The biggest finance mistakes made by first-time buyers
Many first-time buyers underestimate the fundamental role finance plays in property investment. Getting the right financial structures and lending solutions in place when purchasing a property can be crucial to your long-term success, and could mean the difference between achieving and missing your financial goals. Our Beginner’s Guide to Property Finance covers the essential aspects of securing and maximising lending opportunities as a buyer or investor, but here is a small insight into the finance mistakes to avoid when securing a loan.
Not preparing early
Whilst securing finance is the first step towards getting your foot on the property ladder, this step should start long before you apply for your first loan. As a property buyer, preparing your finances early is essential to maximising your finance opportunities, and failure to do so could leave you with limited lending options. Whilst budgeting to save up for that all-important deposit and keeping a record of your finances are vital steps in preparing for a loan, it’s also important to understand how your credit score, repayment history and existing debts could influence your borrowing capacity. This is especially the case with Australia’s recent move towards comprehensive credit reporting, which will see more financial information recorded in a borrower’s credit history.
Limiting your research to one lender
As a borrower, it’s important to understand that each lender and bank has their own policies and methods when it comes to calculating serviceability, meaning your eligibility for lending products will vary considerably between different lenders. In today’s volatile lending environment, it’s vital to research and compare loans from different lenders to ensure you’re selecting the best product and rates for your circumstances. As well as broadening your lending options, comparing different loans could help you make significant savings in interest, putting you in a better financial position to progress with your financial goals.
Choosing the wrong broker
Whilst many buyers recognise the benefits of using a mortgage broker to secure a loan, it’s also important to understand that not all brokers are equal. Mortgage brokers who lack training or experience in property can still structure your loan unfavourably or recommend a lending solution that doesn’t fully support your objectives. If you want to make the most out of your lending solution, it’s important to select a broker who has a strong understanding of property investment finance and the structures that support this. A good mortgage broker will take both your immediate situation and long-term property goals into account before recommending a lending solution to suit your needs.
Not understanding holding costs
Holding costs are a key financial obligation that many first-time buyers overlook when researching properties and lending solutions. As well as monthly mortgage repayments, buyers also need to consider additional expenses when it comes to assessing their financial limits, including costs such as property maintenance, land tax, energy bills and property insurance. Underestimating or failing to account for these holding costs before securing a loan is one of the most common factors that leads first-home buyers into debt, in many cases preventing them from moving forwards with their investment goals – or worse, forcing them into early sale.
As a buyer, it’s important to understand the difference between what you can borrow and what you can afford when selecting potential properties. By understanding your financial situation and the demands a specific property will place on this, you can ensure you’re not overextending yourself financially or researching properties outside your means.
Not reviewing your loan
Whilst you may have chosen the right loan for your circumstances when investing in your first property, this doesn’t necessarily mean this will always be the best lending solution available to you. In reality, your objectives, situation and (depending on your lending solution) the interest rates you receive will likely change over time. To ensure you’re still receiving the best rates and products for your circumstances, it’s really important to review your loan on a regular basis (preferably yearly) to ensure your lending solution continues to support your financial needs.
Download our Beginner’s Guide to Property Finance
If you would like to learn more about the steps and processes involved in securing property finance, our Beginner’s Guide to Property Finance covers a comprehensive range of topics and tips on how to maximise your finance opportunities as a property buyer. To find out more, fill out a form to receive your free guide today.