2 Common First Home Buyer Mistakes
Welcome to all first home buyers! Purchasing your first home is an exciting time and a great milestone, however it can also be an intimidating process. As a first home buyer, you may be feeling overwhelmed and uncertain of what to expect - this is totally normal! To help you on your way, I'm going to be discussing two of the most common mistakes that first home buyers make. I'll provide an explanation of what these mistakes are, why they are mistakes, and what you can do to avoid them. So let’s get started!
Not Understanding Pre-Approval Process
One of the most common mistakes first home buyers make is not understanding the pre-approval process. Pre-approval is the process of having a lender assess your financial situation and borrowing capacity before you begin looking for a home. It is a critical step in the home buying process, and something that many buyers fail to understand or overlook entirely.
The pre-approval process involves the lender reviewing your financial information, including income, liabilities, and assets. The lender will also review your credit score and other factors to determine what loan size you are eligible for. Once the lender has determined your borrowing capacity, they will be able to give you a pre-approval letter outlining the estimated loan size and rate. This pre-approval letter is a critical tool when it comes to negotiating and making offers on properties.
When undertaking the pre-approval process, it’s important to be realistic about what you can afford. It’s easy to get swept up in the excitement of the home buying process, but it’s essential to stay within your budget. Being honest with the lender about your financial situation will ensure that you are not over-extending yourself financially.
It’s also important to remember that pre-approval does not guarantee that you will be approved for a loan when you make an offer on a property. Pre-approval is a useful tool for gauging your borrowing capacity, but ultimately the lender will still need to review and approve your loan application before you can move forward with a purchase.
For first home buyers, understanding the pre-approval process is essential. Knowing your borrowing capacity, being realistic about your budget, and understanding that pre-approval does not guarantee loan approval are all important considerations when it comes to buying your first home.
Overlooking Closing Costs
When it comes to buying a home, first-time buyers can often overlook the additional costs associated with closing the deal. It’s important to be aware that there are a number of additional costs that need to be factored in, and these can quickly add up.
Closing costs can vary depending on the property and the lender, but some of the most common ones are loan application fees, legal fees, and mortgage registration fees. It’s also important to consider that lenders may charge an additional fee for setting up the loan, as well as ongoing service fees.
It’s important to ensure that you budget for all of these costs and factor them into your decision-making. Whilst it may seem like a small amount of money at the time, it can quickly add up if you’re not careful.
It’s also important to understand that in Australia, you may be able to claim some of these costs as a tax deduction. Speak to your broker or accountant for information about what you can claim and when.
Finally, it’s worth noting that some lenders may offer incentives to help first-time buyers with the cost of closing. Speak to your broker or lender to see if there are any options available to you.
In summary, it’s important to factor in the costs of closing when purchasing a property. Make sure you budget for all of the costs and consider any incentives or tax deductions that may be available.
Assuming All Mortgages are Created Equal
One of the most common mistakes first home buyers make is assuming all mortgages are created equal. It’s important to understand that different lenders offer different products, features, and rates, and that a mortgage can be tailored to suit the borrower’s individual needs and circumstances.
Before a first home buyer applies for a loan, they should do some research to compare the products and services offered by different lenders. Factors to consider include the lender’s interest rate, fees and charges, repayment options, and eligibility criteria. It’s also important to consider the loan features, such as loan flexibility, redraw facilities, and the ability to make additional repayments.
By comparing mortgage products, a first home buyer can identify the best loan for their individual needs. For example, if they are looking to pay off the loan quickly, they can compare lenders’ repayment options to identify the loan with the most favourable terms. Similarly, if they are looking to minimise their interest costs, they can compare the interest rates of different lenders.
When comparing mortgage products, it’s also important to consider the fees and charges associated with the loan. Some lenders may offer lower interest rates, but they may also include higher fees and charges. It’s important to review the total cost of the loan, taking into account the interest rate, fees and charges, and any other costs associated with the loan.
Overall, it’s important for first home buyers to understand that different lenders offer different products with different features and rates. By doing their research and comparing different loans, they can identify the loan that best meets their needs and reduces the cost of the loan.
Not Shopping Around for the Best Deals
When it comes to shopping around for the best deals, first home buyers often make the mistake of not doing their research. Not only is shopping around for the best deals essential for finding the best home loan, but it can also save you a lot of money in the long run.
First home buyers should always shop around for the best deals so that they can get the best mortgage rate and the lowest fees. There are a number of different lenders and financial institutions in Australia offering different mortgage products and rates, and it pays to do your research to find the right one for you.
When shopping around for the best deals, it’s important to compare the different features of the loans on offer, such as the interest rate, fees, repayment terms and any additional features. It’s also important to consider the long-term costs of a loan, not just the upfront costs. Consider the total amount of interest you will pay over the life of the loan, and whether the loan will remain the right fit for you over the long-term.
It’s also important to consider the customer service and support you will receive when taking out a loan. Some lenders may offer better customer service than others, so it’s important to consider this when shopping around.
Finally, it’s important to remember that the best deal for one person may not be the best deal for another. Everyone’s financial situation is different and the loan that suits one person may not necessarily suit another. Therefore, it’s important to arrange independent financial advice to ensure the loan you select is right for your individual circumstances.
Got questions about your home loan? Let's talk
The first home buying process can be intimidating, but with the right help and advice, you can avoid some common mistakes. At Ello Lending, we are passionate about helping first home buyers make informed decisions and guide them through the home-buying journey. If you have any questions about the home-buying process or are interested in learning more about our services, please don't hesitate to contact us. We would be delighted to answer any of your questions and help make your dream of owning a home a reality.
