Buying your first home is an important and life changing decision.
I hope these 10 mistakes which are adapted from ninemsn will help you jump some early huddles.
1. Not securing pre-approval
One of the first things you should do once you decide you’re going to buy your first home is to get pre-qualified for a loan. This will enable you to know in advance what sort of property you can afford and what the lender will loan to you.
Pre-approval will also allow you to pick up that first property quicker because you will be able to make an offer straight away. Make sure the pre-approval from your lender is in writing. This should give you the confidence and ability to make an offer on a home or bid at auction. Your mortgage broker or bank manager will be able to draft this simple one to two page letter.
You will be surprised how much clout this letter can bring you come offer time.
2. Not doing your research
Failing to understand the market and exactly what properties are worth could be your downfall in securing a property at the right price. Too often first homebuyers fail to do the necessary research resulting in purchasing on or above current market value.
There are many places where you can research property prices including:
- Auction results in newspapers or on the Internet
- Local real estate agents regarding recent sales
- Local real estate agents regarding the difference between asking price and actual sales value (in many suburbs properties often sell between 5 and 10% below asking price)
- Professional sales reports for the suburbs you are interested in (such reports can give a detailed analysis of sales on a street-by-street basis)
For more on this see my article titled property finance tips for under 30’s.
3. Not being familiar with the sales process
Before you start your search, be aware of the practicalities of buying a home.
Read up on:
- How auctions work (for example if your offer is accepted, it is unconditional and you must buy the property)
- The best way to go about making an offer (always start low and make sure your offer is subject to a building and pest inspection, finance and a 30+ day settlement)
- What to look for when buying property (this is completely dependent on your property investment strategy, see mistakes 4 and 5)
- Real estate agent tricks and traps (agents will often tell you they have another offer or interested party, will always try and squeeze the price up and at the end of the day work for the seller).
You can also speak to friends and family about their experiences.
4. Not looking at all aspects of the property
When searching for your first home, it’s not just about walking through the property and imagining yourself living in there. Try and take your emotions out of the decision and look at the potential for improvement, neighbours, infrastructure, liveability, noise levels, parking availability, and any developments planned nearby.
5. Choosing the wrong area
The suburb you move into will become a big part of your life so it’s important you make the right decision. When compiling your list of suitable areas, you might consider transport facilities, whether you’ll have to commute, and what the surrounding area has to offer. A great investment strategy is to find a popular or expensive suburb and then identify a cheaper sister suburb which has the potential for capital gains.
For more on this see my article titled 7 reasons why people under 35 should buy an investment property in 2013.
6. Failing to get a property inspection or strata report
We’ve all heard horror stories about those who’ve purchased a new home only to find it riddled with termites. While you might think this will never happen to you, just remember that buying a property will be one of the most expensive financial commitments you’ll ever make. And it could prove an even more costly one if you don’t get an independent pest and building inspection done prior to purchase. I also recommend getting a strata report if your buying a unit, which will help you identify the additional costs you will be up for.
7. Not acting quickly enough
Once you see your ideal home, you may have to move quickly. Whether it’s the first house/apartment or the 100th one you see, if it feels right and it’s within your budget (and you’ve looked at all the aspects above), don’t leave it too late before making an offer. Someone might just beat you to it.
In the same vein, don’t be talked into buying any property you’re not sure about and don’t settle for a property just because its easy or you have missed a few others.
8. Not being alert to gazumping
Just because you’ve made an offer and it’s been verbally accepted, and the real estate agent tells you “It’s in the bag”, don’t be fooled into believing the property is yours. Until you and the owner sign a legally binding contract nothing is set in stone and another buyer could make an offer and outbid you. Ask the real estate agent to let you know if another party puts in a higher offer so you can make a counter bid if you wish.
9. Letting your emotions get in the way
While the search to find your home will be an emotional one, it’s best not to let your emotions get in the way when it comes to transacting a purchase. This especially rings true when it comes to auctions, as under the circumstances, it’s easy to get carried away. If you feel too emotionally attached and feel you will go over your budget, consider having someone else do the bidding for you. Don’t be afraid to play hardball with the agent, its what they do all day and may end up saving you thousands.
10. Going beyond your means and budget
As a first homebuyer (and this rule applies to anyone buying property), you should never go above your budget and financial means. If you do, it may affect you and your family’s short-term and longer-term financial situation. It’s always better to play it a bit safer and think about events that could happen in the future (for example a job loss, turn in the market or interest rate rises).
After the global financial crisis in America the government and banks in Australia changed their lending rules. To protect the Australian public from the issues that crippled America they now assess your borrowing capacity based on your income. Therefore if you over spend on your first property you may not be able to borrow enough money to secure another property in the immediate future without significantly increasing your income or repaying a large percentage of your debt.
I would love to hear if you have any questions that I can help you with? Please feel free to comment below and ill do my best.