Unless you’re Jeff Bezos, Bill Gates or Warren Buffet, your home purchase may be the biggest financial investment you make during your lifetime.
Scary thought, isn’t it? Not if you approach this investment as three of the wealthiest people would.
Buying a home is also a business transaction and, to avoid costly mistakes, it needs to be addressed as one. This means performing careful research, absorbing knowledge and keeping your emotions at bay.
Let’s take a look at the five most common mistakes that homebuyers tend to make.
Buyer Trap #1- Not Getting your Financing
in Order
Obtaining loan pre-approval is the most important step to take during the home purchase process. It should be one of the first steps you take as well, for several reasons.
First, the mortgage pre-approval process lets you know how much you can realistically and comfortably pay for a home.
Just as you wouldn’t go car shopping without a clue as to how much you can spend, don’t look at one house until you know your limit.
Additionally, in a fast-moving seller’s market which it will be again, most homeowners don’t even want a non-pre-approved homebuyer to look at their homes.
It’s not a stretch, then, to understand that they most likely won’t entertain an offer from one.
Without that preapproval letter, you may just lose the home of your dreams to another, pre-approved buyer.
The process is relatively painless and not overly involved. It’s free, too, so there is no reason not to make your first home buying step one that leads you over the doorstep of a mortgage broker, bank or credit union.
Just make sure you get all the necessary paperwork that they ask you for in a timely manner because a pre-approval is not a final approval.
Canstar says you’ll need to show:
- Personal identification – it’s important for the lender to verify your identity
- Income details – do you have a regular, ongoing income?
- Home loan situation – are you a first home buyer, or a frequent investor?
- Assets and liabilities – are you capable of repaying the loan?
Buyer Trap #2- Not Understanding the Loan Process
Ask the lender about any charges and fees that you don’t understand. This way, there will be no surprises at the settlement table. If a fee or charge sneaks into these documents you’ll notice it and can take action.
Standard fees include document preparation fees, underwriting fees, loan disbursement charges and others.
More Fee information can be found at Canstar and ASIC.
The lender is required to provide you with “Loan Costs” that includes a listing of all fees in advance of settlement.
Never hesitate to ask if you don’t understand anything on any forms and don’t assume that there won’t be additional fees at settlement.
Buyer Trap #3 – Not Performing Due
Diligence
While the seller has a duty to you to answer any questions you have about the home honestly, you have a duty to protect yourself by performing various inspections before you fully commit to purchasing the home.
Hire a professional home inspector to go over the home’s major systems. While these inspections are visual (nope, the inspectors don’t open walls), a capable and experienced inspector may notice problems that the untrained eye won’t.
Even if you decide that you want to purchase the house no matter what, it’s much better to know about these problems up front.
Discover more here.
Buyer Trap #4- Judging the Book by its
Cover
It’s easy to fall in love with décor. This is why new home developments feature display homes. These homes are carefully staged to appeal to the consumer’s emotions.
By the same token, it’s easy to dislike a house because it’s messy, dirty or has dated furnishings and features.
It’s so important to remove your pre-conceived notions of what the perfect house will look like. Only then can you truly see a home for what it offers – both the good and the bad.
Don’t allow the dazzling décor to make you forget what it is you want in a home. Don’t let the mess cloud your vision of a home’s possibilities. Carpet can be replaced, walls can be painted.
Focus on the layout of the house, and not the cosmetics.
Buyer Trap #5- Not Considering Additional
Expenses
When you’re pre-approved for a home it’s tempting to buy at the top of your limit. Don’t give in to the temptation.
When you purchase a home, you take on expenses you didn’t have when you rented a home.
Apart from the property itself other purchaser expenses include:
Stamp Duty – This is the biggest one. Other costs are relatively small in comparison. Stamp duty rates vary between state and territory governments and also depend on the value of the property you buy. You may also have to pay stamp duty on the mortgage itself.
Conveyancing/ Legal Fees – Your Conveyancer or Solicitor will attend to all the legal processes around your property transfer of ownership, including title searches which you pay for.
Building Inspection – This should be carried out by a qualified expert before you purchase the property. Your Contract of Sale could include subject to the building inspection, so if there are any previously unknown structural problems, you can still back away from the purchase without any significant financial penalties or re-negotiate.
Pest Inspection – This is best carried out before purchase to ensure the property is free of problems, such as termites.
Lender Costs – Most lenders charge establishment fees to help cover the costs of their own valuation as well as administration fees. Your financier or broker can let you know what your lender charges are.
Moving Costs – Remember to factor in the cost of a removalist, unless you have arranged all of your family and friends to help. (You’ll find a ‘Moving Checklist’ on our Forms & Fact Sheets page to make it easier.)
Mortgage Insurance Costs – If you borrow a value that’s greater than 80% of the purchase price of the property, you’ll also likely need to pay Lenders Mortgage Insurance. You may also choose to take out Mortgage Protection Insurance.
Ongoing Costs – If you buy strata or community title, ongoing fees are also payable. You will need to include council, water & sewer rates along with regular loan repayments. It is very important to also take out building insurance once your deposit is paid and contents insurance. Your lender will probably require a minimum sum insured for the building to cover the loan. Maintenance and upgrade costs need to be considered also.
I usually counsel my clients to ask the seller for copies of utility bills for the past year to get an idea of how much they can expect to pay if they purchase the home.
After all of that… Congratulations, you are a proud homeowner!
While these are the most common mistakes homebuyers make they are in no way indicative of all of them. I’d like to help you develop a home purchase strategy that will avoid all of these mistakes and more.
Call me for a free home buying consultation and I’ll show you:
– How to get pre-approved for a mortgage
– How to buy the right home for your needs
– What to put on your wish list
– The entire home buying process, from start to finish, in plain English.
Got questions, comments or feedback? Email [email protected]
To find out more, you’re welcome to call 08 83961100 to arrange a chat with people that care.
Alternatively, Book a Free Consultation or Get Your Home Value Here. We’ll Guide You Home!
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Like most things in life, these are recommendations only. It is not legal advice, it may or may not suit your own circumstances and you may need to make your own additional enquiries.
Regards Eriks & Team Plaza Real Estate
