Five first home buyer traps to avoid
Superannuation | 16/07/2019 |
5 min read
The number of first home buyers in Australia’s housing market has hit a six-year high, according to new data from the ABS. While that shows increased confidence in the property market, buyers need to be aware of both the opportunities and pitfalls before taking the plunge. ME Bank has highlighted five things to consider before you sign the paperwork, and the traps to avoid.
1. Buying blind
Buying a first home is a big deal, so it makes sense to be clued up on what’s involved. But research has shown that six out of ten first home buyers fail a basic property buying literacy quiz.
Key knowledge gaps included understanding that lenders’ mortgage insurance protects lenders – not borrowers – and that there’s no cooling off period when buying at auction.
When it comes to the biggest purchase of your life to date, it pays to know the basics and get a handle on the terminology. Head to the government’s MoneySmart website to get up to speed.
2. “Guesstimating” your borrowing power
Don’t go home hunting based on a hunch about how much you can borrow. It could see you waste a whole lot of time and money checking out homes you simply can’t afford.
The only way to know for sure how much you can borrow is to speak with a lender or mortgage broker. Most lending institutions offer an online tool that provides general lending info and limits, and while they're a great starting point, it pays to speak with a professional and confirm your borrowing capacity.
3. Not sticking to your budget
It can be easy to buy with your heart rather than your head, but this brings the risk of blowing your budget. A property survey by ME found one in five (22%) home buyers exceeded their buying budget. Of these, 46% overstepped their budget by $30,000 and 30% blew their budget to the tune of $50,000. Ouch!
An easy way to stay focused on what, and where, you can afford to buy is by having your home loan conditionally approved – it draws a very clear line in the sand.
Conditional approval also means your loan is pretty much ready to go when you find the place that’s right for you, and that can mean enjoying a headstart over less organised buyers.
4. Overlooking upfront costs
Buying a home comes with a range of upfront costs including legal fees, pre-purchase inspections and stamp duty.
Sure, first home buyer grants and concessions can help to cover at least some of these add-ons. But it’s a smart move to factor upfront costs into your buying budget so you can avoid nasty surprises that could see you scrounging for cash later on.
5. Assuming all loans and lenders are the same
Home loans are not a one-size-fits-all product. Different lenders not only charge different interest rates, they also offer a variety of home loan features.
These features matter because they can make your home loan easier to live with, and help you become mortgage-free sooner.
The bottom line is, when it comes to a home loan, it can pay to look beyond the lender you’ve always banked with.
This information is provided for general information only. It does not take into account your personal objectives, financial situation or needs and should therefore not be taken as personal advice. You should consider whether it is appropriate for you before acting on it and, if necessary, you should seek professional financial advice. Issued by Equipsuper Pty Ltd ABN 64 006 964 049 AFSL 246383. MySuper Authorisation Number 33813823017672 (‘Equip’, ‘the Fund’ ’).
This article is brought to you by ME. For more information, please visit www.mebank.com.au Members Equity Bank Limited ABN 56 070 887 679 AFSL and Australian Credit Licence 229500.