Typically a first-time homebuyer is looking to buy at the lower price end of the market. Unfortunately, this is often where it’s most competitive.
Since this is your first time buying a house, you are more likely to make some beginner mistakes.
Tracey Chandler is an ITC Business Supporter and local Buyers Agent, and she has listed ten of the most common traps she has seen first home buyers fall into:
1. Buying Property Without Doing Your Homework
We all know buying property is serious business. You’re about to commit your hard-earned money to something you will be paying off for decades.
The results suggest a majority of first time homebuyers purchase property blindly. It’s a bit of a concern, especially since 70% of these individuals claimed they were confident about making financial decisions. About half of first time home buyers also said they understand the property buying process and related costs.
Before you buy a home, do your homework first. Research everything there is to know about property buying. When you see a house listing that you like, find out more about it.
You can read the ME Bank study here.
2. Relying on Family and Friends for Advice
It’s only natural to trust the word of a loved one, be it a family member or a friend. They won’t give you any advice that would get you into trouble, right? Unfortunately, that’s not always the case.
There are too many stories about people who purchase a property after hearing about it from a relative or friend. But then it turned out to be a bad purchase because they went into it without the complete picture.
If you’re buying a house for the first time, you need the help of someone with professional expertise. Unless your relative or friend buys houses for a living, they hardly qualify as an expert. You can’t expect them to know the ins and outs of a suburb’s prospects, negotiating, valuing, and buying property.
They may have bought a house in the past, so what they tell you is based on their experience. But the real estate industry keeps changing so much that even professionals can find it hard to stay abreast of it all.
You’re about to put your life savings on the line to purchase a house. You can’t afford to risk it based on bad advice.
3. Understand the Full Cost of Home Ownership
Few things are just as thrilling as buying a house for the first time. So it’s understandable if first-time homebuyers get over-excited and overlook some details when house hunting. But the one thing you shouldn’t miss is just how much the target home is really going to cost you.
Aside from the price of the house itself, you have to pay for stamp duty. Then there are conveyancing and legal fees, building and pest inspection, mortgage registration fees and transfer fees. You also have to consider the loan application fee, mortgage insurance council rates and utilities.
Also, without proper inspection, your new home may turn out to require significant outlays for repair and renovation. The renovation shows on TV have a lot to answer for here.
4. Overestimating Your Ability to Borrow Money
This next trap is tied to homebuyers’ lack of research and preparation before buying a house. A Commonwealth Bank study shows that 45% of Australians have a poor grasp of their borrowing power. They don’t understand how credit card limits, monthly living expenses, annual income and savings can affect their access to finance.
Don’t go house hunting if you don’t know how much money you can borrow or if you can borrow at all. You might end up wasting your time and money looking for a house that you can’t even afford. It’s best to speak to your mortgage broker first before you do anything.
For more information on CommBank’s study, you can read the article here.
5. Not All Lenders and Loans are the Same
Not all home loans are created equally. Some lenders offer customers different interest rates as well as other home loan features. Taking advantage of these offers can make it easier for you to handle your loan. They can also help you finish your mortgage payments a lot sooner.
If you need to borrow money to buy a house, you might want to check out what other banks are offering.
An independent mortgage broker can often find you a better loan that best suits your circumstances.
6. Not Sticking To a Budget
So you’ve finally found the home that suits your budget. But then the house next door is looking a lot more enticing. If only you could spare more to buy that other house instead.
We’ve all been in that kind of situation. But no matter how tempting the other house is if it’s beyond your budget, it’s not worth it. Buying that expensive property could severely derail your finances in the future.
There’s a good reason why Australian lenders set borrowing limits for you. It’s based on how you are able to pay back the home loan. If you spend more than what you can actually afford, you’ll be much more susceptible to financial shocks.
7. First Homebuyers Looking in the Wrong Suburb
It’s easy to get too caught up in a house that you think is ideal for you. It might have all the characteristics that you want in a home. But you shouldn’t overlook the neighbourhood that it’s in.
Your target home’s suburb should feel comfortable to you. It should have most, if not all, of the amenities that you and your family might need – now and in the future. It should also be near enough to your place of work to make the daily commute easy.
At the end of the day, you’re not just buying a house. You’re also buying into a neighbourhood.
8. Don’t Let Everyone Know This is THE HOUSE
Negotiations are part of house buying. You can get the best deals for your dream home if you have enough negotiating power. But you lose that favourable position once you let the seller know you’re in love with their property.
If you let the seller know you’re very interested in their house, they gain the negotiating power. They’ll understand you want their property and are likely willing to give anything for it. Their agent is an expert in increasing the sale price.
In any negotiation, you should never get emotionally attached. And absolutely never show it. Learn how to play things cool. Don’t let the seller know that you have fallen in love with the idea of living in their house. After all, they’re the ones who are trying to convince you to buy their property.
Try to get as much information from the other party as possible. Find out why the seller is putting their property on sale. Or if they have already bought a new house elsewhere and are in need of selling their old one quickly. You can use every bit of information you get to improve your position in the negotiations.
9. Dangerous Clauses in Sale Contracts
Not everyone has the patience to deal with legal contracts, property reports and other documents. That’s why there are real estate agents for the seller who do this work for the vendor and you, right? Actually, believing this is a recipe for disaster.
Always get a professional to check the contents of the sales contract thoroughly for you. There are too many clauses that can create a trap for unsuspecting buyers. Also, speed is of the essence in our ultra-competitive Sydney market. So having your team of professionals organised and ready to go before you enter into any form of negotiations is essential.
It’s important that you check everything that’s included in the contract before you sign. If you see anything missing or out of place, have the document redrafted to correct it. It should have all the necessary clauses to protect your interests.
If an agent tells you that you can always ask the contract to be changed later, don’t believe them. It’s not how it works in real estate. Once you’ve signed the document, the only way to change it is to end the existing contract. You then need to renegotiate a new one with the seller. That is, if the seller even agrees to your request for renegotiation.
As a first-time homebuyer, you might not be aware of this.
10. Not Using a Buyers Agent
Most first-time homebuyers don’t have extra money to cover other expenses when buying a house. That’s why many believe they have to cut costs by not hiring a Buyers Agent. While you may be able to do it, it’s not really advisable.
You can’t put a premium on experience, especially when it comes to property buying. The real estate industry is filled with veteran agents who know a lot about getting the most out of a deal. They are extremely good at what they are doing.
Very few people consider selling their homes without a professional agent. Similarly, it makes sense for you to have a professional on your side. This significantly evens the odds and protects you from getting too emotionally engrossed in negotiations or auction bidding.
If you don’t know much about the property market you’re buying into; it’s all the more reason to hire a Buyers Agent. Get someone intimately familiar with the area that you want to buy in. Your agent may even find an off-market deal for you.