Buying your first home is both a daunting and exciting experience. Not only are you entering into a sizeable home loan for perhaps a 30-year or longer loan term, you are also in a race against time as property prices increase and your borrowing capacity contracts due to lenders constantly adjusting their Household Expenses Monthly (HEMS) in line with Consumer Price Index (CPI).

Here are some potential mistakes and costly oversights you should try to avoid.

Opportunity costs : Be finance-ready, i.e have a Pre-approval in place and know the market you wish to purchase in. Usually, first home buyers take 12 months to locate the perfect property and during that time property prices would increase. Always liaise with your finance broker to update your income and expenses which will assist in your borrowing limit. Buyers who may have had a Pre-approval months earlier must realise lenders are constantly reviewing their assessment criteria, so the Pre- approval may no longer be valid.

Market Value : Do your research and due-diligence in and around the area you wish to purchase. Your finance broker has access to valuable tools to assist and this would give you a guide of the property value you’re interest in.

Budget : A common mistake is the purchaser’s total focus on the purchase price and overlooking additional on- costs. Ensure that you have sufficient funds available to :

  • Cover the deposit
  • Cover your legal costs,
  • Pay Government fees (if applicable)
  • Pay disbursements on settlement, (usually adjustments for water, rates and any Owners Corporation fees).

Bad Credit report : A detailed credit report can be arranged to ensure that there are no bad credit issues. This can be a deal breaker for your finance application. Also, credit card limits may affect your borrowing capacity and a financier may place a condition of approval that credit cards limits be reduced or cancelled. Be ready.

The Right Lender : There are the “big four” banks, followed by second and third tier lenders. Finally, the non- conforming lenders. It’s a common misconception that borrowing from the “big four” is safer. Banks don’t shut their doors. It’s only on rare occasions that a lender will stop operating because it has been acquired by a larger competitor. Also, smaller co- operatives are amalgamating to remain competitive. Most of the second and third tier lenders offer competitive pricing and higher quality service. Your finance broker will provide you with various lenders’ product options that best suit your requirements.

Fear of Missing Out (FMFO) : Avoid mistakes and don’t be gullible. With property prices rising, many potential purchasers fear missing out. Therefore, rushing in and cutting corners can often lead to costly expenses after settlement. Examples include :

  • Don’t skip building and pest reports (i.e. finding termites after the sale and settlement)
  • Don’t skip and review of Owners
  • Corporation reports (examples such as cladding issues)
  • Obtain property reports (this provides a comprehensive guide to the property being purchased and other vital information)
  • Exceeding your purchase price limit as you get caught up in the euphoria of the transaction.
  • Talk to neighbours. They may know the history of the house, examples include, was it a rental property or was it used for illegal activities such as a “grow house” (crystal meth lab). More often than not, the chemicals are absorbed into the walls and ceilings and are extremely difficult to remove. If suspicious, obtain a Harmful Chemical Inspection report. Think of your health and safety.
  • Was it the scene of a murder?

Recent REIA (Real Estate Institute of Australia) data reveals that 36% of buyers do not receive adequate responses from their agents about their enquiries. Most inquiries are requests include price guides, inspection times, rates and fees. Buyers should be willing to walk away from a property if they feel there is a lack of transparency.

An agent should build trust and rapport with a prospective buyer. The biggest challenge with price guides occur after the selling campaign. If the property sells above expectations, buyers believe they were misled. However, buyers need to understand that the agents set the price guide based on recent similar properties. The impact of buyer competition is rarely determined by market conditions alone.

 

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