The biggest mistakes first-home buyers make, and how to avoid them

I’ve helped a large number of Aussies save and invest to be able to buy their first property. I have seen the emotional rollercoaster they must endure before the “sold” sticker gets smoothed over the for-sale sign.

Here are some very common mistakes first-time buyers make, and how to avoid them:

Not making use of government grants, discounts and schemes

There are quite a number of different grants, discounts and schemes for first-time buyers, and while that will mean doing your research, it’s time well spent if it means you save thousands (or more) on stamp duty or tax (if you are using the First Home Super Saver Scheme, for example).

Make sure you check what the limits and rules are for the state or territory you’re buying in, as they can vary.

• Check out Domain’s first-home buyer’s guide here

Not getting pre-approval

Pre-approval is effectively the bank saying that, in theory, they would lend you up to a certain amount of money to buy a property. It’s very important you have this in place before you start your property search, so you know your limit and are able to move fast, if needed, to secure a property.

Pre-approvals generally only last a certain time, so make sure you know when they expire.

Banks generally still need to value the property to make sure the amount they are lending is in line with market value, and they may want additional information. Working with a mortgage broker can be handy to ensure there are no surprises along the way.

• Find out more about pre-approval here

Buying over budget

When property markets are tight and there are several people desperate to make the same property their own, budgets can fly out the window, fast.

Auctions are the most exhilarating and terrifying experience for new buyers. Emotions can quickly take over, and all too soon your paddle is up for a price much higher than you were originally prepared to pay.

Sit down and figure out a few different price points and what each of those would mean, practically, for the rest of your life.

If your upper limit means you can no longer go on holidays or need to sell the car to make the mortgage work, is that realistically going to work for you? If not, reset the limit.

Having someone else bid for you can also be handy to make sure you stick to your price.

• See more on how to set a budget for your first home

Not thinking about ongoing costs

If the last few years have taught us anything, it’s that we need to have a buffer in our budget.

When you are figuring out your numbers, don’t forget to factor in things like strata, rates, water, maintenance and insurance, and have a buffer in your budget to cope with rising living costs or additional interest-rate rises. Even if you are taking out a fixed-rate loan, you want to have some fat in your budget for when your fixed-rate period ends.

Not accepting trade-offs

It’s fair to say that, unless your budget is large, you are going to need to make trade-offs when it comes to your first property.

Generally, if you’re buying it to live in, the trade-off is location versus space. If it’s to build wealth, the trade-off is growth (the property value going up) versus income (the amount of rent you receive versus costs).

Some careful thought should go into your personal property-buying brief before you start your property search.

Ask yourself: What’s the purpose of the property? What are ideal locations based? Look at what’s sold recently to see if that lines up with what you can afford. If not, are there fringe areas or different locations that could be considered?

Trying for perfect, all at once

There is a huge desire to want your new pad to look like something from the pages of a glossy interior magazine. The newfound freedom to paint walls and hang things where you like can very quickly see you want to throw out all of your existing furniture and buy new, exciting things for your new, exciting home. This can quickly lead to thousands of dollars of spending!

Prioritise what you actually need, look for second-hand or chip away at it slowly. Those thousands of dollars could instead be sitting in an offset account and reducing your interest repayments, meaning you could save years off your mortgage or have a financial buffer if needed.

Jessica Brady is a licensed financial adviser and runs affordable online money programs for people who want to learn how to be financially free.

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