Buying your first home is both a daunting and exciting experience. Not only are you entering into a sizeable home loan for 30 years or longer, you are also in a duel against time as property prices increase and your borrowing capacity contracts due to lenders constantly adjusting their Household Expenses Monthly (HEMS) in line with Consumer Price Index (CPI). Lenders have again increased their HEM’s in August 2024.
Here are some mistakes and costly oversights you should try to avoid.
Opportunity costs : Be finance ready – have a Pre-Approval in place and know the market you wish to purchase in. Always liaise with your finance broker to update your income and expenses which will determine your borrowing limit. First home buyers who may have had a Pre-Approval several months earlier must realise lenders are constantly reviewing their assessment criteria, so the Pre-Approval may no longer be valid resulting in a much lower borrowing limit.
Market Value : Do your research and due-diligence around the geographical area you wish to purchase. Your finance broker has access to valuable tools to assist that would give you a range value of the property you’re interest in. Start a” log book” for shortlisted properties to track their progress through to the final sale price.
Stale Property : A property that has been on the market for a while might be stale and have fewer interested buyers. Find out WHY. It could be run down, in need of TLC, or may have had undesirable tenants, easements or a sewer line that may prevent future development.
Wriggle Room : Competing buyers drive up the price. In a heated marketplace. A motivated seller and a
lack of competing buyers will generally give more “wriggle room”.
Analyse the ‘days on the market’, supply and demand of the property in the area, whether there is more than 1 agent selling the property, or has the property had previous selling agents who did not get a sale.
Budget : A common mistake is purchaser’s over-focus on the purchase price and overlooking additional on- costs. Ensure that you have sufficient funds available for the following :
- The deposit
- Your legal costs
- Government fees (if applicable)
- Disbursements on settlement (adjustments for water, rates and any Owners Corporation fees).
Bad Credit report : Arrange a detailed credit report to ensure that there are no bad credit issues. This can be a deal breaker for any finance application. Also, credit card limits can affect your borrowing capacity and an incoming financier may place a condition of approval that credit cards limits be reduced or cancelled. Be ready.
The Right Lender : There are the “Big 4” banks, second and third tier lenders. and the non-conforming lenders. It’s a common misconception that borrowing from the “big four” is safer than borrowing from the others. Banks don’t shut their doors. It’s only on rare occasions that a lender will stop operating because it has been acquired by a larger competitor. Also, smaller co- operatives are amalgamating into a competitive financier. Most of the second and third tier lenders offer competitive pricing and higher quality service. As your finance broker, I will provide you with various lenders’ product options that best suit your requirements.
THE OTHER BANK – “The Bank of Mum and Dad”
The bank of mum and dad is increasingly being used to assist first home buyers. At the same time, there are also concerns that senior Australians are being exploited financially.
Unlike the major lenders who would be protected by government regulations, the bank of mum and dad could certainly go broke through poor financial decisions or just bad luck.
Whilst most parents are happy to assist, others may feel pressured to do so and a handful may feel threatened (this could verge on Elder Abuse).
Some issues that may arise in parents assisting are :
- Fairness – if one sibling gets more assistance from parents than others
- Financial mess that can occur in a relationship breakdown. This could result in a large sum of money given to their child’s former partner.
- Issue of some children borrowing money from parents who don’t pay back.
- Becoming guarantors for “top-up” security to avoid mortgage insurance on their loan, then missing loan repayments thereby placing mum and dad’s property in jeopardy.
- Parents think it’s a loan and the children think it’s a “gift” or visa versa.
- Parents who may not be financially sound should never feel pressured to assist.
The Bank of Mum and Dad need to carefully consider all the potential consequences and seek independent financial and legal advice prior to assisting.
Tags: first home, homeloan, Tips