When jumping on the property ladder for the first time, there are some important mistakes to steer clear of. The following article will list the worst mistakes made by first time home buyers so that you can be clear on the red flags to avoid.
Lack of budget clarity
Apart from your main capital mortgage loan, there are a number of other expenses to budget for when buying your first home. One of the major factors that gets first time home buyers into trouble down the line is not understanding all the expenses involved. It's essential you thoroughly understand all the costs and ask for a loan you are comfortable paying back for the duration of the term - if you stretch yourself too thin, you could find yourself in a very uncomfortable position. You're advised to make a comprehensive list of all your outgoing monthly expenses, including loan repayments, groceries, travel, insurance plans etc. Also remember to include major annual payments such as insurance premiums and holidays. When shopping around for a mortgage, it's also a good idea to use a mortgage repayments calculator when deciding on a lender so you know exactly what your monthly payments will be.
The trap of hidden costs
As mentioned above, there can be some nasty surprises in store for the first time home buyer who has not fully understood all the added costs involved in a mortgage or who has not thoroughly read the fine print. Fees such as administration, lawyer costs, taxes and insurance must be included in your budget. Make sure your loan provider explains these things to you thoroughly.
Neglecting to gain loan pre-approval
Before setting your sights on the home of your dreams and then having your heart broken by not being able to finance it, it's wise to get pre-approved for a set loan amount so you can be sure to have the funds that match the property you're interested in. It must be said though that even if you have a pre-approved loan amount for your mortgage, this can fall through even at the eleventh hour if your situation changes, such as for example if you finance a new car.
Unrealistic expectations
Unfortunately, very few people have limitless budget to finance exactly what they want as their dream home. It's important to be realistic and carefully weigh whether you want to compromise on your property or wait awhile longer until your finances have grown. If you're adamant on buying a property now rather than later, your budget might dictate you having to compromise on issues such as having less space than you would ideally like, older decor or being located on a busy road. The main thing is to make sure the major boxes are ticked such as adequate room and location for your family, without getting too put off by minor things you can repair later at a fairly reasonable cost. The physical imperfections are often cheaper to improve over time instead of paying the larger price for a property in perfect condition.
Missing out on equity
Following from the above paragraph, property experts agree that if you're on a budget, it's a sound idea to look for a home whose full potential has yet to be realised. By gradually adding value to it through phased improvements, you will be building your investment and could eventually sell it at a higher price than you originally paid for, allowing you to buy an even better property at a later stage.
The unseen albatross
It's highly recommended you budget for a professional inspection of the property you're interested in before going ahead with the sale. Many first time home buyers have had their hearts and budgets broken by buying a home that looks good on the surface but ends up being a bottomless pit in terms of endless repairs. Also be sure to ask some key questions to avoid any nasty surprises in the future regarding changes to the neighbourhood, such as:
- Is a highway likely to be built near your home?
- Is your road likely to become a major street or a popular rush-hour shortcut?
- What kind of building developments are planned for the neighbourhood?
- Have home values in the area declined and if so why?
Conclusion
The above guide will help you avoid the major pitfalls when dealing with first time buyer mortgages. All in all, if you budget carefully and thoroughly do your research, jumping on the property ladder can be smooth sailing.
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