While buying your first home presents a big learning curve, homeowners seeking to upgrade to their next home don’t always get it right. Some of the common mistakes they make apply to all property purchases – other common mistakes specifically apply to purchasing a next home.
Let’s look at the common mistakes next homebuyers make and how to avoid them.
Not doing the research and being prepared
Having a clear picture of your financial situation and what you want from your next home is essential as a first step. Know how much you can comfortably borrow when buying your next home and getting pre-approval (especially if you intend to bid at an auction). While online calculators can help, an expert can help you determine what is feasible for your next home.
Also, research the area where you intend to buy if not where you currently live. Does the location offer what you are looking for, such as the quality of schools, crime levels, access to public transport and any potential zoning issues?
Part of preparing includes determining if you will sell your current home before upgrading or purchasing your next home before selling your current home. There are pros and cons for each scenario. If you sell first, you will know exactly what you have available to spend on your next home, but you might have to rent while searching. Prices might go up after you sell, or you might not find the home you want, keeping you out of the market.
If you buy before you sell, you can avoid renting while searching for your next home and being in a hurry to avoid renting too long. At the same time, you will need to pay two mortgages at once and might need a bridging loan.
Whichever way you choose to purchase your next home, you will want to consider the pros and cons beforehand.
Underestimating the total costs
Following the previous point, a common mistake is underestimating the cost of buying your next home. These include stamp duty, transfer fees, council rates, moving costs and home insurance. In addition, if you are selling your current home before buying your next home, you will need to rent during the interim period, which adds to the total costs of buying your next home.
Spending more than you can afford
Once you set a realistic budget, it can be tempting to go beyond it for an appealing, more expensive property. While it’s common to want more than we can afford, it can damage your long-term financial position. Consider the potential for future changes – such as rising interest rates – when determining what you can spend on your next home.
Not getting an accurate valuation
An accurate valuation will determine how much you can borrow for your next home. Lenders provide finance based on the loan-to-value ratio (LVR). If a lender’s LVR is 80%, they will lend you 80% of the value of a property. So if a property is valued at $1 million, the lender will lend $800,000. If the same property is incorrectly valued at $900,000, they will only lend $720,000 for the property, making the borrower come up with an additional $80,000 to make the purchase.
Lacking a building and pest inspection
It’s best to hire an independent inspector to examine your potential next home. A professional building inspector will uncover any minor and major issues that can lead to long-term problems. Consider the cost of rectifying the issues and whether major issues are “deal breakers” or need to be addressed before moving forward with the purchase.
Getting the wrong mortgage
This is a big one because getting the wrong mortgage can cost you thousands of dollars in the long run. If you approach a bank for a home loan, they can only offer you one of their mortgage products – even though it might not be the best deal in the market.
If you work with a specialist mortgage lender like Reduce Home Loans, you can get access to a range of home lending products and choose the right one for your needs. A specialised mortgage lender will also do all the legwork for you, including negotiating the best rate, ensuring the right documents and answering any questions.
In addition, if you buy your next home before selling your current one, a specialist mortgage lender can help you navigate the lending options, including bridging finance. If you plan to keep your first home as an investment property and purchase a new one, an expert can show you the options available.
Getting help navigating your next home purchase
Whatever stage you are at in getting your next home, Reduce Home Loans is here to help you get finance to meet your needs and situation. As specialist mortgage lenders, we are dedicated to getting the right loan for your needs, including the best rate.
Get in touch with us for guidance on getting finance for your next home.
Any statements are general in nature and do not take into account your financial personal situation, objectives or needs. You should consider whether any statement/s is suitable for you and your personal circumstances. Before making any financial decision, consider your circumstances and the product disclosure statement.