First home buyer mistakes… I’ve made a few. It’s inevitable. There is no one source of truth and you receive conflicting advice from everywhere. From people you know to financial institutions and every smart-arse on the internet. It’s not unusual to get swept up at the moment and rush through some big decisions that are not all financial. Being a first time home buyer, you assume everything will work out. And usually it does. But it might cost you some serious money along the way.
Here Are 9 First Home Buyer Mistakes to Avoid
Please don’t stop here…. See how to avoid home buyers remorse after buying a house. read on.
Mistake 1: Don’t Believe in the Concept of a “Dream House”
Buying your first home is an emotional purchase. You can become overwhelmed and overpay because you “NEED” this place. In the process, you can overlook obvious flaws with dream-home related scenarios swirling around in your head. As a first time home buyer, you can forget about the logistics of everyday living. Is the place you are buying big enough? Has the place got enough storage?Is there enough storage available? Is the yard a good size for a pet or child? Did you notice the drug dealers next door (true story) All of this can and does get missed.
Your emotions and “dream house” ideas need to be turned down and/or disconnected. Be forensic in your evaluation, know what you need and what to look for. Even create a list. And most importantly, be willing to walk away from a sale or auction. There are always more houses out there. So never overpay because this house is “the one” and know there are a million more just like it. The reality is, any house you end up buying will be your dream house. As a new home buyer, you need to make sure it is the right dream house for you and your family.
Mistake 2: Don’t Buy a House You Can’t Live in for 10 Years
As a first time home buyer, how far ahead have you thought about your life? Your plan should align with where you think you will be in 10 years time. When I bought my first home, I was just married. I knew a kid or two was on the cards relatively soon. I needed a little yard, three bedrooms and lots of storage. The plan was to buy a home where I could live for as long as I could, or until we were bursting out of the place.
I decided that 10 years in the place would give me enough time to smash my mortgage, build equity and prepare for the day I would need to buy a bigger place. 10 years was a nice, even number to work towards. In the end I didn’t make it to 7 years but we were already running out of room after 5. We just had to make do and manage the best we could.
This was pretty good when I compared that time frame to other first time home buyer friends in a similar situation. They lasted around 2 years. Unfortunately, these people were buying small, 2 bedroom places for a higher price range in nicer suburbs. They moved in, life was grand. Then they had a kid and had to sell. Some moved back home with their parents, some rented for a while instead. They didn’t plan that far ahead. If they did, they may have chosen something that could have saved them some time and money. Who wants to buy houses or move more than required?
Play the Long Game… Aim for 10 Years
As I got older, I would see this continue to happen. I would tell younger friends and relatives that were looking to buy their first home. “Try to find a place you could live in for 10 years” I would say. I would explain why and what I had seen first hand along the way. And I saw the same story unfold. They would buy a shoe-box sized apartment, have a baby and sell shortly afterward. But guess what? Try sell your tiny apartment and get a good price. Chances are, there is another development being built nearby. Good luck with that.
You need to play the long game and ask, could I live here for 10 years depending on my future plans. Even 5 years is better than the eventual 2 years I have seen again and again. Ask yourself – could I live here for 10 years if needed. Am I thinking far enough into the future.
Mistake 3: Don’t Chase the Hot, New Home on the Market
When the market is hot, a new property is like fresh meat for potential buyers. Open House Inspections are insanely busy and ultimately, someone with more money than you will get that house. You rack up soul crushing defeat after defeat, wondering why you can’t get into the market. These defeats can make you more reckless, get emotional and make mistakes. If you keep losing and can’t get into the market without over-paying, you need to change your strategy.
When you are battling cashed up buyers for the new hot listing, you have no leverage. You can’t compete in that environment, as some other dummy will just throw their cash at the seller. You will never win that battle unless you are that cashed up dummy. I realised this after I was getting nowhere trying to buy my first home. After multiple defeats, I changed my strategy to stack the odds in my favour.
The Strategy is to Look Where Others Are Not
From that point, I decided to not look at the newest listed houses on the market. I would instead look at the oldest listed houses. Sounds obvious, but the hot, new places would sell straight away. You want to look for the houses no one wants. People may think, what is wrong with the place? Sometimes there is nothing wrong. Maybe a buyer fell through at the 11th hour and the seller now wants a quick sale. Or attention was diverted to other, nicer places when the property was new and now it’s been on the market for a while it’s being overlooked.
There is an opportunity if you think differently from everyone else. Re-visit the houses that didn’t grab you right away. Spend time looking into these and forget about the new places on the market. If you do, you have the leverage to offer a cheap price and you can negotiate hard because there is no competition. You have the power. I have done this twice and it works. Look where no one else is looking and you will find gold….on the cheap.
Mistake 4: Don’t Trust a Real Estate Agent
A Real Estate agent is a salesman. If he wasn’t selling a house, he’d be selling you a car or a TV at JB Hi-Fi. They know how to sell and they know how to play you to get the most out of you. My first property, the Real Estate Agent haggled with me for 2K extra. It was almost embarrassing, we had already walked away and said we didn’t want the place anymore. We could sense there was some monkey business afoot. Then they came back asking for 2K more. Really?
Real Estate Agents also use the classic, “I just had someone sign paperwork and put in an offer for that home 5 minutes ago”. That happened to me and my BS detector went off . It was 8PM on a Tuesday. I wondered, was someone really just at the office or are you putting pressure on me to create some urgency. You get the same line at JB HI FI when the sales guy says, “that’s the last one in stock”. Or “a guy is on their way down now to buy this right now”. I’ve experienced both lines and walked away and guess what, it was never true.
The bottom line is, the Real Estate Agent isn’t your friend. He’s there to extract as much money from you as he can. He’s not lying, he’s making a living. All you can do is play the game and don’t believe the bastard.
Mistake 5: Don’t Buy a “Dump” to Fix Up
Unfortunately, I fell for this one. We bought our “dream home” for cheap compared to other homes in the area. But it would require some work. We knew that going in and I was fine with that. I just never realised the enormity of it until we moved in. We’d need to renovate EVERYTHING. The kitchen. The bathrooms. The carpets. The tiles. Then the reality sets in. Do I have a spare 40k for bathrooms? Will I ever have spare money to renovate my kitchen? Do I need to go on a house swap reality TV show to get a complete reno? If you can’t do that, you could be stuck in renovation hell… forever!
My God, will I be renovating my entire life? By the time I finish, do I need to start again? Finding money for renovations with kids in school, mortgages etc, is difficult already. So at least try get a place that may require a little love and not a complete make-over. Unless you’re a handyman and you can do this yourself, go ahead. If you are a computer nerd like me, you have no hope and your dream home becomes a money and time hole. Don’t buy a dump.
Mistake 6: Don’t Buy an Apartment off the Plan
This could be controversial. With so many high rise apartments being built, it seems like the best and easiest way to get into the market. And maybe it is. There are always blocks of apartments going up and there are plenty for everyone. There is no real competition to get one. So you roll up, point at one on a plan and it’s yours. Dream accomplished. Woo. Why is it so easy? Should you be suspicious?
I have seen first hand, multiple apartments that were bought off a plan. All from different builders, and the result has never lived up to the expectation. You are sold the dream and then get something which is below what you expected. I have horror stories firsthand. Cheaper appliances swapped in. Apartments built smaller than specified on the plan, on a smaller piece of land. You wouldn’t believe the dodgy practices of these builders.
The most common complaint is “the place is smaller than what I thought”. Other issues I know from family members include wrong carpet colour. Wrong tiles. Wrong sinks installed on the wrong walls. Complete flooding due to bad plumbing. When you are spending that much money, you have to make sure you get what you paid for. These days, they build apartments fast and cheap. If you insist on buying one off the plan, get a building inspection. Save yourself some grey hairs and/or hair loss.
If You Must Buy off the Plan…
This is terrible and the young new super excited couple will walk into their new apartment, go wow, brand new. And move in. Completely oblivious to the shonky build. That is why I insist, if you do go this way anyway, please, please, pleeeeease, get an independent building inspector. They will find every fault and ensure you get what you paid for. I have seen people unwilling to part with $500 to ensure their 500k+ investment was built properly.
Mistake 7: Don’t Bother Getting a Mortgage Broker
The thing about mortgage brokers is they do “everything” for you. Get you a great rate, get your paperwork ready, tell you where to sign and lodge your paperwork for you. This is great if you want to be lazy about the process. It doesn’t cost you anything and they get paid by the bank. So the service is free and you get what you paid for…
I’m sure there are many great, competent mortgage brokers. I just haven’t met any. How do you know if they are good unless you have direct experience with them? I dealt with a mortgage broker for my first home and it was a disaster. This broker was recommended to me by my brother, and my sister swears by him to this day. My opinion has been tarnished because of my bad experience. I remember shitting myself at the 11th hour because of my broker. I vowed that I would NEVER use a broker again.
Let Me Take You on a Journey….
When I bought my first home, I had a professional mortgage broker filing my paperwork. Everything seemed under control until I received a phone call. I had to re-submit paperwork urgently because there was a mistake. We had to do it ASAP to make the settlement and resubmitting forms can take time. My forms had to join the queue for processing as the bank’s internal mortgages get priority. The wait was terrible. It was a scary moment as I wondered if I would lose my new home.
I also wondered about the competence of the broker. The paperwork was his job but it was all ok. The paperwork had cleared. I exhaled a huge sigh of relief. Then at the 11th hour, there was another issue where somehow we were 20k short for settlement. Something monumental was stuffed up. The stress was unbearable. I could feel the hair falling out of my head. How was I going to get out of this one? I didn’t have 20k laying around. Luckily we had someone to lend us that money. We dodged that bullet. But I was still furious. I couldn’t believe it. How could this happen? That was when I made my mind up about mortgage brokers.
When I bought my second property, I knew I wouldn’t waste my time with a broker. I found a good rate and went straight to the bank. I sat down, had a chat, and signed some papers. It was the easiest process ever. I refinanced my first property, got a loan for my second property and I didn’t even break into a sweat. It was so simple. That is why I say look online yourself, find the best rate and go straight to the bank. Why introduce a middleman? Keep it simple.
Mistake 8: Don’t Buy a Place and Then Go to Harvey Norman to Fill it with Crap.
Those interest-free deals sound good don’t they? Buy a nice big, brand new house and you end up with empty space. Well, you need to fill those rooms with something. And this is where Harvey comes into it. He has a way to buy a stack of stuff that you don’t need, it’s interest-free and you have 2 years to pay it off. How awesome is that?
That means you can move in, buy your huge TV, gourmet couches and furniture. Paying it off is tomorrow’s problem. The trap here is, real life catches up to you. Suddenly you have a huge debt to pay and your mortgage payments kick in. Your spare money is non-existent and you miss the deadine to pay for all your stuff. Then Harvey starts whacking you with back interest on the full amount you borrowed.
I have seen this happen a few times. You are already in debt a few hundred grand, so what’s another 20k to deck out your new place? Do not do this! Do you wonder how Gerry Harvey is so loaded selling overpriced furniture and appliances? Now you know.
Mistake 9: Don’t Rush into Anything
If you’re lucky, everything can happen so fast. But this can also mean your fast decisions may not be the right ones. If you’re impulsive, you’ll buy anything. Just slow down a little, ask yourself the above questions, and see if the first home you want to buy is really right for you. Think into the future, think about all possible scenarios, like schools for kids, walking distance to parks and shops. What do you really need, don’t settle and make sure the motherload of all debts is worth the effort of holding onto.
Summary
As I said earlier, new home buyer mistakes will happen. You don’t know what you don’t know so you will make mistakes. I wish I knew these things before buying my first home. Hopefully, my experience can save you some heartache and some money. Just to recap, don’t do these things when buying a new home.
1. Don’t believe in the concept of a “dream house”
2. Find a house you can live in for 10 years if possible
3. Don’t chase the hot new house on the market –
4. Don’t trust a real estate agent
5. Don’t buy a “dump” to fix
6. Don’t buy an apartment of the plan
7. Don’t bother with a mortgage broker
8. Don’t buy a place and then go to Harvey Norman to fill it with crap.
9. Don’t rush into anything
Are there any big mistakes I missed? Any I’m wrong about? I’m I being overly dramatic about buying your first home? My therapist says it’s good to talk about this openly. Let me know in the comments below
M. Moneyman
