By Richard Whitten, Senior Home Loans Writer at Finder
Buying a home is one of the biggest and most complicated decisions most people ever make. It's no wonder some buyers can be filled with a huge amount of trepidation.
In Finder's First Home Buyers Report 2021, over a thousand first home buyers were surveyed, and the results highlighted that buyer anxiety is very real. When it came to property anxiety, 48% of buyers said their biggest concern was paying too much for a home. Behind that were other common fears like not being able to make mortgage repayments, not being able to afford to buy in your dream location and the fear of throwing all your savings into one gigantic purchase.
These are all perfectly natural things to worry about. So, how can you forget about these concerns and feel more confident? Well, with some handy tips, a little research and a slight change in mindset, first home buyers can more confidently make a better decision.
So what are the things holding you back from buying your first home?
Overpaying for a property
Australian property prices seem to be constantly going up lately. No one wants to pay more than they should.
Feeling more confident is two-fold. First, you need to research comparable properties to the one you're buying, so you know you're not overpaying. Look at similar properties in the same neighbourhood or nearby. Note the prices and track properties in a real estate app. Soon you'll get a good sense of what's a reasonable price and what's not. This is probably the smartest way to avoid overpaying.
The second tip is really a mindset switch. If you're buying a home to live in for the long term (be it five years or 20), the price matters less than you might think. Don't worry about "overpaying". No one ever really "times" the market by buying low and selling higher (well investors do, but that's a different mindset completely).
Focus on buying a property you really like that suits your needs and buy it for a price you can realistically afford.
Once you're in the home and making mortgage repayments you'll stop worrying about the hypothetical value of your new home. You'll be too busy living in it.
Missing mortgage repayments
Being unable to make mortgage repayments is a big deal. If you can't repay your debt, then your lender will eventually prompt the sale of the property to recover its losses. But well before this happens, there’s a lot you can do to avoid this situation.
- 1. Buy within your budget. Know what you can afford to repay and purchase a home that fits within that budget. Going beyond what you can realistically afford increases your difficulties if your income dips or other sudden expenses pop up.
- 2. Save a larger deposit. It's easier said than done, of course, but the bigger the deposit the smaller your loan amount will be. This makes repayments more manageable. There are plenty of clever tools to help you save more.
- 3. future is to build up extra savings while you’re able to. Then keep some money aside to meet repayments if you suddenly lose your job or fall ill. Putting savings into an offset account attached to your mortgage has the double benefit of reducing your interest charges while the money is saved there.
Before buying, it's also a good idea to calculate future interest rate rises. Sure, your repayments are manageable now, but home loan rates are very low at the moment. That probably won't last forever.
If you're looking at a home loan with a 2.50% interest rate, check your repayments again with the same loan amount and a higher rate of 4.50%. How much more expensive is the home loan now? Doing this quick bit of maths on a home loan calculator will help you understand how prepared you are for the event that interest rates rise.
Missing out on your dream location
If you can't afford an ideal property in your dream location, then you really shouldn't stretch your budget too far (because you may struggle to make repayments).
There's really no way around this one. You either find a more modest property in the suburb you love or buy in the closest affordable suburb. Failing that, look elsewhere for a place that's similar to your dream location (except cheaper).
Putting all your savings into one big thing
This is another one of those anxieties that is hard to rationally overcome. It's totally normal to freak out about throwing what feels like all your money in the world into a single item.
If you're able to buy a property that suits your needs and is within your budget, then this worry should subside. You're hopefully making a sensible long-term decision.
If it helps allay your fears further, it's also worth changing the way you think about your mortgage debt. When you're a renter, every month of rent you pay is money that you'll never get back. But with a loan, every mortgage repayment is going towards building up your ownership of the home (minus the interest the lender takes).
That big debt will slowly but surely turn into equity. In other words, your debt is ultimately turning into wealth.
Just because buying your first home is a big decision, it doesn't mean it has to be a scary one. With a different mindset you can confidently buy your first home and enjoy the experience.