Buying a home is typically the most expensive purchase you’ll make in your lifetime so it’s heartbreaking to see the same first home buyer mistakes year after year.
So we’ve compiled a list of the top 10 first home buyer mistakes we come across and provided tips for how you can avoid them.
- Looking for a home before getting a pre-approval
- Shopping with only one lender
- Not understanding how much you can afford
- Incorrectly Lodging of the First Home Owner’s Grant Application
- Not having enough savings
- Borrowing up to your limit
- Forgetting the actual costs of owning a home
- Skipping pest and building inspections
- Not assessing the neighbourhood
- Getting too emotionally invested
Looking for a home before getting a pre-approval
If you don’t have a pre-approval before you start looking for a home, then you could miss out on a house that you really like while trying to sort out your home loan. Pre-approval is when a lender agrees, in principle, to lend you money towards the purchase of your home.
Many first-home buyers make the mistake of putting down a deposit or worse, signing a contract of sale before getting pre-approved. They put themselves at risk of losing their deposit if they fail to get a loan approved before settlement.
Solution: Make sure you get pre-approved before looking for a property. A pre-approval is valid for between 90 to 110 days which should be enough time to make a calculated decision. You may enquire online or call us on 1300 889 743 and speak with one of our specialist brokers to help you get pre-approved.
Shopping with only one lender
Shopping for a home loan is tiring work and requires commitment if you want the best deal. This is the reason why people opt for the first lender they find. Interest rates and other fees vary from lender to lender. Choosing the wrong lender could set you back thousands of dollars.
- Compare and get quotes from multiple lenders.
- Consider using a mortgage broker. The average broker has dozens of lenders on their lending panel and they can compare the terms of each potential loan and provide recommendations to best suit your needs.
Not sure how to get the right quotes or find a lender that is good for you?
Please enquire online or call us on 1300 889 743, and one of our specialist mortgage brokers will be happy to help.
Not understanding how much you can afford
The cost of buying a home is not just the price of the property! More often than not, first home buyers are unaware of the hidden costs of buying a home, such as:
- Loan application fees
- Inspection fees such as building and pest inspection
- Government fees such as stamp duty and land transfer fees
- Legal/Conveyancing fees
- Removalist charges
- Building and contents insurance
- Connecting gas, electricity and telephone
- Lenders Mortgage Insurance (LMI)
- These hidden costs can set you back around 5% of the property price.
Solution: Learn about the hidden costs of buying a home and calculate both the purchase costs and the ongoing costs of being a home owner. Not all costs listed above will apply to your situation, but it’s always better to have the extra savings ready so that you don’t have to face any surprise expenses later.
Incorrectly Lodging of the First Home Owner’s Grant Application
With the aim of helping first home buyers to break into the property market, governments offer different grants, schemes, discounts and incentives. Although the FHOG is rarely overlooked by first home buyers in Australia, more than 80% of applicants lodge the applications incorrectly the first time around. This can cause a delay on home settlement.
Solution: You can learn about whether you qualify for the FHOG, how much you will receive, how to apply and when you will receive your grant through our First Home Owners Grant Guide.
Not having enough savings
Buying a home in Australia is an expensive proposition. Most lenders require you to have a deposit of at least 5% of the property price from genuine savings accumulated over 3-6 months. And, as we already know, there are other hidden costs that need to be considered. So, to buy a home worth $500,000, you would need to contribute at least $50,000.
Most people have not planned or are not able to save such a huge amount in a short period. Putting down a low deposit generally means a higher interest rate, which will cost you more in the long run.
Solution: The most ideal solution is to plan ahead and save at least 20%-25% of the property price. However, if you cannot save that much or do not want to wait that long, you can either ask your parents to gift you a part of the deposit or to act as a guarantor on your home loan. A guarantor is a person who agrees to repay your debt if you should default on the agreed repayments.
Taking out a guarantor home loan will save you LMI fees, and give you greater capacity to cover the extra costs of buying a property mentioned above.
Borrowing up to your limit
When you check with a bank or an online calculator and determine that you can borrow $900,000, you may be tempted to spend right up to that upper limit. But that’s not always the best idea.
Banks calculate your borrowing power by assessing your current income and expenses, taking into consideration the current interest rate. However, all of these things may change in the future.
Getting married, having a baby, even buying a new car are all circumstances that would increase your expenses by a substantial amount. These future life events will not be accounted for by the bank or an online calculator.
Some people excitedly borrow to their maximum without assessing their future plans, resulting in missed repayments or even mortgage default.
Solution: Calculate your future expenses. Do you see yourself making a life decision that will increase your expenses or lower your income? Consider your short-term, medium-term and long-term plans when answering the question and calculate your own borrowing limit accordingly.
Forgetting the actual costs of owning a home
Owning a home is like trying to keep yourself in shape. It needs constant work. Many people know this but often forget that besides mortgage repayments, there are other costs associated with owning and maintaining a home, such as:
- Council rates
- Utility bills like electricity, water and internet
- Contents and Building Insurance
- Strata fees
- Buying furniture and other household items
- General repairs and maintenance
Solution: Make sure you are clear about the regular ongoing costs of your new home. The bigger the home is, the bigger the ongoing costs are. Calculate how much you want to spend on furniture and other household items for your first home. If you are thinking of renovating, then plan accordingly.
Once you have a good idea of your costs, add this to your monthly budget. If it’s a one-time expense, add it to the budget you prepared to buy the property.
Skipping pest and building inspections
The Australian property market is a seller’s market. Many first home buyers are jumping to hasty decisions in fear of losing a home that they like. To get a headstart or to save some money, many people skip pest and building inspections.
What they fail to realise is, they may end up spending months of their time and thousands of dollars more in trying to fix a problem that could have been resolved at the cost of the seller.
Solution: Simple. Never skip pest and building inspections.
A property inspection includes checks for substantial deterioration in building elements like foundations, floors, walls and roof, any evidence of maintenance and defect cover-ups, mould and dampness, drainage issues, water penetration and fungal decay.
You will then receive a comprehensive report on the findings, and you can choose to terminate the contract with a written notice if you feel the need to do so. You may arrange for it during the cooling-off period, but you will need to give the consultant prior notice so that there is time for the report to be prepared.
Not assessing the neighbourhood
Sometimes, first home buyers can be so engrossed in the home they’ve just seen, they fail to assess the neighbourhood they’ll be living in.
You don’t want to have buyer’s remorse after buying your home when you realise you really don’t like the surrounding area. It could make your life miserable!
- Take your time in assessing your neighbourhood.
- Make a list of amenities that you will regularly need and see if they are at a convenient distance from your home.
- Take a look at the crime statistics to see how safe it is. If you have kids or plan to have one, check whether the neighbourhood is child-friendly and how good the schools are in the area.
Getting too emotionally invested
Buying your first home is not just a financial commitment but an emotional one as well. Sometimes you’ll fall in love with a property when you go to an auction or attend an open house and express your enthusiasm to the real estate agent.
That could provide incentive for an unscrupulous agent to take you for a ride by stretching the truth about the prices and availability. Being emotionally invested in a house makes it more difficult to weight up the genuine pros and cons of the property.
Even though it’s tough not to show your emotions when you love the property and are already imagining how it will look after you move in, avoid showing too much interest to the real estate agent.
An even better solution is to learn about the property, its probable price and the neighbourhood through reliable sources before you visit so that you are an informed buyer who won’t be persuaded by any other party to make the wrong decision.
One more mistake: Trying to do it all by yourself
There is so much to consider when buying your first home, which means there’s a chance you’ll miss an important step in the process.
Most first home buyers lose money because they didn’t find the best deals. Some even get declined because they didn’t choose the right lender.
Not everyone has the same situation, so understanding the policies provided by different lenders may not be a straightforward process . Applying with lender after lender to find out your best option will just add enquiries to your credit file, which will make it even harder for you to qualify for a loan.
Solution: Contact a mortgage broker. They have built relationships with lenders over the years and can often negotiate a sharper interest rate than if you were to go to a bank directly. They understand a lender’s policies and can even get tough loans approved, which banks would typically decline.
You would not need to spend as much time (or endure as much stress) because most of the work would be done by the broker. The cherry on top is that, in most cases, the services provided by a mortgage broker are absolutely free!
Do you want the best deal for your situation without much hassle and have a specialist give you the best options available to you?
Enquire now or call us on 1300 889 743, and one of our specialist mortgage brokers will get back to you right away to help you in your first home buying journey.