First homebuyer stuff ups costing hundreds of thousands

From pricing yourself out of the market to signing up for hundreds of thousands in unexpected costs, and more, these are the huge mistakes too many first homebuyers are making.

Buying your first home can be pretty daunting. Not only are you entering into hundreds of thousands of dollars worth of debt, you’re most likely in a race against time as property prices grow and your buying power diminishes. No wonder so many first-home buyers make mistakes along the way. Luckily, mistakes offer a good chance for learning. Here are some of the biggest and most costly mistakes you should try to avoid.

Buying your first home can be pretty daunting. Picture: Evan Morgan

OPPORTUNITY COSTS

Unfortunately, many first-home buyers find buying a home is a case of opportunity costs, rather than opportunity knocks.

It commonly takes first-home buyers six to 12 months to secure a property, by which time, prices have most likely grown, buyers agent Bianca Field from Bought said.

She gives the example of Sydney’s eastern suburbs.

“For the month of March, two bedroom apartments shifted across the board, on average, 9 per cent,” Ms Field said.

With growth like this, buyers not ready to pounce faced about $120,000 worth of opportunity costs in the form of higher prices.

“That’s a game-changer for someone’s budget,” she said.

The best way to prevent this is to be finance ready and know your market, she said.

Failing to research the market accurately could see you priced out. Picture: Sam Ruttyn

RESEARCHING MARKET VALUE

Not doing your homework can also come at a large opportunity cost, REBAA president Melinda Jennison from Streamline Property Buyers said.

“One of the biggest mistakes for first-home buyers is not doing enough research around what the value of a property might be,” she said.

Buyers could find themselves shopping above their budget and inevitably miss out on several properties – and if this happens in a rising market it means having to compromise even more on the type of property purchased.

She suggests researching sales prices within the last month rather than focusing on the prices advertised on current listings.

Make sure you research exactly how much cash you will need for the purchase. Picture: Steve Pohlner

NOT HAVING A REALISTIC BUDGET

Another mistake commonly made by first-home buyers is to focus on purchase price and overlook the amount of money they need for other costs, such as stamp duty, Pest and Building reports and conveyancer fees.

“Some first time buyers assume that can be covered by the loan when in fact it comes out of the cash they need to put in upfront,” Ms Jennison said.

Make sure you have enough cash at hand to cover the deposit as well as all the fees and taxes associated with buying a home, she said.

REBAA president Melinda Jennison.

AIMING FOR A FOREVER HOME

A lot of first-home buyers price themselves out of the market by trying to find their forever home rather than one more suitable to their budget, Ms Field said.

In many cases, it could be better to find a more affordable stepping stone property – one that the buyer could use to leverage themselves into their forever home in five years’ time, she said.

CUTTING CORNERS

After looking unsuccessfully for several months, many first-home buyers feel the dread of FOMO and start cutting corners by skipping the Pest and Building report – but this could be the most costly mistake they make, said Ms Jennison.

“If there’s structural damage to that property, it could equate to tens of thousands of dollars of work,” she said.

The same can be said for Strata reports.

Buyers agent Bianca Field from Bought.

“You might settle on that property and then be hit with a special levy which again could come out to tens of thousands of dollars depending on the issues associated with the scheme,” she said.

Ms Field said relying on a pest and building report commissioned on behalf of the vendor was another big no-no, because they tended to be much less thorough than those commissioned by the buyer.

If any problems end up being found after the purchase, the owner may not have any legal recourse if the report was done on behalf of the vendor, Ms Jennison added. Both said first-home buyers should always commission their own reports.

The costs can really add up if there are unexpected strata levies.

BIGGEST HOME LOAN BLUNDERS

Home loan specialist Georgia Bice from First Choice Mortgage Brokers said first-home buyers often make finance mistakes when looking to purchase their first home. She shares the three biggest ones below.

1. Not getting an accurate idea of borrowing capacity – a lot of first-home buyers are surprised to find out how little they can actually borrow, while on the other end of the spectrum, those that have only visited a bank rather than a broker may be limiting themselves with a much smaller capacity than they could have found elsewhere.

It’s always good to speak with a broker early on so you know how to boost your borrowing power.

2. Not organising a pre-approval before house hunting – a surprising number of first-home buyers don’t look to get finance until after they have started house hunting, but the process to get a pre-approval and then a formal approval usually takes weeks, meaning the property they wanted to buy is long gone by the time they are finance-ready.

3. Having bad debt – credit card debt, car loans and personal loans are a complete turn-off for the banks as they imply you either have limited affordability or are liable to make bad financial choices. Credit card limits also affect your borrowing capacity, so if you have a few credit cards or a large limit, be ready to watch your borrowing power shrink.

Originally published as First homebuyer stuff ups costing hundreds of thousands