7 Mistakes First Home Buyers Make! How Can You Avoid Them?

FHB 7 mistakes

Buying a home is one of the toughest life decisions. Making such a big financial commitment probably for the first time in your life with a very vague idea about the property type and location would not help you gain the best out of your investment to secure a healthy space for your family. The home buying process itself involves so many stakeholders and communication among these parties that are often not that clear. In addition, based on each one of our personalities we attain inherent behavioral biases in financial decision making, and real estate is one of them. When you put all these issues together, homebuyers run into the risk of making mistakes when buying their first property.

Based on our observations over thousands of clients, we have listed the few most common mistakes first home buyers are likely to make. In this article, we also discuss how these mistakes impact your financial outcome and what preparatory work you can do to avoid them.

Mistake # 1: Not knowing what comes first: Loan or Property Search?

First home buyers tend not to have an idea about whether it is the finance application or property search they should begin with first. When they think of buying their first home, they start their research from the online listing available at the time and even attend a few open houses for inspections without knowing if they can afford to borrow the money.

How can this impact?

When you find the property of your choice and you are not prepared, it might take a while to make decisions. When the property market is hot with too many competitors, chances are that they will miss out on the first property. Once you missed out on the very first property, you will psychologically treat this as a big loss. Every time you find a new property, you would develop a tendency of always comparing with the first property that you missed.

How to prepare?

Begin your home buying journey by speaking with a mortgage broker and find out your borrowing capacity. You need to work out your budget around this. Obtaining pre-approval prior to starting with your property search is highly recommended as your finance application can be influenced by issues other than your income and liabilities. Having a pre-approval in place gives you confidence when you are out on the market looking for a property.

Mistake # 2: Confused roles about mortgage brokers and real estate agents

There are so many parties involved in a single property transaction. First home buyers are likely to be confused with the roles of the mortgage broker and the real estate agents. They both are involved in the transaction but have clearly distinct roles. Selling agents act for the vendor, whereas your mortgage broker can help you as a purchaser. Homebuyers are so confused about their roles that they even ask mortgage brokers to let them know of potential properties if something came across!

How can this impact?

The confusion of the roles can make your asymmetric information flow and the chances of you making poor decisions are high. You may want to hear more from the agents, who in fact represent the vendor for the highest sales price possible.

How to prepare?

Real estate agents act for the vendor. They have a contractual obligation to act in the vendor’s vest interest and when it comes to negotiation on price, you are dealing against their viewpoint.

On the other hand, your mortgage broker is responsible for the finance side. They get paid commissions from the bank for originating the loans to them. However, there is no doubt that the mortgage brokers are more knowledgeable about the process and price negotiation than you. If you reach out to them for help, they cannot only help with finance approval but also can provide you with the tools, data and resources available.

Mistake # 3: Not knowing how to negotiate

First home buyers have less idea about how the negotiation process works in real estate transactions. They either come up with a fixed price discount mindset or percentage discount mindset or no discount mindset. Some buyers don’t even know that the property price can be negotiated.

How can this impact?

Without proper negotiation, your risk of paying high increases.

On the other hand, when you put a very low-ball offer in an attempt to negotiate hard, you may miss out on the property because the agents can consider your offer as a sign of low interest.

How to prepare?

By seeking professional help from the mortgage brokers, you can get information about sales history, how long the property has been on the market, why the property is being sold, how desperate the vendor is in his selling terms, etc. This will then give you an idea about the vendor and his selling circumstances. When you combine this knowledge with experienced negotiation skills, you would have a very good offer to start with.

Please note that negotiation does not necessarily mean the price only. You can put forward other contractual conditions as a part of your offer to make it more attractive even at a lower price. Experienced mortgage brokers at Capkon know how to script your conversation while negotiating.

Mistake # 4: Falling into sales tactics of selling agents

Real estate agents are one of the highly-trained salespeople in Australia. They train almost on a daily basis and they even have all the scripts practised every day. On the other hand, you are buying a property for the first time and your knowledge level may not be enough to deal with the sales agents.

How can this impact?

When you have less experience and you are dealing with the other party who possesses expertise in this transaction, the chances of closing a deal in your favour is quite low. The selling agents use several sales tactics that look very natural at the face value but unknowingly can take the whole dealing in a different direction. Overpayment of the price, less time for decision making, less favorable conditions on the transaction contract, etc are the negative sides of such unequal level negotiation skills with the selling agents.

How to prepare?

In order to improve your knowledge base and skill set while dealing with more experienced agents against you, you need to seek help from experienced people in this industry who have dealt with such issues on daily basis. Capkon mortgage brokers can help you with more than just arranging a home loan. They also add value to your property research and negotiation process. By seeking their help, you can gain some confidence while dealing with the agents.

Mistake # 5: FOMO: media, people

Fear of Missing Out (FOMO) is a big issue that can influence home buyers regardless of their experience in the home buying journey. Media constantly fuels the news about property prices growing day by day. This is further promoted and shared by sales agents and other industry participants, which can cause a sense of missing out if you don’t buy the property right now.

How can this impact?

FOMO influences people in making quick decisions without doing proper due diligence. When you are making quick decisions without any rationale behind it, chances of making a logical comparison is less and as a result, you may end up buying a property that is relatively sub-standard, or pay a relatively higher price and so on.

How to prepare?

You need to keep yourself away from the news and media, which we call the noise. Please focus on issues that you can control the outcome of. You need to have detailed research about the property type to accommodate family needs, location to match the convenience, discussion about your immediate goals and so on. Based on these, you can choose the location, property and price range accordingly and these are the things you can have your control over.

On the other hand, you cannot control the property and economic cycles and the media constantly reports these cycles which you might not have to worry about at all, especially when you are buying a property to live in.

Mistake # 6: Too much focus on rates, not showing the habit of the ongoing rate review

When first home buyers think of comparing different lenders, they think of interest rates only. But in fact, the lenders need to be compared on wider ranges such as service level turnaround time to meet your deadline, lender mortgage insurance if applicable, annual fees, interest rates, ongoing rate reviews, provision for streamlining of all your banking transactions, etc.

By checking on the internet and speaking to work colleagues, the home buyers easily get distracted on less-important things while missing out on the issues they should be focussing on.

Rather than chasing the sharper interest rate right now, the mortgage holders should instead develop a habit of checking on the ongoing rate review. You can ask your bank or mortgage brokers to have this reviewed at least every year.

How can this impact?

When you are comparing the lenders based on only one feature (interest rate), the cost of borrowing does not necessarily get lower. It’s not about how much interest rate you pay, but how you put the overall money management in place that can save you a lot of money in the long run.

In addition, you may also have to compromise on features and facilities that you may need during your home loan term.

How to prepare?

When you consult with mortgage brokers, you can have an open discussion about your needs and objectives. Based on that, the brokers find out the product that suits you. The brokers then compare different lenders not only for interest rates but also for all other features such as lender mortgage insurance, streamlining of banking, etc. This way, you can make sure that you are making a rational comparison for a better money management plan even after the mortgage is drawn down.

Mistake # 7: Finishing all the money. Not keeping any buffer

Buying a first home is an emotional decision and there are chances that you may stretch a little bit over the budget than you previously planned. This will result in extra contribution from you and cash crunch can be an issue afterwards. When you have used all the savings, there may not be enough funds left in the buffer for rainy days.

How can this impact?

When you have used up all the savings with low or very little savings in the account, this can create psychological pressure on you. When you are dealing with a very new situation and have a cash crunch situation, your excitement of moving into a newly-bought home may not be as much as it should have been.

How to prepare?

Budgeting is always the first step in your home buying decision. When you seek help from professionals, you would get an idea about how much funds are required and they also give you a guide about ongoing expenses after you move into the property. This will help you prepare for the saving reserve required even before you start looking around for a property.

When you are buying the property, it is also important to stick with your limit and not try to go above your agreed budget. Having an experienced mortgage broker by your side can help you keep yourself on track for this.

We discussed some of the most common mistakes first home buyers make when buying their first property. Since lots of emotions are involved in buying your first property, first home buyers show behavioural biases in decision making. As a result, they worry about things that they shouldn’t and vice versa.

Behavioural biases can lead to poor financial decisions and when you have a significant amount of money involved (home buying decisions for example), you cannot afford to commit this mistake. The good news is that you can seek professional help from people who have been working in this industry for years. You can balance your emotional push by their experienced rational pull to make a balanced decision.

Buying your first home is probably the biggest financial decision of your life and the quality of your decision greatly depends on the people you surround yourself with. Capkon has been helping first home buyers like you for the last 8 years and more than 1400 families have engaged us for their services. We have approved over $600 million in residential home loans and inspected more than 4,000 properties while helping our first home buyer clients with property research and negotiation process.

What Next?

You can gain knowledge about home-buying decisions and improve your odds by accessing free resources available online. However, if you think that you have limited time to go through all these by yourself and that you believe in practical experience is better than your knowledge, we highly recommend engaging one of our mortgage brokers for your home buying processes. The first step to begin the process is by booking a free phone discovery session where we get to know more about your needs and objectives.

If you are not ready to discuss over the phone yet, you can prepare yourself for the home buying process that we usually follow at Capkon. You can download it for FREE from the link quick cheatsheet HERE.

Wherever you are now in your home buying journey, we would always be grateful to help you all along. Also, wishing you the best for better money decisions.


Kiran Thapa

Ojashwi Sharma

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