Buying your first home has always been one of the highlights of many people’s lives.
It’s something that they’ve dreamed about and had to make sacrifices for to make it a reality.
The thing is buying your first home is often imbued with emotion, which is understandable, but it’s not necessarily the best thing when it comes to property investment strategy.
So here are four big finance mistakes that most first home buyers make.
1. Buying emotionally
The most important thing to understand with your first home is that it won’t be your last, which is why you must use it as a stepping stone to your next property.
That way, you can use your very first home to build your wealth.
You should choose a home that will suit your family and lifestyle needs but one that will also appreciate in value over time and become an asset rather than a liability.
One of the ways to do this is to choose a great location because it will do 80 per cent of the heavy lifting with regards to capital growth for you.
The next key step is not to overpay for the property in the first place, which is another issue with emotionally-laden purchases like your first home.
At the end of the day, the entry and exit costs when buying property are high, which means mistakes – such as paying too much – can be costly.
One of the ways to prevent overpaying is to get professional property advice beforehand on the market value of the property you’re buying, otherwise you may fall prey to sales agents who are not only more experienced than you, they are also better negotiators.
You also must never let Fear Of Missing Out (or FOMO) be a reason to buy a property, because it will often lead to paying too much and potentially for an inferior home to boot.
Likewise, being too exuberant when negotiating to buy a property will generally just lead to making expensive mistakes that can take years to unwind.
2. Not factoring in all the real costs
Too many first home buyers are fixated with the purchase price of a property and give scant regard to the variety of other costs involved in home ownership.
Firstly, there is stamp duty, which can be about five per cent of the purchase price – although there are a number of first home owner stamp duty concessions, but they come with strict guidelines and maximum purchase prices.
Another cost is conveyancing, which are the legal costs involved in the transaction including transferring ownership from the seller to you.
Of course, there are also moving costs to consider, too.
When renters become homeowners they also learn about all the other costs that their landlord used to pay, which they were probably blissfully unaware of.
These include insurances, council rates, body corporate or owners corporation fees if your new home is an attached dwelling, as well as repair and maintenance.
These costs can be thousands of dollars annually, which you will need to budget for every year.
Another home ownership cost is rising interest rates on your mortgage, which you will have to pay if and when it happens.
3. Over-extending financially
As I’ve already mentioned, paying too much for a property is generally because of emotion – your emotion that is.
And that is one of the biggest mistakes that first home buyers make because they are so excited about the opportunity of becoming a homeowner they’re thinking with with their hearts, and not with their heads.
A strategy to limit the chances of over-extending financially is to have finance preapproval in place before you begin.
A key part of this is to not borrow too much in the first place by exercising financial discipline.
That means don’t borrow right up to the amount that the bank will give you.
Instead, leave yourself a buffer, because there are always unexpected costs, expenses, and outgoings.
You should use a mortgage broker to help you through the maze of lending options, so you can choose the best loan for your circumstances.
One of the other ways that first-timers over-extend financially is by underestimating renovation costs if they have plans to upgrade their home.
Working with a property professional before you buy will help to prevent this happening of course, too.
4. Not doing proper due diligence
Buying a home is an exciting time, but it is also one that should be taken seriously to ensure you’re buying the best property for your future wealth creation.
So, it’s vital that first home buyers concentrate on the less sexy side of buying property, too, which includes getting a building and pest inspection to identify any minor or major issues.
You can then use this to inform your buying decision such as negotiating a lower price or even walking away from the deal if the issues are significant.
Of course, it’s a no-brainer to get a solicitor to check the sales contract before you sign, because your signature is worth a lot of money to the seller – and to their lawyer if you try to get out of the deal with no legitimate legal grounds.
You should also check, usually via your legal representative, the area’s council zoning as well as building approvals on the property itself to ensure you are making an informed decision.
Last, but certainly not least, you must take out appropriate insurance to protect your asset as well as your ability to repay the mortgage.
The bottom line…
Becoming a homeowner remains a goal for most young Australians, who are prepared to do what it takes to make it a reality.
As part of the process, though, they should also consider which property will be the best one for their needs today, but also which one can help them upgrade to something bigger and better when the time is right.