like the transfer duty or title searches by a professional – can impact your financial planning and influence your final decision. By being as prepared as possible, you can navigate the buying process with confidence and secure your dream home without breaking the bank.

If you're considering buying a house, use our Agency Finder Tool to find an REIQ Accredited Agency.

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