The key to a successful home purchase is making informed decisions; this not only includes doing all the right things, but not making costly mistakes.
Being aware of common errors is a crucial first step towards successful homeownership.
9 common mistakes – and how you can avoid them
1. Not checking your credit score
Most lenders expect your credit score to be at least 650.
If your score is below-average, lenders may not approve your mortgage application. If your score is only average, lenders may be willing to grant you a loan, but you could be charged higher interest rates.
Expert advice
- Obtain free copies of your credit report; consumers are legally entitled to one free report every three months
- Certain factors relating to your credit history can have bigger impacts than others; consult with a mortgage broker or credit repair professional to assess your situation
2. Underestimating the total cost
The costs of buying a property go beyond the deposit, loan amount and interest you will pay on your mortgage.
There are several additional fees and charges; some will need to be paid upfront while others are payable throughout your mortgage term.
Expert advice
- Understand all potential expenses such as stamp duty, legal fees, inspection costs and mortgage application fees. Use online calculators or consult with a financial adviser to estimate these costs accurately
- Consider ongoing expenses like property taxes, insurance, maintenance, utilities and potential strata fees
3. Not applying for mortgage pre-approval
Pre-approval is a conditional agreement from a lender to lend you a specific amount of money to buy a property. While it does not guarantee they will give you this amount, it does indicate they are likely to.
Pre-approval allows you to search for properties within your price range. It also gives sellers some assurance that you are a serious, and financially capable, buyer.
Applying for a mortgage without pre-approval leaves you at risk of being declined if the loan value you seek is too high.
Expert advice
- Contact a mortgage broker to help you apply for home loan pre-approval
4. Not using a mortgage broker
A mortgage broker can help you apply for a loan and make informal enquiries on your behalf to multiple lenders on their panel. This gives you a greater chance of obtaining approval. Plus, as you may receive a number of offers from willing lenders, you could have more choice.
A mortgage broker can also help you compare various offers.
Expert advice
- Reach out to a reputable mortgage broker like Loan Station for expert advice and assistance
5. Not researching grants and concessions
The Home Guarantee Scheme is an Australian government initiative that helps buyers purchase a home. These government guarantees can help buyers purchase a property with as little as a 2% deposit, and without paying lender’s mortgage insurance.
Each state and territory also offers its own grants and concessions. If you are looking to buy a brand new or substantially renovated property in New South Wales, for example, or wish to build your own home in the state, you may be eligible for a $10,000 grant from the NSW government.
The NSW First Home Owner Grant also offers stamp duty exemptions.
Expert advice
- Research and understand the grants and concessions available to you
- Contact an experienced mortgage broker for advice on government assistance programmes and how you can apply
6. Not using a buyer’s agent
Real estate agents prioritise sellers’ interests, aiming to facilitate sales. Buyers should, therefore, consider engaging a buyer’s agent to ensure their interests are represented equally and to navigate the home buying process more effectively.
Expert advice
- Seek recommendations from friends, family and colleagues for recommendations of reputable buyer’s agents
- Meet with several buyer’s agents to understand their experience, approach and how they can meet your specific needs
- Understand the fee structure and ensure there are no hidden costs; clarify the services they provide
7. Buying at the top of your budget
When assessing a borrower’s serviceability, lenders add a ‘buffer’ of at least 3 percentage points (minimum rate set by the Australian Prudential Regulation Authority) to the minimum repayment amount to ascertain whether they can afford a higher instalment should interest rates increase.
But this buffer is not necessarily sufficient breathing room in the event you are faced with unforeseen expenses or an emergency. To give yourself some ‘wiggle room’, avoid buying at the top of your budget.
Expert advice
- Don’t feel that you need to buy a property based on the full value of your home loan
- Put away any money you may save from taking out a smaller loan in an emergency savings fund or use it to make extra repayments on your loan to reduce the principal amount and interest, and pay it off quicker
8. Not doing your due diligence
Buying a home requires due diligence to mitigate risks. Before signing any contract, prospective buyers must conduct comprehensive research to uncover potential issues that could affect their home and lifestyle.
Expert advice
- Examine the physical condition of the property. This includes identifying both minor defects—like cosmetic imperfections—and major structural issues
- Have professional inspections carried out for pests and valuation assessments
- Evaluate factors such as proximity to amenities, transport links and potential environmental risks
- Assess neighbourhood conditions and any planned developments to ensure you make informed decisions about future property value fluctuations
- Have a solicitor or conveyancer review your sales contract before signing it
- Scrutinise strata finances and management practices (if applicable) to anticipate ongoing costs and maintenance standards
- Conduct a final inspection before settlement to ensure the property meets the agreed-upon conditions of sale
9. Choosing a mortgage based on the lowest interest rate
The interest rate offered on a home loan does not factor in additional fees and charges that come with repaying a mortgage. Furthermore, even if a loan with the lowest rate is cheaper over the life of the loan, a higher rate loan may be more beneficial if it offers additional features or more flexible repayment terms.
Expert advice
- Consider the comparison rate as this includes not only the interest you will be charged on your loan amount but other associated fees
- Consult a mortgage broker to help you compare loans, including their terms and fees
Make informed choices
Avoiding common mistakes when buying a home can save you from financial stress and ensure a smoother, more rewarding homeownership experience. By thoroughly checking your credit score, understanding all associated costs and seeking pre-approval for your mortgage, you can set a solid foundation for your home purchase.
Additionally, working with a reputable mortgage broker and exploring available grants and concessions can provide you with better loan options and financial benefits.
Don’t let common mistakes hold you back. Reach out to Loan Station today and take the first step towards homeownership. Call us on 1300 46 46 11 or send an enquiry to book your consultation.