Buying a home is one of the biggest and most exciting achievements you can experience.
However, it can also be one of the most daunting if you’re not properly prepared.
With that in mind, it’s incredibly important to understand the value of doing due diligence in terms of research and preparation.
The savvy home buyer will have all their ducks lined up well before they’ve even found the home they want to buy. Here are some common mistakes to avoid:
1. Not getting loan pre-approval
Getting pre-approval on finance is the first step. Shop around and find out how much banks will be willing to lend you before embarking on your quest for your dream home. That way, you won’t be left disappointed by a loan application rejection down the track. The advertised rate isn’t always the rate you can get. There are often a few conditions, things like loan-to-value ratio restrictions, that are overlooked in the rush to move on from the boring loan to the exciting house research. Pre-approval allows you to realistically understand how much you can borrow and takes away much of the uncertainty of being approved, meaning you can submit an offer with confidence.
2. Forgetting about extra costs
There are often additional costs that the ill-prepared home buyer will fail to budget for.
- Council rates - if the current owner has paid the council rates for the year depending on when you take over the property you’ll have to pay them a portion
- Stamp Duty - stamp duty is a big one as it can cost tens of thousands or more so it’s best to use a stamp duty calculator to understand how much you’ll need to pay
- Lenders Mortgage Insurance - if you’re borrowing more than 80% of the value of the property you’ll likely pay additional fees called Lenders Mortgage Insurance (LMI)
- Additional Insurance - most people know you should have home and contents insurance when you move into a house but most banks will ask you to insure the home before settlement. This may be a requirement before your loan is settled. That could mean you’re paying for two sets of insurance: your existing home and the one you’re buying. Get a quote to understand how much it will cost.
- Loan Fees - it’s worth comparing bank comparison rates rather than simply the variable or fixed rate as this will take into consideration the hidden fees associated with a loan. Sometimes a really great rate actually has lots of hidden fees.
3. Getting the wrong home loan
Structuring your loan for your financial circumstances makes sense, but for many people a lack of research means they’ve constrained themselves with an inflexible home loan that may end up costing thousands of dollars over the journey. The key is to consider both your current and future needs. For example, if you’re planning to turn your property into an investment in five years you’d structure it differently to your forever home. It’s worth speaking with a lending specialist to understand what the best loan structure is for you.
4. Not negotiating from a position of strength
Part of being properly prepared is also knowing what NOT to tell your real estate agent.
Information is power, and by keeping some cards close to your chest, you can ensure you’re primed to negotiate from a position of strength, which is often something people forget when the emotions of loving a house take over.
Here’s a checklist of things to keep to yourself when it comes to purchasing property:
- If you’re on a tight timeframe
- Your maximum purchase price – the real one. There is no problem giving a somewhat false maximum prior to auction to see whether the vendor is keen to settle prior.
- How keen you are on the house – It’s great to show you’re interested but also good to make sure the agent knows it’s not your only option (even if it is)
- That you don’t have any understanding of the real estate market – Being aware of other houses on the market and recently sold properties tells the agent you won’t be taken for a ride as you know what houses are worth in the current market
On the flip side if you can extract any of this information about the seller from the agent you can use it to your advantage.
Real estate agents are adept at maximising any leverage to get the best possible price for the seller. By keeping this information private you’re ensuring you don’t yield the upper hand when it comes to negotiating the right price for you. Always remember the agent is looking for the best price but ultimately, they are looking for a sale, as they don’t get paid without one.
5. Forgetting the plan
Buying a house should be a rational decision but emotions can quickly creep in and you can rapidly compromise on things you really want, especially if you feel the whole process is taking too long. A common mistake is to rationalise offering more than your budget because “really, what is $10,000 in the scheme of things?”.
Set your expectations at the beginning; buying property can take time so make sure you’re clear on the non-negotiables from the outset, don’t go above your approved budget, and remember there will always be another house.
Make sure you don’t fall into any of these traps and start your preparation with a pre-approval from an Australian Unity lending specialist.