Top mistake first home buyers make and how to avoid them

There are numerous steps you can take to prevent making mistakes when purchasing your first property, ranging from early KiwiSaver comparisons to researching buyer’s agents.

We understand that there is a lot of information available regarding what you should do during your home-buying process. As a result, we’ve compiled a list of the top mistakes first-time home buyers make so you can avoid them.

Borrowing the maximum amount

When you’re looking to buy your first house, you would not be incorrect to believe it’s a smart idea to see how much the bank is willing to offer you. Once you get this amount, you may rejoice for a minute before proceeding to purchase your ideal home. Then you’re finished, right?

Just because the bank claims it can lend you a particular amount does not mean it is the sum you can actually afford.

Sure, they give you a figure depending on your earnings and financial position. However, you must evaluate how mortgage repayments may affect your present financial condition. It’s a good idea to step back a bit and examine your monthly costs. This might give you a better idea of how much of an impact a mortgage can make in your life.

A decent rule of thumb is to restrict your monthly mortgage payments to less than 30% of your average earnings. If you believe the sum you’ve been approved for is too tough to sustain during the term of the loan (don’t forget how long a house loan can be! ), it may be a hint that you should save some more money and raise your deposit size instead.

It’s also fine to wait a bit longer; this is your trip, and you want to be comfortable every step along the way. It is critical not to overextend oneself.

Not shopping around

Finding the first home that meets your requirements is a thrilling experience. You might envision yourself wandering through the corridors, sleeping in the bedroom, or watching TV in the lounge. However, it is critical that you do not allow your emotions to take over and make a decision before evaluating all of your possibilities.

Use price-finding tools to locate neighbourhoods that may be within your price range, and consult with a reputable local real estate agent to help you narrow your search. You may lose out on the next property if you choose the first one you like.

Neglecting loan pre-approval

Many first-time home purchasers do not get pre-approved for their first mortgage. A pre-approval statement from your bank provides a fantastic beginning point for your budget, and it also makes the purchase appear much more appealing to sellers because they know there is less chance of the deal falling through.

It may take a few days, but receiving a pre-approval letter as early as possible makes the entire procedure much easier.

Holding on to your debt

When it comes to debt, everyone’s situation is unique. The more debt you have, the less money you can borrow. You may, for instance, have a car debt, a college loan, and some credit card bills. Not only may this have an impact on your borrowing ability, but you should consider adding this existing debt to your mortgage obligations. This will almost certainly have an effect on your cash flow.

Not having a Plan B

We all want to believe that everything would go well in life, especially those times that we’ve been anticipating for a long time. Whether you utilise your Plan B or not (we wish you don’t), it’s useful to know what you would do if things do not go as planned.

Your circumstances may change suddenly, causing you to be unable to repay the loan. For example, if you’re buying a house with your significant other, consider what you’d do if something bad occurred to the relationship. It’s critical to understand how you’d make it work.

A great way to ensure you avoid these mistakes is getting expert advice. Gives us a ring and we can help you sort out the do’s and don’ts of buying your first home.

Invest or pay off your current mortgage?

It may be tempting to pay off your home loan early if you’ve received a fortune of cash or accumulated a significant quantity of money over the years. Whether or not paying off the mortgage early is a smart idea depends on the borrower’s financial situation, the rate of interest on the loan, and how near you are to retiring.

The six factors to examine are as follows:

  • The current market value of your house
  • Your mortgage interest rate
  • Home growth in your region
  • Your income tax rate
  • Inflation expectations
  • An anticipated rate of investment return

Paying off the Mortgage Early

Some homeowners opt to pay off their mortgage early, and the advantages vary based on the individual’s financial situation.

Retired people, for example, may wish to minimise or erase their debt because they are no longer generating an income from employment. In other situations, consumers may wish to reduce their monthly cash withdrawals by refinancing their mortgage.

Depending on the form of your current mortgage, you may need to verify with your lender to be sure there are no fines for paying off your loan early. Fixed-term mortgages, in general, would pay a ‘break charge’ if returned prematurely, but floating or revolving credit agreements would not incur these costs and may be settled at any moment.

One of the most significant advantages of paying off your loan early is the reduction in interest payments. You may save tens of thousands of dollars in interest payments. When you pay off your mortgage early, you are assured a return on your investment.

Paying off your mortgage quicker means you’ll have greater equity in your house sooner. This can make you eligible for refinancing, which can save you much more money over time. You may also be able to capitalize your equity through a home equity loan, which you may use to make renovations that raise the value of your property or to repay off another higher-interest loan.

Investing in the Market

If a homeowner is thinking about paying off their mortgage early, it’s worth thinking about whether part or all of the cash might be better served investing in the financial markets. For the final ten years of the loan, the rate of return on investment may surpass the rate of interest paid on the mortgage.

In other words, the capital cost, or the interest that could have been generated in the market, should be addressed. However, several variables must be considered while assessing an investment, including the projected return and the risk involved.

The potential of compound interest over time is something to keep in mind while investing. The earlier we begin investing, the longer we have to wait for compounding to take full effect. If you are willing to accept some fluctuations along the road, investing rather than having to pay extra on your mortgage may be a better option for you.

Investment Gains vs. Loan Interest Saved

If a homeowner chose to invest $100,000 rather than pay off their mortgage in ten years, they would earn $22,019 based on a 2% average rate of return. In other words, there would be no discernible difference between investing the money and paying off the 3.5 per cent loan.

With a 10-year rate of return of 7% or 10%, the borrower would earn more than double the interest saved from paying the loan off early even with using the 5.5% loan rate.

If you’re still on the fence about which option is best, you may not need to choose between paying your mortgage early and investing. Rather, you can take a two-pronged approach to reducing your debt and growing your wealth. To discuss the best option to suit your lifestyle, contact our expert mortgage broker.