As a first home buyer, it is easy to make mistakes. We have identified the key areas most first home buyers fail, so that you can avoid them yourself.
Believe it or not, when buying your first home, there is no such thing as love at first sight. No matter how much your first impression tells you that you love (or hate) a place, it is important to think about it as rationally as possible.
From spending hours on realestate.com.au, to getting finance to open inspections and beyond, approach the whole process with the rationale and critical thinking. Sure-fire ways to fail include:
1. Not knowing what you can afford
Shopping for your first home is a fun and an exciting time. You get to shop around, browse a bunch of different options and critique the previous choices of wallpaper, bathroom tiles etc.
The problem is, that if you don’t have pre-approval, you are not only wasting your own time, but the real estate agents time as well. Most professional real estate agents won’t even offer their services unless you have pre-approval.
A genuinely verified pre-approval makes you aware of a few things:
What can you confidently offer for homes that you like?
Educates you on different product options and mortgage rates that will potentially save you thousands over the duration of your mortgage.
Success on your application offer because you have confirmed all of your financial details and your lender can remove conditions once a satisfactory house appraisal has been made
Advises you as to whether you are in a good position financially and that your credit is such you can afford a mortgage.
Don’t be forced to let go of a good deal based on the fact that your finances aren’t in order. Get pre-approved by a mortgage broker.
2. Not getting the Terms and Conditions right on the contract
Are you aware of all of your rights as the purchaser? There are a few ways that you can protect yourself if there are issues with the handover of a property.
What most home-buyers don’t know:
The deposit amount is not fixed. Most real estate agents will ask for a 10% Deposit however this amount can be negotiated between the purchaser and the seller. This can be any arbitrary amount.
The seller can’t touch the deposit until the house has settled. Settlement can take anywhere from 30 to 90 days so this money is no good to anyone during that time. It makes a lot more sense to write a smaller amount on the contract that is easier to manage for most home-buyers.
The contract can be made subject to a building and pest inspection. Make sure you get a building and pest inspection and have this as a clause in the contract so that you can get out of the contract if an unfavorable building or pest inspection comes back.
The contract can be made subject to finance if there are any issues with finance approval.
3. Buying property based on emotion
Don’t make the mistake of walking into a property and falling immediately in love because ‘it feels right’. Keep multiple properties in mind to combat this.
Your property love affair may quickly fade if:
You discover that the property is not in a capital growth area and that suburb is destined to decline in value.
You don’t take into account the functionality of the property and your future plans. e.g. a couple buying a one bedroom house with a small backyard will soon be disappointed if they decide to start a family in the coming years.
You end up paying more for it than it’s worth or over your limit when it goes to auction because you’re caught up in emotion. Take a very rational approach.
4. Assuming that the Property will go up in Value
When looking at a property’s value you need to assess just ‘who’ is telling you that it will appreciate. Is it someone trying to sell you the house, or an independent professional?
No-one can predict the future but by looking at a suburb’s previous growth history you can take a fair estimate at where the property will be in 10-20 years time.
Ways that your property may go up in Value:
RENOVATE- Simple upgrades such as painting the walls, changing carpets and upgrading kitchens and bathrooms can add massive value to a property, even better for you if you have friends or family who can help out.
5. Buying a New Home
Time and time again we see first-home buyers being swept up in the allure of buying a ‘NEW’ home. However we recommend that in most circumstances it is in the buyer’s best interest to buy a second-hand home in a great location (near the city or beach) than to buy a new home that has just been developed.
Often when buying a new home you are paying a premium for the building on the land, as well as the land itself. Compare this to an old building on the same land, and the cost is going to be much lower. Fast forward 10-20 years and the ‘New’ home is now out of style (will be sold at a discount) and the land on both properties has gone up, however the money spent on the new building has been lost.