Buying your first home is an exciting experience, but it comes with making many big decisions and can be full of complexities. In fact, many first home buyers are not prepared to make financial and practical decisions, as it is so easy to get swept up in the whirlwind of the idea of having their own home, which can easily lead to them not being certain about particular requirements.
Buying your first home is an important milestone, which is why you don’t want to make the wrong move and overlook something important. Understanding the process thoroughly and being in the loop of what is going on and what needs to be done can make this a positive experience for you to remember.
Here are some common mistakes that first home buyers make, and how to avoid them!
Not Enough Research/Preparation
Researching and being knowledgeable about the home building process is vital in this project. Research about the house you’ve chosen, the neighbourhood, talk to the neighbours to get a feel of the type of people that live on the street. Find out which schools are nearby, shopping centres, what the public transport is like and even about the crime level of that neighbourhood. You’re going to be living in that house for a long time, so you need to make sure that you will be feeling safe.
Choosing a location with poor growth and rental yields will affect your return on your investment when you want to sell or rent it out. RP-Data is a good, unbiased source of information. Take the time to study the median weekly rent, rental yield percentages and growth of the suburb you are thinking of buying into. A good Builder’s Sales Rep should be able to assist you in understanding this information. People shop around when looking for the right builder but they don’t shop around for a good mortgage broker. There are many ways to secure a home loan, and some lenders are more cost effective for you than others. Mortgage brokers have access to many different lenders, so it is worth speaking to your bank and a couple of brokers to get an idea of the range of finance solutions that are available to you. Builders should be able to recommend different brokers for you.
Not Properly Checking Display Homes
When visiting display homes, ask what the displayed price does and does not include – the floors, wall paint, air-conditioning and high-ceilings may be extra! Pay particular attention to the specification sheet and don’t be shy to ask for a total price.
Making changes to a builder’s standard house design can cost you a premium in drafting and construction. The best way to keep the cost down is to shop around until you find a design you like as it is, or only requires minimal changes or additions. Remember, research only costs you your time!
We also have a tendency of letting our emotions get in the way of making decisions. When you see a beautiful house that you like, you immediately start to imagine yourself in it – how you will arrange the furniture, about the interior, how to remodel the bathroom, etc. However, it is so important to not let your emotions get the best of you! Don’t get too far ahead and focus on researching the essential parts of the property.
Draining All Of Your Savings And Going Beyond The Budget
Spending all of your savings on the down payment and closing costs of the house is one of the biggest mistakes a first home buyer could make. Before starting the house hunting process, meet with a lender or a mortgage broker so they can explain to you exactly how much money you will be able to borrow. You are not only eligible for a home loan, but there are also many first – time home buyer programs that can assist you.
There will be nothing worse than buying a home that will be way out of your budget. You will be offered a spending limit for a reason, so don’t settle for something that you won’t be able to repay. This can lead to first home buyers raiding their emergency savings, which can affect you in the future.
Builders charge a margin on top of every material used or tradie contracted to do a job. If you want to save a few dollars, you could try organising your own painting, landscaping, installing carpets and flooring, and installing blinds. However, keep in mind that these things can only be done after the builder has completed construction and handed the keys over, so the additional time it takes to get these items completed will mean it takes longer before your house will be ready to live in.
Misunderstanding Dimensions On Plans
Floor plan dimensions and areas can be calculated in different ways and builders often indicate floor areas to give the appearance that their design is larger than the competitors. Room dimensions can be taken from the middle or edge of the wall, and total dimensions may or may not include the areas under the eaves. All this makes it difficult for buyers to make a fair comparison between different builders’ designs. Beware of this when comparing designs.
A true ‘turnkey’ house package should be ready to rent or live in, including a TV antenna, clothesline, floor coverings, wall paint, window treatments and rear landscaping. Unfortunately, some building companies advertise a product as turnkey without all of these necessary items. Ask for a breakdown of all the inclusions and make sure everything you need is included in the turnkey package.
It is exceedingly difficult to compare houses from different builders to determine which is better value for money. There are so many differences between a house quote from one builder to another, including; the specifications, materials, method of construction and the roof beams. At the end of the day, pick a design that you like within your budget that ticks as many boxes as possible.
Not Clearing Up Construction Time-Frames
Many big building companies overwork their supervisors, often stretching them to manage 30-40 builds at one time. The result is supervisors who haven’t enough time to effectively control quality and manage trades. This leads to projects blowing out well and truly beyond the 5 or 6 months promised by the sales rep. Ask about build times, how many projects the supervisors will be handling and ask for client references. The last thing you want is to be told your house will take 6 months, and it then ends up taking 2 years.
Site works costs are estimated by the builder before you sign your contract, and this is generally referred to as a Provisional Sum item. Unfortunately, some builder sales reps in the industry deliberately under-estimate the site works costs to reduce the overall price and win the deal. After the contract is signed, the site works get quoted up properly and the buyer then finds out that they have to pay thousands more than allowed in the contract. Always ask for a detailed breakdown of the site works provisional sum and get a second opinion if you have any doubts.
Spending Money Before The Mortgage Closes
As exciting as it may be for first home buyers to start buying furniture, home decor, appliances and so on for your new house on a credit card, it is a huge mistake to do this before your loan has been approved. The lender’s decision is based on your debt-to-income ratio and your credit score and keep track of it right up until the closing day. So if they see that your credit score has fallen or your debt-to-income ratio has gone up, they can delay or even cancel your mortgage closing. To avoid this, wait until after the closing to do any big spendings. This only includes getting a new credit card.
Don’t be tempted to spend more on the fit-out than is really necessary. Instead, try to think like an investor and only upgrade on items if they add to the value of the property, make the house more durable, or will increase the rental value.
We often see buyers wanting to overspend on fittings, appliances, structural changes and upgrades for an investment property. Keep your choice of upgrades limited to only those that add to the value of your property or increase your rental yield. If you’re going to have renters in your property, ensure you have landlord insurance such as that provided by RACV to cover damage to your investment that could happen during this period.
Not Using Developer Bonus Items Or Getting A Property Inspection
Why pay for something you don’t have to! In some new land estates, developers are including free items, such as; landscaping, fencing, rebates on solar power, and rebates of the price of the lot. It pays to research the different development estates in the area you’re looking at buying to see what’s on offer.
It is helpful for first home buyers to hire a professional home inspector who will be able to find any problems with the house. It can be a worthwhile investment you make to avoid you with any problems in the future and save money on any major repairs. They can help with discovering any issues such as structural faults, plumbing, wiring, insulation and many other issues that may be unnoticeable to you.
Buying a first home is going to be one of the biggest financial transactions you make, so you want to make sure if your dream home is actually the right place for you.
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