So the time has come to buy your very own home. Congratulations! There are few experiences more rewarding than securing a space for yourself. And while the end result is something to celebrate, a lot of time, effort and research goes into the process.
If this is your first time, or even if it’s been a while since you’ve made the leap, knowledge is truly your best friend. You need to arm yourself with important tips and useful ways to prepare yourself for the task at hand.
So that’s where we come in! At Soho, we’re aiming to find you your dream home. What this means is that we’re here to clue you in on the potential pitfalls along the way and how to avoid them. No journey is without its risks, but if you watch out for these common mistakes, it’ll be a lot smoother.
1. Not getting pre-approved first
As the name suggests, a pre-approval is when a bank or lender approves a loan for when you find a property you want to purchase. This is, of course, provided you maintain your income and circumstances.
Many first-time buyers might look at their bank statements, get quotes from lenders and then begin the search process. But it’s crucial to make sure your finances are in the right place even before you begin the hunt. In this competitive market, many properties also require an approved home loan before moving forward.
How to avoid it: Start speaking to lenders about a condition pre-approval early. Once you know what your interest repayments look like, you’ll be able to properly decide on a budget for your home.
2. Buying a home when you have debt
We totally get the appeal of owning a home, and we believe that everyone should have the opportunity to own in their lifetime. But when it comes down to it, owning is a huge investment, probably the biggest you’ll have in your life. So before you make the jump, you want to be completely unencumbered in finances.
Owning a home doesn’t mean fewer financial woes. On the contrary, you need to be even more prepared for unforeseen circumstances that could impact your savings.
How to avoid it: We advise you to hit the pause button on the search until you’ve settled your debt. And then once that’s taken care of, continue saving for a while until you’ve got three to six months worth of living expenses in the bank as well as an emergency fund. This will in turn make you a more viable candidate for a loan.
A tip on saving that worked for us? Definitely Tim Gurner talking about first-time home buying in a 60 Minutes Australia interview: “When I was trying to buy my first home, I wasn’t buying smashed avocados for $19 and four coffees at $4 each.” A valuable lesson indeed.
3. Buying above budget
Ambition is a celebrated trait when it comes to your career. But when you’re buying your first home, it’s kind of like wishful thinking. It’s easy to fall for beautiful homes and push your budget, especially in a market that’s driving housing prices up.
When you’re met with repayments you can’t make, you’re also stuck because you can’t sell your home or move. So you’ll never regret sticking to your budget and keeping the danger of mortgagee possession at bay.
How to avoid it: Be realistic about what your finances look like and keep to your budget by committing to what you can afford in monthly repayments. While you’re at it, don’t let your lender blow up your spending power (because it’s usually in their “interest” to do so!). As a rule of thumb, mortgage repayments should not be more than 25% of your income—including your insurance and taxes!
4. Buying too quickly
Of course there’s excitement and momentum when you decide to buy a property. We feel that too! But there are issues that may arise in the process, namely with your budget.
Rushing the process means not giving yourself enough time to save up for your down payment and all the other expenses involved (more on this later). And you don’t want to speed through choosing your loan. It will probably be with you for decades to come and you’ll want to secure the right one for yourself.
How to avoid it: Give yourself a year-long head start so you’ve got time for each step of the process. Map out monthly financial targets to build up your credit score.
Don’t be seduced by experts saying it’s a good time to buy or that you’re missing the window. Focus instead on building your savings. The market shouldn’t be making decisions for you.
5. Feeling instead of thinking
While we don’t dismiss the importance of good vibes when you’re doing an inspection, we need to insist on keeping realistics goals and budgeting in mind when you’re shopping.
Many first-time buyers are emotionally overwhelmed by the process and can be quick to jump the gun on a home they fall in love with. Yes, you should love it, but it should also be within your financial reach. Don’t forget that this doesn’t have to be your home forever. If this isn’t how you visualised your dream home, you can work your way towards it.
How to avoid it: Concentrate on the big things that can’t be changed, particularly the neighbourhood. Is it safe? Is it in a convenient location or does it have access to public transport? Does it have the potential to gain value in the market? Unlike the carpeting or picket fence, these components are fixed.
Having said all that, if you love it and it’s within your price range, be honest with yourself and your agent. Best avoid playing games when you’re sure about something.
6. Forgetting insurance
Whether it’s building insurance, contents insurance or home and contents insurance, this is a very important part of the home securing process and something you’ll have to both budget for and prepare early. It will usually be required by your lender in order to move forward in the purchase as well.
Technically, the home is yours once you’ve signed on the dotted line, which means you’re responsible for any damages even before you’ve moved in.
How to avoid it: Our article on insurance goes into more detail about the different terms but our advice to you is to start speaking to insurers early and getting quotes when you’ve set your eyes on a home.
7. Forgetting to budget other things
The home-buying process is as exciting as it is eye-opening. There are few occasions in life where you’ll truly be forced to take a good, hard look at your finances, and this is one of them. The issue is that not many first-time home buyers do it.
They begin the process and are soon confronted with all the extra costs of ownership they didn’t think about. Costs like:
- Stamp Duty: This varies from state to state but is usually around 3-4% which is a big addition to the price of the house.
- Legal fees: Normally, both the buyer and seller hire a conveyancer or solicitor to handle the transferring of the property from one hand to another. Their fees will add to your costs.
- Bank fees: The bank will charge you for processing and financing the loan as well as appraisals. Best do your homework and find out what they charge so you can factor this in.
- Real estate agent fees: this is the agent’s commission and is usually configured into the sale price.
- Body corporate payments: Depending on the type of home you’re purchasing, the management will extend fees on maintenance and insurance of the property. This usually applies to apartments and townhouses. Your agent can verify these fees for you.
- Insurance: These will be the monthly fees we covered earlier.
- Moving, removalists and utilities: these fees are unavoidable but you can save a lot of time and speak to our team of specialists to help you set the whole thing up for your move, including the move itself, electricity, gas and internet, amongst other things.
- Cleaning fees: if you’re hiring a professional cleaner for your new home, you’ll want to factor the costs in as well.
How to avoid it: Shop around for mortgages and insurers to make sure you’re getting the best deal. Make sure they’re explaining the reasons behind their recommendations and that you’re not being rushed into anything.
Start calculating all the above costs early and see how that tallies with your budget for the new home. Once you’ve considered these “hidden costs”, you’ll rest easier knowing what’s coming.
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And if you’re looking for more advice on buying your first home, check out our piece on what to consider first!