What First Home Buyers Need to Know About Government Fees

buyers need to know about government fees

For most people buying your first home is one of the most rewarding and exciting experiences of your life. However, it pays to do your homework and understand all the costs that are associated with making that life-changing decision.

Many first home buyers are often surprised to learn that the price of their new home comes with a number of additional Government fees and charges that need to be accounted for.

Fortunately, for first home buyers in Victoria, the Government offers a number of incentives to help assist new purchases to deal with some of the additional costs.

What is the first home buyers grant?

The first home buyer grant (FHOG) is a payment issued by the Government, to help new and young home buyers get into a new home they can live in. For those eligible, you might be able to receive a $10,000 grant to purchase a home in Melbourne or up to $20,000 for areas in regional Victoria.

To receive the grant, you must be buying or building a new home valued at under $750,000. The payment is made to you as a grant and is separate to other exemptions such as the stamp duty rebates.

Your new home can be a house, townhouse, apartment, or unit but must be less than five years old and be the first sale of the property. Established homes are no longer eligible to receive the FHOG.

For more information on FHOG in ACT and NSW, visit this article.

What is stamp duty?

When you purchase a home or vacant land in Victoria you will likely pay land transfer duty, otherwise known as stamp duty. Stamp duty will be the single largest cost that will come with buying a property and it’s one that needs to be accounted for prior to purchase, but fortunately for first home buyers in Victoria, you might not have to pay this particular cost.

Stamp Duty is effectively a Government tax that is applied to all property transfers. The rate of stamp duty varies from state-to-state and in Victoria it is calculated on a sliding scale based on the value of the property.

There are a number of factors that go into calculating stamp duty in Victoria and they include, whether you are going to live in the home (if it is your principal place of residence), whether you are a foreign buyer and of course whether or not it will be your first home.

If you qualify as a first home buyer in Victora and the property is valued at under $600,000, you could potentially not pay any stamp duty costs. First home buyers who purchase a property valued between $600,001 and $750,000 are also entitled to a stamp duty concession, but above that upper limit, you won’t be able to receive an exemption.

A good rule of thumb is to allow for 5% of the purchase price if you don’t meet the criteria of a first home buyer. Clearly there are advantages to purchasing or building a new home as a first home buyer in Victoria as you will possibly save up to $30,000 in costs.

For more information on Stamp Duty in ACT and NSW, visit this article.

What are rates?

Home and landowners are also forced to pay annual rates to the Government. This is usually a form of Local Government tax and the rates are used to help fund projects and infrastructure in your local community.

The amount you have to pay in rates again is determined by the value of the property as calculated by the valuer-general and is based on different council areas.

As a first home buyer in Victoria, you won’t be forced to pay rates at the time of purchase but will be forced to pay these on an ongoing basis while you own the property over its lifetime.

You can find out exactly how much the rates on a property will be by either asking the selling agent or contacting the local council directly.

First home buyers must also consider that from settlement date they will be liable for these council rates as well as water rates and any other special levies that might be applied by the council or even State Government.

What is land tax?

In Victoria, you might be forced to pay land tax on any property that you are not currently residing in. Land tax applies to investment properties, commercial properties and vacant land.

Similar to stamp duty, land tax is based on the value of the land and is applied on a sliding scale for total landholdings above $250,000.

Fortunately for first home buyers in Victoria, your home (known as your principal place of residence) is exempt from this form of land tax.

Benefits for First Home Buyers

Clearly there are some significant benefits if you are a first home buyer and you could save around $30,000 if you qualify for the exemptions from these Government fees.

It’s also important to note that most of these costs are one-off expenses so whether you are buying an established home or building your new home with a custom home builder in Melbourne, you can save a significant amount of money.

As of 2020, the Federal Government also introduced the First Home Loan Deposit Scheme, which effectively guarantees the bank loan you use to purchase a property.

What this means for first home buyers in Melbourne is that they can buy a new home with only a 5% deposit (95% LVR) and they won’t be forced to pay lenders mortgage insurance. LMI is generally applied to a loan where the applicant is seeking to borrow more than 80% of the property’s value.

At Achieve Homes, we always recommend seeking professional advice when assessing your circumstances and making financial decisions. However, if you’re interested on beginning your home building journey, contact us today at 1300 234 432 or email us at sales@achievehomes.com.au.

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