It is easy to get lost in the excitement of buying your first or a new property. It ushers in the opening of a new chapter with new memories. However, this can soon turn sour if you have not considered the financial risks that come with buying a house. To cover your bases, there are five financial risks you need to be aware of to ensure that your home buying process is not hindered.
1. Not crunching the numbers
There are ongoing property costs that extend beyond the price tag of the house that you need to be aware of. Bill Tsouvalas, CEO of Savvy, warns that there are additional costs you need to be aware of.
“You will have to pay for rates or land tax, depending on your shire or council rules. This may range from $500 to over $1,000. Take the time to fully understand the financial commitments there are before purchasing your first property,” he said.
If you do not factor these in before getting a home loan to secure your mortgage, you could find yourself under-financing your property from the get-go. You would want to consider the medium to long-term investment that comes with having a home loan.
2. Failing to evaluate the property
If you are trying to skimp on finances by not doing a full professional evaluation of the house before you move in, you will be in for a truckload of problems that could burn holes in your finances. The price of property valuations varies but you could be looking at an average price of $300--$600 in capital cities. The price can increase to $1,000 if you are buying a house in the rural areas
It is important that before you move into a house you check it for any infrastructural problems, pest and roach infestations, and repairs that need to be done. There are some things that are best left to the professionals or else you will be left footing a hefty bill. Using the help of an appraiser will help you know the value of the property and its condition, which will give you an insight into whether you are investing in a golden egg or a dud.
3. Skimping on home insurance
Insurance might be the last thing that people want to hear about, but when it comes to protecting your home, it is vital. According to the Australian Bureau of Statistics, 1.8 million Australian households have no house and contents insurance.
Your home is one of the most valuable investments you will ever make. It will also shelter the most precious items that cost you money to install into your house, and these can easily be snatched away with a break in.
Furthermore, your house could be damaged by natural disasters Homeowners insurance policy will have you covered for fire, theft, and hail damage which will give you peace of mind. The last thing you want is to have no house due to damage, but you still have to fork money towards your mortgage.
4. Going for something beyond your financial reach
The pre-approval stage of a home loan is usually a good gauge of how much house you can afford. This process evaluates your financial standing and your current income. Your lender will then weigh these factors and determine how much they are willing to lend you for a loan.
Purchasing a house that costs more than what your lender is willing to offer is dangerous as this could lead to a major financial shortfall. You need to ask yourself if you would still be able to afford your home should the interest rate increase by 1-2%.
5. Ignoring the location of the property
Whether you are planning to stay in the house for a short or long period, failing to take its location into consideration can cost you financially. Purchasing a house that is not close to any amenities such as schools, shopping centres, and easy access to transport might make it harder to sell in the future. Plus, the neighbourhood in which you buy your house in can affect the house value by 10%.
It is important that you conduct adequate research into the house you are interested in buying. A rushed process could leave you with a financial burden you will regret later.
Also read: Factors to check before buying a house