17 Nov 3 Common Mistakes a First Home Buyer Makes
Owning your own home is the ultimate Australian dream.
Whilst we all want to achieve this, it is somewhat disheartening to see how property prices skyrocketing before our eyes as we chip away huge chunks of our pay to save for THE deposit.
I have been there and done that and I know how you feel. But fortunately, the tide has changed now with the rises in interest rates and other factors/issues created on the back of the pandemic (which I am secretly thankful for because my mission is to help as many Millennials realise this great Australian Dream).
Mind you, this is not an economic essay so here’s what I want you to know to help you avoid mistakes and get to your home ownership much faster than you think:
1. Mindset resetting: an increase in interest rate is scary but it is your bestie.
Yes, you are going to be paying more for your repayments but on the flip side, there aren’t as many competitors out there going for the same property as you.
I can still recall how many people were at the inspections and having my heart broken because the real estate agent eyeing away from me as I whispered my budget out loud with embarrassment. The issue here is there were too many people wanting to get their hands on properties due to the low-interest rate (translating this to blank English: it was cheap to borrow to buy so why not?).
It is not as cheap now, so people are quite reserved about borrowing to invest. This means lower competition as there won’t be too many people with deeper pockets than you are fighting for the same property. On the downside though, I don’t expect there to be too many properties on the market. So the one that will be on the market is more likely to be the one that the owner cannot afford to keep (did anyone smell the bargain here?).
2. Getting your eggs to line up: get ready before you are ready.
Getting your finances sorted is the way to help you get into the zone of readiness. The ugly truth is you will never be mentally ready to buy. It is one of those psychological biases of human beings, so let’s beat that.
The first thing you can do is maximize whatever schemes out there to ensure you are working smarter. We work hard to save for our deposit so let’s be smart here.
The schemes that I really love are (1) the first home super saver scheme and (2) the first home guarantee scheme. The biggest mistake I have been over and over again is people neglecting the first home super-saver scheme (here is a link to watch how the first home super scheme works) and losing out on thousands and thousands of tax savings. We are talking up to $7,500 here so I let you decide whether it is worthwhile or not.
The other thing that you can do to help you get ready for the purchase is get a pre-approval through a mortgage broker. If your broker is telling you that it is not worthwhile getting a pre-approval as the interest rate is ever-changing, then you should look for another broker here. I strongly feel that the current market condition is perfect for a first-home buyer. If we wait, then we will fall into being one of the crowds and miss out again when the tide changes. You made it so far, so I hope you don’t miss out.
3. Getting a protection plan before you need it: making yourself invincible
Disclaimer, I am not telling us all to go and buy helmets and wrap ourselves in bubbles. What I mean here is to ensure we have a Plan B in place which simply says: ‘hey, what happens if I can’t work and bring in the paycheck?’.
The truth is we are all dependent on our paychecks. So logically speaking, it makes sense to ensure we ensure our biggest asset which is our body and our ability to earn an income. But obviously, we are irrational human beings that act on our emotions. Being young, we feel like we are bulletproof and nothing bad will ever happen to us. The other argument is it is too expensive and the ‘I can’t afford it’ excuse. Or I have covered within my super fund. Or worse, work cover, or Centrelink will cover me. You get the gest. The reality is it is easy to bury our heads in the sands than to act.
I have been in financial planning for over a decade and I have personally seen many lives that have been saved by personal insurance. Reframing this to ask ourselves, what will you do if you are going to experience a serious injury or illness and you cannot work? Are you okay with being forced to sell your assets? What other avenues are you going to source your income from? Are you okay leaving this universe in peace while your loved ones struggle with money?
The average insurance within our super funds arranges between $70,000 to $200,000 which is less than an average mortgage in Australia.
Work cover will only cover injuries within the workplace. Injuries can happen anywhere. It doesn’t discriminate.
Serious illnesses like cancer, lupus, diabetes, and leukemia are on the rise among young people. Money becomes sand when you are sick. It will shift through your fingers very quickly.
With more and more debts we are taking on as a nation, I am worried about the issue of underinsurance. I have heard from my clients of their friends creating Go Fund Me accounts to help them financially through their rough patch. Do you really want to be in that position? Do you want to protect your hard-earned wealth? If you said yes, I would encourage you to seek advice from a financial planner about getting personal insurance for a piece of mind.
This information is general information only. You should consider the appropriateness of this information with regards to your objectives, financial situations, and needs.
SOK LAY (Financial Planner & Trainee Mortgage Broker)
She is a financial wiz (the technical term is a financial adviser) with Master Your Money Now. She lives in what she refers to as ‘a zoo’ more than a house with her husband and three mischievous kids. In her spare time, she chases her kids and argues with her Lorikeets. She is obsessed with the Korean 7-step skincare and has a strange hobby of collecting cute water flasks/bottles.
Sok and Master Your Money Now are authorised representatives with Infocus Securities Australia Pty Ltd ABN 47 097 797 049 AFSL and Australian Credit Licence No. 236523.