5 Common Mistakes to Avoid When Buying a Home
If you are a first-time homebuyer that’s just managed to scrape together a deposit, congratulations. As exciting and life-changing as purchasing a home can be, many things can go wrong if you’re unprepared to traverse the complicated world of mortgages and home loans for the first time. With a little bit of foresight and research, applying for your first mortgage can be a less stressful experience. Here are Rateseeker’s five common mistakes of buying a home and how to avoid them.
Underestimating purchase costs
A mortgage is more than just putting down the deposit of the purchase price. You have to consider additional and hidden costs that could negatively impact your financial situation later down the line. Whether you’re a first-time homebuyer or have been purchasing properties for years, it’s always advisable to set aside at least 5% of the property price you are interested in purchasing. This 5% is sufficient to cover additional accessory costs from stamp duty, legal fees, insurance premium and inspection costs.
If you’re a first home buyer, you may be eligible for stamp duty concessions within your state. Visit your state or territory’s website to review the most updated information relating to homebuyer grants. Alternatively, talk to an experienced home loan or rate comparison advisor like Rateseeker to assess your eligibility.
Not comparing home loans
Home loans are undeniably confusing, particularly if you’re purchasing for the first time. No two home loans are the same, and there are currently many available products on the market to choose from, each with its own guidelines and requirements. A few examples include:
- Fixed vs variable rate loans
- Principal & interest payment vs interest-only loans
- Comparison rates vs advertised rate loans
Not genuinely understanding each home loan product’s guidelines is a common mistake everyone experiences. As a result, many homebuyers find themselves choosing and locking themselves into a home loan that doesn’t suit their specific needs. Luckily, some available products don’t lock you into the original home loan until it’s paid off. Some give you the option to refinance your loan to another product or lender. As a result, it is imperative to compare products and services from multiple lenders before settling into the one that gives you the best possible rate on your mortgage.
Insignificant property research
This is another common mistake that many property buyers make without realising. House hunting is more than just the occasional “trial and error” property inspection. You need to refine your search and give yourself ample time to find a mortgage rate the suits you. We advise you to be systematic in your house hunting. Make a detailed list of the suburbs you aren’t interested in and base your search on what you want to get the most out of your new home. E.g., access to particular amenities such as parks, schools and public transport.
Additionally, aim to search for properties within a 2-3 month timeline. Not only does this encourage you to broaden your search, but it will also give you a clearer idea of how prices move in different suburbs. An essential tip to remember is that you’re buying a location, not just a house, so make yourself aware of the neighbourhood by chatting with the locals and reading updated zoning issues. All steps are necessary before committing to your mortgage.
Skipping the pre-approval process
Many homebuyers often overlook this process and deem it insignificant. The pre-approval process is probably one of the most critical stages in any property purchase, as it determines whether you are eligible for a home loan. Applying for pre-approval involves any lender analysing your financial background from your current income, credit, and pre-existing debts. This background check allows lenders to calculate just how much money they are willing to lend you to fund your property purchase. With a pre-approval, you can confidently house hunt without any worry. When you’re approved for a mortgage, you know exactly how much you can afford to spend on a property. Without a pre-approval, you fail to procure sufficient funds to finance and complete any property purchase.
Getting a pre-approval is often a free service provided by Australian lenders and valid for three months with a standard rate lock. This means you can pay the same interest rate when you finalise a property within a set time frame, even if the rates of other properties in the same location increase.
Not saving adequate funds on inspections
Building inspections can cost you thousands if you don’t catch them on time. This is why we advise any new homebuyers to put aside funds for pre-purchase building inspections. In Australia, pre-purchase building inspections for a four-bedroom home in a regional area would vary between $400-500 and $800-$1000 in metropolitan locations.
While having funds for pre-purchase inspections might sound ludicrous, it is actually money well saved and spent. A property inspection can bring a house’s defects to light, from structural and water damage to pest infestations. Such defects can lower the value of a property significantly. If issues were discovered after the purchase, the expense for repairs would impact your savings significantly. Prior knowledge of damage can give you the push to renegotiate a lower rate for a property before purchasing it.
We can help!
Buying a home is a life-changing decision that should take time and plenty of research. It’s an event that can affect you emotionally and financially for years to come. Still, an outstanding home loan that is well-suited to your specific needs and allows for flexible financial repayments can make all the difference to your property purchasing journey.
Still feeling bewildered? Let us point you in the right direction and get you to your property purchase faster. With Rateseeker, we can compare rates and provide tailored home loans and interest rates that suit your unique situation. Contact a specialist today!
** General Advice Warning
The information provided on this website is general in nature only and it does not take into account your personal needs or circumstances into consideration. Before acting on any advice, you should consider whether the information is appropriate to your needs and where appropriate, seek professional advice in relation to legal, financial, taxation, mortgage or other advice.