There are many mistakes which buyers naturally come across when purchasing a home, but they can be very easily avoided.
If you're thinking of seeking advice or doing it yourself, there are a few things you should be informed of before you waste valuable time and money.
01 Borrowing over your limit and not being ready for the buy
We've all had cases of 'eyes being too big for our pockets', but how big is too big when determining your borrowing capacity?
Arthur Fengitis, credit manager, Professional Mortgage Providers, says some homebuyers fall in love with a property before doing the figures, which often leads them into trouble.
"Sometimes they borrow beyond their means for their income, their outgoing expenses and their liabilities, and at the end of the day they won't have the money to repay that amount," he says.
Leanne Pilkington, general manager, Laing and Simmons, says this generally occurs with borrowers who are inexperienced. "It tends to be the people who are naturally impulsive - it's one thing when you're buying a frock, but it's another thing when you're buying a house," she says.
It's a great idea to have pre-approval for your borrowing capacity before beginning your search.
This way you've set yourself a limit and can't get into trouble if you sign onto a contract without the finance to afford it. This is something best discussed with your broker, mortgage manager or lender in order to set a realistic limit on your home buying adventures.
02 Sugar coating reality and a bad credit rating
Be honest with your credit rating, credit card debts and personal debts. If you attempt to fudge the truth, this sort of stunt can stay with you forever. In Australia, there are two major credit reporting agencies that record debts, and lenders consult these agencies before they complete your loan application.
A tarnished reputation can prevent you from owning your ultimate dream pad not once, not twice, but probably a few times over.
However, in saying this, you can still obtain a loan with a bad credit rating - talk to your broker for advice.
03 Assuming assets substitute your income
When considering how much your budget is for your new home, you must consider your borrowing capacity for your possible home loan. This figure is based on your income earning ability.
Mark Bouris, CEO of Wizard Home Loans, says this is where many people make a big mistake, believing that their income and their assets hold the same weight when applying for a mortgage.
"People often believe that a strong asset position can be a substitute for income when it comes to servicing a loan. But no matter what the strength of your assets, what really makes the difference is your capacity to repay the loan through a regular income," he says.
04 Choosing the wrong advisors
There's no doubt that today's property market is one complex cookie. Modern services bring many modern people in the know who make a living from offering advice.
Vendor's agents (the agent selling the home for the current owner) want to get the best possible price for their clients - so don't be taken for a ride.
The services of a buyer's agent or a property advisor may not be cheap (sometimes around 1% of the sale price of the home), but then again you're not getting cheap service; and the gamble might just pay off.
Depending on who's doing the advising, you might get professional opinions on the structure, age, surrounding and immediate areas, infrastructure and potential growth in price of your possible future home. Ultimately, these guys are professionals and can tell you whether the property as a whole should be given the thumbs up or thumbs down.
Be sure to select your mortgage broker, mortgage manager or lender very carefully, and look for someone who will meet your needs above everything else.
"People are keen to do deals to win customers, so be weary of that; the lowest rate is not always the best," warns Dean Mathieson, CEO, Professional Mortgage Providers.
05 Not understanding your mortgage options
Explore all of your options regarding home loans. Gone are the days when you had to save up for a deposit to get a home loan. These days you can take out 100% or a 106% of the value of the property - which means you don't have to spend years saving for a deposit before getting into the property market.
Keep in mind though, if you have less than 20% deposit there's generally a lenders mortgage insurance involved, adding further costs. This protects the lender, not you, and the less deposit you have, the higher the fee may be - so if you have a 20% deposit, use it.
06 Not taking advantage of the first home Owner Grant
Not everyone is eligible for the First Home Owner Grant just because they are a first homebuyer, so explore this option before you buy. If you assume you have it in the bag you may fall short of over $7,000, making your affordable home unaffordable.
07 Underestimating the costs of purchase
Never underestimate the costs involved in buying a property. Remember to budget in the following when settling your finances.
· Building and pest reports
· Valuation costs
· Application fee
· Solicitor's costs
· Transfer fees
· Council rates
Depending on the price of your future palace, the stamp duty may vary. In some states of Australia you may be exempt from paying stamp duty below a certain price bracket. In NSW however, once you reach the $500,000 mark, there are no exemptions.
08 Not adequately doing research or checking out the home first hand
The world may be your oyster, but if you don't want to fork out thousands of dollars for professional advisors, then the internet, dedicated research and good old fashioned haggling are just as good.
Make sure you check the following before you settle on a property, because in this case what you don't see will definitely hurt you.
· Check out the lighting and mood of the home, street and area at night
· Listen for noisy neighbours from outside the property
· Is public transport within walking distance?
· Does the local area have all your living and social needs?
· Research the area on property websites
· Research the three Ps (position, price and potential)
· Keep your eye out for information regarding trends in the area/suburb.
· Check out the local council's and services' websites - does your area have what you're after?
09 Not understanding home loan repayment strategies
If you can afford to make more regular repayments on your home loan, go for it. With interest calculated daily and charged monthly, extra repayments will reduce your mortgage term and the interest paid on the life of the loan.
10 Buying for living - not investment
When browsing for an investment property you should be thinking of your prospective rental market needs and wants - not where you'd place your chiffonier or what you'd put on your feature wall. In this instance, a property advisor or real estate agent would be great at letting you know what the local renters have been asking for in a rental property.
This will ensure your property is distinguished among the rest and will guarantee a good investment stays that way. When emotions are involved, irrationality sometimes follows. This could mean dangerous results for both the inexperienced and experienced homebuyer.
Remember, don't get too upset if a bid falls through - there are plenty more fish in the sea.
It can be confusing to know whether to get a variable rate or fixed rate mortgage, and what features are important. That's why it's important to not only check the right rates, but make sure that you're getting the right features in your home loan. Get help choosing the right home loan