Finding an affordable first home is not easy for anyone starting out on this path, whether it’s a new apartment or an old one, or a house in the outer suburbs. And in all the excitement of going house hunting, it’s all too easy to make mistakes. The following are seven of the most common mistakes first-home buyers make.
1. Not getting pre-approval
Just knowing you qualify for a home loan is not enough. Before you start looking at properties, go to your mortgage broker or lenders and find out how much they will lend to you. You can then focus your attention on houses you can afford, so you can avoid the disappointment of finding your dream home and then learning you can’t have it.
2. Not understanding your mortgage options
Getting a home loan is much easier today than it was in years past, when you had to save (often for years) to build up a deposit of at least 20% of the purchase price plus purchase costs (stamp duty, legal costs, etc). Whilst easier, it can also be riskier and more expensive. A low deposit home loan comes with the added cost of mortgage insurance (usually required by lenders when you are borrowing more than 80% of the property value). A professional mortgage broker can advise you on the loans available from a variety of lenders and discuss your options with these.
3. Borrowing too much
It’s very easy for first home buyers to make the potentially serious mistake of borrowing the maximum amount possible to buy what they see as (and in fact can be) the best house that they can afford. The risk is that this can stretch your finances to the limit and will not allow you to make improvements to your property (or even to carry out essential repairs and maintenance) when you move in; even worse still, you might not be able to afford to enjoy life in your new home.
If you encounter unforeseen financial problems, it could mean having to sell your house before you have substantial equity in it.
4. Not being proactive
Too many first home buyers rely solely on the expertise of their local real estate agencies. Remember that whilst a real estate agent can be an excellent source of information, they will always be acting on their client’s (that is, the vendor’s) behalf. It is therefore wiser to take a proactive approach and do some of your own research, checking on sales and auction results narrowed down to your preferred localities – suburbs or even streets (these results are easily located online).
Armed with this research, when a selling agent informs you of a selling price, you will be in a position to make a judgement on the value and then make a realistic counter-offer. If you buy at auction, you may avoid paying too much (as you will effectively be paying what the real market value is on the day) however be aware of the pitfalls of buying at auction and the auction conditions that will apply if you are the successful bidder.
5. Not getting a pre-purchase inspection report
Some of the best real estate deals can be older homes that need minor or cosmetic repairs and renovations.
However, some of the worst deals are older homes that turn out to need costly major repairs – and to the untrained eye most of those major repairs required are usually hidden from view.
Saving a few dollars by not getting a pre-purchase inspection report from an independent building inspector can cost you many thousands of dollars after you settle and move into your home. Similarly, always have a pest inspection carried out as well.
6. Underestimating additional costs
When you buy a home, you pay more than just the cost of the house. Some of the additional costs that you will need to meet include:
You should also ensure that you give yourselves adequate time for your move into your new home – it is not advisable to try and settle your home purchase and to move out of your current home into your new home on the same or even the next day. You can almost guarantee that something will go wrong!!! (e.g. the settlement is delayed for some reason such as a bank has not been provided with a required document, or services – electricity, gas, etc - have not been turned on).
Give yourselves a week ideally for this – whilst it may cost you a few dollars more (e.g. an extra week’s rent on the property you are leaving) it will be more than worth the reduction in stress and drama for you.
Underestimating or not estimating these and other costs is a very simple mistake that many first home buyers (in particular) make. The consequences can be extremely serious, even to the extent of arriving at the day of settlement and finding that you have a shortfall in the amount required to settle the purchase – then it is up to you to find the money to meet this shortfall (which you probably won’t be able to!). You may even find that you have to compensate the seller for any delays in settlement.
Know all of your costs and budget ahead of time and you won’t be suffering these disasters when you are ready to move into your new home.
7. Getting too emotional
Buying your first home is a highly emotional experience, so it’s very easy to let your emotions blind you or at least cloud your judgement.
Whilst the decision of buying the home you will live in will always, in part at least, be based on personal and emotional factors, it is critical to also ensure that your decision is a sound financial and investment one, since if soundly based it will be one of the key building blocks of your future financial security and well-being.
Try to keep a cool head and avoid making the common mistakes, it may take longer to find your first home, but it will be worth it.