8 mistakes that first-home buyers make, and how to avoid them
It’s going to be the most significant spend of your life that will either have you sitting pretty on the property ladder, or send your finances down the drain. Here’s how you can avoid some of the property pitfalls.
It’s going to be the most significant spend of your life that will either have you sitting pretty on the property ladder, or send your finances down the drain — so no pressure.
Buying your first home is a big deal, but chances are you have little to no experience in the world of real estate so the margin for error is great. To err is human, or so they say, but a misstep in the property game can cost you dearly.
“First-time buyers should be aware of the mistakes easily made that could impact their ability to buy, apply for a loan or cost them more in the long run,” said Canstar group executive for financial services, Steve Mickenbecker.
“The good news for first-home buyers is the panic and desperation of 2016 and 2017 has eased.
In 2018, new housing loans and prices were down for the first time in years. First-home buyers are now competing with fewer investors and require lower deposits,” he added.
According to numbers crunched by the ABS, first-time buyers accounted for 29 per cent of owner-occupier home loans issued in May — the highest recorded proportion of the new mortgage market since 2012 and that number is tipped to rise.
Taj Singh, co-founder and director of advocacy group, First Home Buyers Australia, said right now is a turning point for those looking to buy for their first time.
“The relaxation of the lending rules from APRA has meant it’s now a lot easier for first-home buyers to get a loan compared with the last few years,” he said.
“And the NSW and Victorian governments have also introduced stamp duty exemptions, which are helping certain first-home buyers get into the market in those more expensive cities,” he added.
In addition, the Federal Government is adding to existing State and Territory duty exemptions and grants by offering a helping hand in the shape of the First Home Loan Deposit Scheme (which will assist up to 10,000 Australians get into their first home with as little as 5 per cent deposit) from January 1, 2020.
With the tables finally turning in the favour of first-home buyers it is only logical the property market is set to be swamped with uninitiated buyers who should be focusing on homework before househunting.
To better equip first-home buyers, Canstar and First Home Buyers Australia have highlighted some of the biggest rookie real estate mistakes.
1. Not being budget savvy
To put it simply, don’t start looking online before you know how much you have to play with.
“First-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 dream home beyond their means,” Mr Mickenbecker said.
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.
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, could tap into the First Home Loan Deposit Scheme if they make the cut.
“Another option may be having a parent go guarantor for the loan to provide the additional security, however this needs to be carefully weighed up by both the buyer and their parents so all parties understand their responsibilities,” Mr Mickenbecker explained.
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 pointing out that interest rates were more than double their current status just 10 years ago.
How to avoid: “Prospective buyers should read up on what’s influencing interest rates, so they’re not blindsided when rates increase. Using a site like Canstar to compare home loans is a good way to remain up to speed with lenders interest rate movements and to determine if there are better offers available,” Mr Mickenbecker said.
4. Not having enough left over
It’s not just about the purchase price. Beyond buying, Mr Mickenbecker said first-home buyers need to consider the hefty costs of stamp duty, building inspection or strata reports, transfer fees, solicitor fees, moving costs, new furniture or even renovations.
How to avoid: Research additional costs before buying so you have money left over to cover any unexpected expenses or repairs. Set a buying budget so you can tally up all the possible associated costs.
5. Not getting reports
Mr Singh said he has seen too many first-home buyers try to cut corners when it comes to building and pest inspections or strata reports.
“We’ve seen people who decided not to do a building and pest inspection because to save a few hundred dollars, but that’s one of the biggest mistakes first-home buyers make.
“They’re obviously getting in with a skinny deposit and want to save as much as possible, so don’t want to spend money where they think they don’t need to,” he said.
“Building and pest inspections or looking into the strata report of an apartment building are vital steps. If you aren’t aware of a home’s problems you could be out of pocket by tens of thousands of dollars.”
How to avoid: Get an independent building and pest inspection done 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 from Federal, State and Territory governments. The First Home Owners Grant differs in each corner of the country, 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 a number of circumstances.
How to avoid: To understand which grants they may be entitled, and how much, first-home buyers should visit First Home website.
7. Falling for the frills
“Real estate agents are there to sell the dream but it’s not going to look like that once you move into it. First-home buyers just need to remember not to get too emotionally attached to a property because of the furniture or styling,” Mr Singh said.
He added that the same idea goes 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.
“But if you want to get the exact same home, it could cost $100,000 to $200,000 more than the basic advertised price.
“That’s where people go wrong, they think they’re getting the display home but what they get is something pretty standard,” he explained.
How to avoid: Read the fine print and ask lots of questions of the builder or developer. Get it down in black and white what you’re actually 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.
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 power of negotiation also works when haggling for a home loan. Mr Mickenbecker said first-time buyers shouldn’t take the first mortgage on offer.
“You never know if you don’t ask, so 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,” said Mickenbecker.
How to avoid: “Too often people rely on the home loans presented to them by lenders, though first-time buyers should take a proactive approach and research what is available in the market and be prepared to negotiate on the interest rate to avoid paying too much,” he said.
Source: NEWS.COM.AU | 8 mistakes that first-home buyers make, and how to avoid them