Whether you’re buying your first home, upsizing or downsizing, the process can be scary and stressful. Not to mention expensive. That’s why it’s important to be ready and aware of the biggest risks you can encounter when buying a home. By knowing what can go wrong, you can take steps to avoid it.
It’s no secret that Australia suffers from an undersupply of housing, which makes competition for available properties fierce. If you don’t have your finances pre-approved for a home loan, you run the risk of missing out on your dream home to someone who is ready to make an offer.
“We’ve seen this happen before,” says Mark Dawes, director of Richardson & Wrench South Sydney. “The market is so fast moving, you have to know what you want and be able to make a decision on the spot. If you see something you like, you have to move on it immediately.”
Overextending your finances
When determining how much you can borrow, you should consider your ability to service the debt. “Set a budget and stick to it,” says Dawes. “Don’t get carried away by the excitement of an auction and bid more than you can afford.”
Dawes recently sold an apartment in Sydney’s beach suburb of Coogee to a couple buying for their grown-up son. Their budget was $630,000 but ended up bidding $690,000 at the auction because they were tired of missing out at auctions. As a result, they had to lease the apartment because they spent more than they could afford to repay. Depending on your circumstances, the situation could be worse.
Forgetting about added costs
Most of us are so focused on the cost of the property when buying a home, that it can be easy to forget the added costs, such as stamp duty, state government fees, legal fees, mortgage insurance (obligatory for some home loans if you have less than 20 percent deposit), inspection fees, moving costs and utility connection fees. You should also be prepared for council and water rates, and strata fees if buying an apartment, as they may be due shortly after you move in.
Buying a house riddled with problems
You’ve fallen in love with the French windows or you’ve been looking for so long that you have home buyers’ fatigue – no matter what the circumstances, there is no excuse for buying a house without conducting a pest and building inspection.
“If you are buying a house, a building inspection is critical. For an apartment, do a strata search – it will tell you about the background of the building and how much is in the sinking fund,” Dawes says.
A building inspection can reveal any problems to the structure, roof, plumbing or electrics and give you an estimate of how much necessary repairs are likely to cost. Not only can such issues end up putting you out of pocket, they can also pose a risk to your safety and wellbeing after you move in.
Getting the wrong home loan
The variety of home loans available can be mind-boggling – RateCity.com.au monitors more than 2000 home loans. So you should always do your homework to ensure you find a mortgage to suit your needs.
Not all home loans are created equal. Upfront and ongoing fees can vary significantly from one mortgage to another, as can the features on offer so don’t fall into the trap of looking at the interest rate only. A simple way to compare apples with apples is to look at the comparison rate, which takes into account a number of fees, or use a free comparison website such as RateCity to compare home loans side by side.