Common first-time buyer mistakes and how to avoid them

Buying your very own home is an exciting milestone but, because it’s also a lengthy and complex process, the dream can all too easily become a nightmare if you don’t have a thorough understanding of the process and what is required to make the transaction as seamless as possible.

Doing your homework is also important to ensure you make the right decision when choosing your new home because buyer’s remorse is not uncommon amongst first-time buyers and it’s usually because they don’t take the time to ensure they are thoroughly prepared.

The following are the most common first-time buyer mistakes:

1. Not having a clear idea of what you want

Although you may have a good idea of the type of home in which you’d like to live, there are a number of important factors to consider which could impact your daily life for years to come – and not necessarily in a good way.

Do you prefer a peaceful family-oriented neighbourhood or a vibrant environment with nightlife and the accompanying evening bustle? Should you be close to schools so as to minimise commuting time or would you prefer to be near a social entertainment hub? Do you have time to maintain a large garden or would a low-maintenance option suit you better?

2. Not being sure of your budget

Few first-time buyers can afford to pay cash and will have to pay a deposit and apply for a bond for the balance. But, unless you have at least a ballpark idea of how much banks are willing to lend you, you’re literally shooting in the dark in your search for a home. And not only are you wasting valuable time but also setting yourself up for disappointment.

The best way to determine your budget is by obtaining pre-qualification. This will not only give you the peace of mind that your credit record is in good standing, it also let’s you know how much you can afford to spend and the type of deal you can expect from a bank. Pre-approval also gets the application process started, which means that the transaction is already underway by the time you’ve found your dream home.

3.Buying more house than you can afford

It’s very tempting to buy a home right at the limit of your budget, but overextending yourself puts you at considerable risk if the unexpected happens and you find yourself in a tough financial situation. You’ll also have less wiggle room in your monthly budget for other bills and expenses.

4. Moving too fast

Buying a home is not a quick transaction and if you try to rush the process, it can cost you dearly later on. Rather pace yourself and map out your home-buying timeline as far in advance as possible. Take into account factors like how long you’ll need to save money, repair a poor credit score etc before you can apply for pre-approval.

5. Neglecting financial housekeeping before applying for a home loan

The two most critical requirements for a successful bond application are a good credit score with a track record of responsible debt repayment and being able to afford the monthly bond instalments.

And one of the key factors that banks will consider when determining affordability is the applicant’s income-to-debt ratio, so it’s always advisable to start reducing debt and closing unused accounts as soon as you even start to think about buying a home.

6. Neglecting to budget for the additional costs

6.1 Bond registration – conveyancer’s fee;

6.2 Bond registration – Deeds Office registry fee;

6.3 Property transfer registration – conveyancer’s fee;

6.4 Property transfer registration – Deeds Office registry fee;

6.5 Transfer Duty;

6.6 Home loan initiation fee.

7. Not shopping around for the best rate

Many people think that they’ll automatically get the best rate from the institution they’ve banked with for years, however, this is not the case. Shopping for a mortgage is like buying a financed car - it pays to shop around and compare offers.

The best way to do this is to use the services of a bond originator like ooba to source the best financing option. They don’t charge for the service and their access to multiple lenders enables them to negotiate on your behalf and to obtain the best deal.

8.Allowing their emotions to influence decisions

Buying a home is much more than just a financial investment; you are choosing the place that you’ll live in for years to come, raise your family and make memories so it’s easy to get too caught up emotionally when making decisions.

You’re also making one of the largest investments of your life, and a bad decision could have repercussions for years to come.

9. Not paying a large enough deposit

Paying too small a deposit is one of the most common regrets amongst first-time buyers as smaller monthly bond repayments will reduce financial stress down the line and also leave you with some money for unexpected costs when they arise as well as extras when needed.

10. Underestimating the running costs of a home

Unless you buy a brand-new home off-plan, it’s very likely that you’ll have to foot the bill for some repair or maintenance costs not very long after you have bought your house and you could quickly find yourself in hot water if you have drained all your savings to buy the property. You’ll also have new monthly bills like rates and home insurance.

In fact, it’s vital that both buyers and sellers take the time to ensure that they have covered all their bases and have a very clear idea of the final cost of their purchase or sale. Being prepared allows you to save money from the get-go whilst minimising the possibility of ending up with a mountain of unforeseen debt.

Self-employed applicants

The bond application process is even more laborious for self-employed applicants as they have additional criteria and if they aren’t prepared, applications can easily be delayed, or even declined, due to simple omissions or errors.

The most common errors are:

1. Not having all the necessary paper-work in order and up-to-date (latest financial statements, IT34, etc);

2. Not having their tax affairs in order;

3. Being unable to show a clear separation between personal and business expenses;

4. Not managing their income and expenses carefully in the months leading up to buying a home to demonstrate to the bank that have sufficient disposable income to afford the bond repayment;

5. Failing to include management accounts and cash-flow forecasts when the latest financial statements are older than six months;

6. Not checking their credit worthiness by requesting their free annual credit report from a Credit Bureau such as Experian.

In addition to doing your homework and familiarising yourself with the process, enlisting the services of a knowledgeable and experienced estate agent is also essential to successfully and seamlessly navigate potentially crippling administrative and financial minefields.

And it won’t hurt to show the property that you’re thinking of buying to close friends or family who know you well and will honestly advise you with your best interests at heart.