Who doesn’t want to get their hot little feet onto the property ladder? You buy, you sit, you wait… and ultimately the property increases in value over time. Too easy, right?
While it sounds like plain sailing, there’s a ton you need to get your head around before even thinking about shopping around for a loan, let alone adding an actual property to your trolley.
Before you sign on any dotted lines, make sure you avoid the common pitfalls that some first homebuyers face when looking to get their slice of the property pie.
Looking for your ‘dream’ home instead of the one you can afford.
Yes, it’s tempting to insist on a property in the fashionable suburb your mates are renting in, but you’ve got to consider what you can afford now versus what you’ll be able to afford in a few years.
Your first home is rarely the home you raise your family in, so buy what you can afford now and get comfortable with the idea of upgrading later.
Waiting to get into the market
The biggest mistake first homebuyers can make is waiting to get into the property market.
History has proven over the past century that property tends to go up in value over time. As the saying goes – the best time to plant an oak tree was twenty years ago. The second best time is now.
So if investing in property is on your radar, start planning to enter the market as soon as you can afford to.
Car vs home
I have seen many first homebuyers delay purchasing property because the lure of a luxury car is a more attainable goal that’s hard to ignore. Although a flashy set of wheels are great, a giant car lease can actually prevent you from qualifying for future home loans.
My advice? Decide which one you want the most. A car (which will depreciate over time), or your very own pad (which will likely grow in value over time). You can’t always have both as a first homebuyer.
Not reading the fine print
If you’ve never purchased a property before, it’s impossible to know what to look for when signing on the dotted line, so always seek the advice of an established professional to help you negotiate the finer details.
Taking your time to get these details right can potentially save you cash in the long term which will help to pay off the loan quicker.
Advertised rates vs true comparison rates
Ever heard of a ‘honeymoon’ rate? This is the rate that is advertised to grab your attention and entice you into taking a home loan with a lender.
The thing is, the rate you need to be looking at is the true comparison rate, which is the rate which will run over the entire term of your loan. Forget the honeymoon – it’s over – the comparison rate is the number you need to be concerned with.
Not getting a pre-approval
Your income may look good on paper, and that’s a good start. The next step is the conditional pre-approval process. Lots of first homebuyers fail to get this sorted – an essential step – before diving into assessing the property market, which is the fun part.
To apply for conditional pre-approval you’ll need to undergo a credit assessment, including confirming all of your income sources and other outgoings. This helps lenders understand how quickly you’ll be able to repay your loan.
Importantly for you, it will establish your purchasing capabilities….and this is an absolutely critical step before getting serious about buying. Don’t overlook it.
It’s not uncommon, especially if you’re a younger potential homebuyer, to do exactly as your peers or family have done. I can’t emphasise this enough: get independent advice before you start shopping around for mortgages.
While it’s tempting to do as your parents have done – put on Dad’s tie and go straight to the bank – lots has changed… variable rates, legal changes around stamp duty and first home owner grants, for a start.
This means checking in with an independent professional that can give you no-nonsense advise and set you up for future success.
Ashley Playsted is the CEO a Wealthie.com.au a free mortgage brokering service.