First home buyers have claimed their biggest share of new housing loans in more than six years, according to ABS Housing Finance figures.
Subscribe now for unlimited access.
$0/
(min cost $0)
or signup to continue reading
New data shows first home buyers made up 18.3 per cent of owner-occupier loans taken out in November, up 0.2 per cent from the previous month. This is the highest share for first home buyers since October 2012.
However, buying a first home can be daunting.
Steve Mickenbecker, group executive, financial services at financial comparison website Canstar said “prices in the Illawarra are still pretty high”.
“You’re at levels that look a lot like the smaller capital cities… It’s no picnic for first home buyers in the Illawarra,” he said.
“There are a lot of traps first home buyers can fall into that more experienced borrowers don’t.”
Therefore, Mr Mickenbecker has listed several mistakes new Illawarra buyers can’t afford to make.
Not knowing your budget
Shopping around for a new home before understanding what the banks are willing to lend can mean wasting time.
“First-home buyers need to ensure they have a clear idea on their budget before they go house hunting,” Mr Mickenbecker said.
“This will ensure the buyers are aware of what they can afford before getting hung up on a dream home beyond their means.”
Not saving for a 20 per cent deposit
While not all lenders require a 20 per cent deposit, falling short of this can be costly with buyers required to pay Lenders Mortgage Insurance (LMI).
LMI is an insurance policy that protects the lender from financial loss in the event that you can’t afford your home loan repayments and the sale of the property doesn’t cover the outstanding loan amount.
A financial institution will typically make LMI a condition of borrowing if the deposit for the loan is less than 20 per cent of the property’s value.
Mr Mickenbecker said for buyers unable to save a 20 per cent deposit, options to avoid LMI include a First Home Owner Grant (where relevant), having someone go guarantor, or simply holding off on any property purchases until a greater deposit has been saved.
Not understanding interest rates
Understanding interest rates is a must. Interest rates fluctuate and as rates rise so too will the monthly repayments.
To avoid this, Mr Mickenbecker said prospective buyers should read up on what’s influencing interest rates, so they’re not blindsided when rates increase. “In addition to understanding interest rates, buyers also need to factor in any annual fees on a loan,” he said.
Emptying your savings
Mr Mickenbecker said beyond the purchase price, buying costs first home buyers also need to consider include stamp duty, government fees, building inspections, transfer fees, solicitor fees, new furniture and more.
While having the largest possible deposit is great, he said Illawarra home buyers should be mindful of additional buying expenses and unexpected costs arising.
Not negotiating
Too often people rely on the home loans presented to them by lenders, though first-time buyers should take a proactive approach and research what is available in the market and be prepared to negotiate on the interest rate to avoid paying too much.
Mr Mickenbecker urged first time buyers to research home loans offered by a number of lenders, to ensure they’re in a position to make an informed choice.
“You never know if you don’t ask, so always asking your chosen lender for their best deal may yield savings that you thought weren’t possible or open your eyes to a loan you hadn’t considered previously,” he said.