Mistakes first time home buyers often make, and how to avoid them

Buying a home is going to be the most significant spend of your life and will either have you sitting pretty on the property ladder or send your finances down the drain.

Here we highlight several property pitfalls and suggest how to avoid them.

1. Not being budget savvy

Do not start looking online or visiting display villages or open houses before you know exactly how much you must spend to get your new home.

First time home buyers need to ensure they have a clear idea of their budget before they go house hunting. This will ensure buyers are aware of what they can afford before getting hung up on a location or dream home beyond way their means.

How to avoid

Use an online home loan borrowing calculator or speak with a lender or mortgage broker to understand what the banks will be willing to lend you today based on your and your partners income.

2. Not having that 20 per cent deposit

There are ways to get into your first home without the standard 20 per cent deposit, but anything less can cost buyers dearly as they will need to take out Lenders Mortgage Insurance (aka LMI).

An insurance policy protecting the lender (not the buyer) from financial loss in the event you can’t make your home loan repayments, LMI can add up to thousands of dollars that don’t count towards the loan and you’ll never see that cash again.

How to avoid

For buyers unable to save a 20 per cent deposit, who want to avoid paying for LMI, do the sums which will cost you less now and later. You could apply for a First Home Loan Deposit Scheme.

“Another option may be having a parent go guarantor for the loan to provide the additional security, however this needs to be thoroughly discussed and carefully weighed up by both the buyer and their parents so all parties understand their risks and responsibilities.

3. Not getting the reality of rates

Understanding interest rates might not sound exciting, but knowledge is power in the mortgage world. Rates may be at historic lows, but what goes down must go up eventually. A first-time buyer purchasing today will likely be in a home loan for up to 30 years so it’s worth remembering interest rates were more than double the current rate just 10 years go.

How to avoid

“Prospective buyers should read up on what’s influencing interest rates, so they’re not blindsided when rates increase. Use a site like Canstar to compare home loans and get up to speed with lenders interest rate movements and to determine what offers are available. Consider budgeting in higher mortgages rates and most importantly consider what your family circumstances will be in 5, 10- and 20-years’ time.

4. Not having enough left over

It’s not just about the purchase price. Beyond the purchase price all home buyers need to consider the hefty costs of stamp duty, building inspection or strata reports, transfer fees, solicitor fees, moving costs, upgrading utilities, fencing and security, new furniture, renovations and even Council fees.

How to avoid

Research additional costs before buying so you have money left over to cover any unexpected expenses, repairs and upgrades. Set a buying budget so you can tally up all the possible associated costs and then add a 10% contingency cost.

5. Not getting reports

There are home buyers that naively try to cut corners when it comes to building and pest inspections, strata report and body corporate fees.

Some people decide not to do a building and pest inspection to save a few hundred dollars, but that’s one of the biggest mistakes first time home buyers make.

“Building and pest inspections or looking into the strata report and body corporate fees of an apartment building are vital steps. If you aren’t aware of a home’s problems, they can run into thousands of dollars in remedial costs.

How to avoid

When you have short listed the serious contenders for your new home invest in independent building and pest inspections on each house you are considering or order a strata report to get insight on the financials of an apartment block you’re looking at.

6. Missing out on grants

Markets change and so does the assistance offered by Federal, State and Territory governments. The First Homeowners Grant differs in each State and Territory, but in most cases the grant is only for first-timers buying or building a new house or unit. In some places it can be used for established homes. Just how much you can get depends on each different authority and current circumstances.

How to avoid

To understand which grants you may be entitled, and how much, first-home buyers should visit the First Home website and always work on the lowest probable amount available that you may qualify for.

7. Falling for the frills

Real estate agents are there to sell the dream on behalf of the owner not the buyer so be aware the dream may not look so good once you move in. First time home buyers need to remember not to get too emotionally attached to a property because of the furniture, decor or styling looks fabulous, particularly for house and land packages or off-the-plan apartments.

People go to display homes and get wowed by the new designs and inclusions builders are showing. If you want to get the exact same home with all the bells and whistles, it could cost $100,000 to $200,000 more than the basic advertised price.

How to avoid

Read the fine print, get the list of inclusions and exclusions and ask lots of questions of the agent, builder or developer. Get it down in black and white exactly what you’re signing up to buy.

8. Not negotiating

Not everyone is a born negotiator, but there’s no time like the present to learn some barter banter and the tactics owners, agents, builders and developers employ to make the sale.

After years of a hot property market with sellers in the driver’s seat across many cities and regions, buyers are now taking back control.

That skill of negotiation also works when haggling for a home loan, don’t take the first offer you are presented with.

“You never know if you don’t ask, always asking your chosen lender for their best deal may yield savings you thought weren’t possible or open your eyes to a loan you hadn’t considered previously.

How to avoid

Do not rely on the first home loan presented to you, though first-time buyers should take a proactive approach and research what is available, get at least three quotes from across the mortgage market and be prepared to negotiate on the interest rate to avoid paying more than you actually have to.

Now that you have thoroughly researched your options and avoided the pitfalls outlined above its time to search for your new home

We trust your dream will be fore filled and your new home is the happiest place for you and your family.

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