There are many milestones in life that we dream about. Buying your first car, landing your dream job, getting married, and buying your first home. Though each one has a heavy price tag, one of those milestones takes the cake ––buying your first home. Whether you’re buying your first home to live in, or your first investment property… You must take the necessary precautions and avoid the following four financial mistakes!
Buying with Emotion
As humans, we’re overly emotional when making big decisions. Be it your first investment property or your “forever home,” becoming emotionally unattached will help save your bank account.
You want a home that will appreciate in value and will be viewed as an asset! There are many liabilities in life, you don’t want this huge purchase to be one of them. One great way to build capital growth is by purchasing in an area predicted to grow.
Next, you need to ensure you aren’t overpaying for the property. While making emotional property purchases, we tend to throw all logic out the window.. Seek advice from professionals, discuss market value, and create an overall strategy.
Use this first home as a stepping stone to purchasing your next! Building your property portfolio will help build wealth. Then, once you’re financially set, you can purchase your true dream home.
Financially Overextending
Going back to the idea of purchasing emotionally.. One of the biggest things first homeowners tend to do is overextend their finances. Purchasing with their hearts versus their heads. This is where finance pre-approval comes into play.
By not borrowing too much in the first place, you avoid overextending! In other words, you needn’t borrow the full amount the bank allows. Instead, you give yourself a buffer! Which is detrimental to cover all of those unexpected costs.
Ignoring The Real Costs
Don’t fixate on the purchase price. If it’s suspiciously low, it is for a reason! There are many costs that go hand-in-hand with home-ownership.
You must consider stamp duty. This is typically around 5% of the purchase price. Additionally, consider conveyancing. There are many legal costs involved in purchasing a property. Then there are moving costs, council rates, insurance, utilities, renovations, maintenance, etc..
Not Doing Proper Due Diligence
Yes, purchasing your first property is exhilarating. But it’s also stressful. If you don’t have a proper strategy in place, this phenomenal wealth creator can turn into a financial nightmare.
Take this scenario into consideration. You find the “perfect home” at the “perfect price” in the “perfect location…” It’s a hot property and is going to be off the market fast. So what do you do? You make an offer immediately. Now the paperwork is done, and it’s time to move in. You’re sleeping in your new home but are suddenly woken by scratching inside the walls.. Rats! Your home is infested, but you didn’t take the time to conduct a proper pest inspection. Now you’re out of thousands of dollars and stuck with a gigantic headache..
Does that sound like a situation you want to find yourself in? Probably not. Ensure you concentrate on the less glamorous side of buying a home —-building and pest inspections!
If you do find something, you can use it as leverage and negotiate a lower purchase price! Or you can move on and find a different home.
Additionally, hire a lawyer to look over the sales contract before you sign. Your legal representative can also check the area’s council zoning and building approvals.
Finally, ensure your asset is insured! For protection’s sake and your mortgage’s sake.
In Conclusion
Everyone dreams of buying their first home, but not everyone is prepared to take the necessary steps to make it a reality. Use your head when making the purchase, think 10 years down the road. The home that looks perfect today may not satisfy your future needs. If you take the necessary precautions while purchasing, you can ensure that you’ll be able to upgrade down the track.