With housing stock levels up and interest rates falling, now just might be the time to take that leap and get yourself onto the property ladder.
Buying your first home is an exciting milestone but navigating the mortgage process can be complex. To ensure you make informed decisions, it’s essential to understand common pitfalls and, more importantly, how to avoid them. Here are the ten biggest mistakes first-home buyers often make and advice on sidestepping them.
It’s tempting to accept the first mortgage offer, especially when you’re eager to buy, but that’s not always the best financial move. Different lenders have different rates and terms, and even a slight difference in interest rates can save you thousands over the loan’s term.
How to Avoid It: Speak to multiple lenders and consider working with your Threefold mortgage adviser, who can compare rates, terms, and fees. A Threefold adviser can provide insights into a broader range of options, ensuring you secure the best rate possible.
Focusing solely on the purchase price can be misleading. While the house price is the primary expense, there are also hidden costs to consider, such as legal fees, building inspection fees, insurance, rates, moving costs, and ongoing maintenance. These can add up quickly and catch you off guard.
How to Avoid It: Create a comprehensive budget that includes not only the deposit and mortgage payments but also these additional costs. Be prepared for these extras by setting aside a buffer in your budget.
Without a mortgage pre-approval, you might waste time looking at homes that are out of your budget, and you may lose out to buyers who have pre-approval in place. It’s also common for sellers to favour buyers who are pre-approved, as it indicates financial readiness.
How to Avoid It: Get pre-approved before you start house hunting. This will give you a clear picture of your budget, set realistic expectations, and position you as a serious buyer.
Buying a home can be emotional, leading many first-time buyers to stretch their budget for a dream home. This often leaves little room for emergencies, interest rate hikes, or other unexpected expenses, putting financial stress on homeowners.
How to Avoid It: Work out a realistic budget before you start looking at homes. Factor in potential interest rate increases and your future financial goals. Aim to keep your mortgage repayments at no more than 40% of your monthly income.
The type of mortgage you choose can have a significant impact on your finances. Some buyers choose lower initial rates without considering whether a fixed or variable rate might be better. Others don’t take advantage of offset accounts or the ability to make extra payments.
How to Avoid It: Understand the different mortgage structures and features, such as fixed vs. variable rates, offset accounts, and flexible repayment options. Your Threefold adviser can explain how different features work and help tailor the mortgage to your needs.
Interest rates are not fixed and can increase, resulting in higher repayments. Many buyers assume rates will stay low throughout the loan’s term, but this can be risky.
How to Avoid It: Consider fixing your interest rate for a certain period to provide stability in your repayments. If you opt for a variable rate, have a plan in place to handle rate increases. Build an emergency fund that can cover any potential rise in monthly payments.
Many first-home buyers can withdraw from their KiwiSaver accounts to help with their deposit. However, some miss this opportunity due to lack of understanding.
How to Avoid It: Review your KiwiSaver status early on and consult with your KiwiSaver provider or your Threefold adviser to understand how much you can withdraw. This additional funding can make a significant difference to your deposit.
Banks typically promote their own mortgage products, which may not always be the best fit for your unique situation. Limiting yourself to one lender can reduce your options and might not provide the best interest rates or loan features.
How to Avoid It: Consult a Threefold mortgage adviser, who can offer a range of products from different lenders. This will help you access a broader selection of loans and ensure you’re getting the best possible deal.
In the excitement of finding a home, some buyers skip a thorough building inspection, thinking it’s an unnecessary expense. However, this can lead to unexpected repair costs, which could impact your budget.
How to Avoid It: Always get a professional building inspection, even if it seems like an extra cost upfront. A detailed inspection can reveal hidden issues and give you negotiating power. If significant problems are uncovered, you can ask the seller to make repairs or lower the price.
First-home buyers often focus solely on getting approved for the mortgage, overlooking how it aligns with their long-term financial goals. Changes in income, family growth, or lifestyle shifts can make the mortgage unaffordable in the future.
How to Avoid It: Before committing to a mortgage, consider your long-term plans, such as career changes, family planning, or potential relocations. Align your mortgage terms with these future goals to ensure you’re not overcommitting financially. A Threefold adviser can help you consider different scenarios and select the right mortgage structure.
Buying your first home is a significant step, and while it’s easy to make mistakes, you can avoid these pitfalls with careful planning, budgeting, and expert advice. By understanding your options and approaching the process strategically, you can secure a mortgage that not only meets your current needs but also supports your long-term financial well-being.
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The content of this article should not be taken as financial advice, or a recommendation of any financial product. These insights are based on current economic commentary, market pricing for interest rates, and our personal opinion. Threefold is not liable or responsible for any information, omissions, or errors present.
