What is stamp duty and how does it work?

You’ve saved for your first home and have your deposit ready. So what is stamp duty, and how does it work?

Stamp duty is a tax that is payable on certain purchases, including buying a home, land or investment property. It can be one of the biggest upfront costs of purchasing a property.

The amount of stamp duty you’ll be charged varies depending on where your transaction takes place (your state or territory) and the value of your property.

There are different fee schedules in each state and territory, so check in with your local revenue office for more information on how this works, i.e. Revenue NSW.

Does everyone have to pay stamp duty?

Not always. If you’re buying your first home, you may not be required to pay stamp duty if you’re eligible for the state-based First Home Owner Grant (FHOG) scheme.

The FHOG scheme was introduced to offset the effect of GST on home ownership. It’s a national scheme funded by states and territories and administered under their legislation. Under the FHOG scheme, a one-off grant is payable to first homeowners who satisfy all the eligibility criteria.

There may also be other concessions and exemptions available depending on your circumstances. For example, you might be on a pension or live on a farm. Check with your solicitor or conveyancer to confirm.

Your conveyancer or solicitor can arrange to pay stamp duty on your behalf to your relevant state or territory body.

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How much stamp duty will I need to pay?

Depending on where you live in Australia, you’ll face a different stamp duty charge. The amount you need to pay may also depend upon the following:

  • Whether you’re purchasing an established home, a new home, or vacant land;
  • The type of property you’re buying, i.e., a primary residence or investment property;
  • Whether or not you’re a first-home buyer; and
  • Whether you’re classified as a foreign purchaser.

Can I add stamp duty to the cost of my loan?

Stamp duty is an upfront cost, so your home loan cannot cover it. That said, if paying stamp duty means you no longer have a 20% deposit, you may have the option to pay for Lenders Mortgage Insurance (LMI) to cover the cost of your loan.

LMI is insurance that protects the lender, not you. It’s insurance you can expect to pay if you borrow more than 80% of your home’s value. It’s usually a one-off payment you make at the time of your loan settlement.

What other costs should I factor in?

When you’re planning to buy a property, there are several other upfront costs worth factoring in, including:

  • Bank fees;
  • Legal/conveyancing fees;
  • Lenders mortgage insurance;
  • Moving and repair costs; and
  • Pest and building inspections.

When you’re focused on saving your deposit, some extra costs can come as a surprise, so research home-buying costs in your state or territory and discuss them with a lending expert when making your budget.

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