When buying a home for the first time, it’s important to make the right decisions. After all, it is an important financial commitment for you. Getting it wrong can have serious consequences, such as being stuck with a house you can’t afford or don’t want.
While buying your first property is definitely a huge achievement, you can easily make mistakes if you are inexperienced or careless. This is why, before doing so, it’s wise to analyse the whole situation and your options and get expert advice if needed. This allows you to avoid committing common mistakes first-time homebuyers make, such as the ones below.
Buying a Problem House
Having not owned a home before, you will look at a property in a different way. A rented home, or a home owned by your parents, is not really your responsibility. That’s why first-time homebuyers can end up purchasing a problem house without even realising it.
For example, you can only know how to spot a home with a damp problem when you’ve dealt with black mould before (which can cost as much as $15,000 for professional removal). Similarly, unless you’ve worked on roofs on previous houses, chances are you won’t know if your new home has hidden roofing problems until it’s too late (which can set you back $2,000-$4,000).
To reduce the risk, taking someone to viewings who has owned several properties before will help to spot the problems that you may miss. You should also go the extra mile and request to have a property checked by a professional builder, renovator, or pest control technician. They can tell you not just the problems but also how to fix them (and the costs), making it easier to decide to buy or not to buy a property.
Taking on a Loan You Can’t Afford
All the details of your loan matter—and they matter a lot more than you may realise with your first mortgage. There are a lot of ways in which your loan could end up being more expensive than you expected.
For example, a common mistake is to take on a loan with a low introductory rate. Some people fail to consider that when the interest rate goes up the mortgage repayments will as well. Make sure you can afford to pay the loan at the real interest rate, not the lower introductory rate that may only be in place for a few months or a year. If you’re going with a variable rate loan, factor in the possibility of higher repayments to budget better. Variable rates will fluctuate with the market rates, which means they will periodically go up or down, and this will have a direct effect on your monthly mortgage repayments.
Pay attention to other associated fees when comparing loan products as well, factoring in annual fees, application fees, and penalties. Considering these will tell you if you can comfortably pay off a loan or help you determine which loan best suits your needs and situation. Of course, it’s wise to seek the help of financial experts as well to avoid falling into a mortgage trap.
Failing to Research the Location
As we’ve said in previous blogs, location is hugely important when considering the future value of an investment property. If you’re planning to purchase your first property for investment purposes, it’s crucial that you don’t get stuck with an area that will cause its value to drop and negatively affect your earnings.
This is why it’s important to research the location of the home you’re planning to buy first. Does it have easy access to places such as schools, supermarkets, banks, and the CBD? Does it look good and not feel generally rundown? Do you think other people can picture themselves living comfortably in that area? These are some of the questions you should answer before buying the property. Taking a look at other factors such as market predictions, the local job market, property turnover rates, and how prices have changed over recent years in the area will tell you if it’s a good idea to purchase property there.
Failing to do your research can lead to an underperforming property that doesn’t have a good ROI, or living in a location that’s becoming more unattractive as the months go by. Remember that it’s not enough that the house looks good; you have to make sure the location is worth your time and money as well.
When you are looking for your first home, it’s easy to fall in love with the first property that comes your way. You might get so starry-eyed that you overlook the things you really don’t love about the property just because you’re excited with the idea of finally having your first home. If you say, “It’s a great property, but…”, then you might not be onto a winner.
Try to look at things in the harsh light of day rather than getting swept up in all of the excitement. Noisy neighbours, cramped space, and a poor location are all things that you might not be able to stand for as long as you think. Because the reality is that these might just turn out to be the things that you hate, and that will make you want to move out within the first year. This results in added costs and more headaches associated with moving to another place—and don’t forget that you still have to pay the mortgage!
Ignoring Extra Costs
Make sure you are aware of all the extra costs involved in purchasing your home before you put pen to paper. These can include, but are not limited to:
If you forget to do this, you could find you can’t really afford your dream home, and wind up getting yourself into debt. A good way to avoid this is to come up with an allowance or buffer for the legal fees, which is usually around 5% of the total purchase price.
Here at Clever Finance Solutions, we’re absolutely rooting for first-time homebuyers to purchase a home that’s not just their first but also the right one. If you feel that you need expert advice when it comes to buying your first house, property investment, loan application, or making financial decisions in general, know that we’re here to help and are just an email or phone call away.