The home buying process can be complex at the best of times. Even more so when it is your first time!
Small mistakes can lead to big expenses when dealing with such an expensive asset. And there are plenty of potential pitfalls along the way.
For many, this is one of the most important financial decisions you will make in your lifetime and it should be treated with care and attention.
In this article, we will summarise some of the most common first home buyer mistakes. So you know where to devote more of this car and attention.
A common theme throughout is to rely on qualified professionals when needed, including a competent mortgage broker to guide you through it all.
Common First Home Buyer Mistakes (And What to Do About Them)
1. Assuming Mortgage Pre-Approval is a Guarantee
Receiving an indicative pre-approval is a big step in the process, but is not a conclusive green light for your housing budget.
The completed assessment has looked at your finances, but not the asset you are purchasing.
Deals often collapse after a buyer has committed when the final valuation falls short, or the property type is flagged as unacceptable security.
To avoid this last-minute shock:
- Confirm your target property fits with the lender’s policies before making an offer.
- Look at similar recent sales in the suburb for similar properties so you can make an offer anchored to the market.
- Give yourself at least 14 days in your Finance Clause so there is time for a plan B.
2. Stretching Maximum Borrowing Limit
A bank’s pre-approval provides a maximum borrowing limit based on serviceability calculations.
A common first home buyer mistake is adopting this maximum loan amount as their target budget.
The bank assesses your capacity to repay at the market interest rate plus a buffer.
However, this could still result in burdensome repayments when you consider your household budget.
Just because you can borrow that much, doesn’t mean you should.
Especially if you are relying on overtime and bonuses to reach that level of borrowing.
This path can lead to mortgage stress early in your loan term if interest rates rise, or unexpected expenses (childcare, repairs) pop up.
You are most at risk of an impulsive decision while at an auction when emotions are running high!
If possible, these would ideally be avoided altogether. If that’s not realistic, then consider the following preparation:
- Bring a neutral third party who is not emotionally invested in the outcome to keep you grounded, or even bid on your behalf.
- Set a hard walk-away price, and actually stick to it. Another reason for the third party attending with you.
3. Miscalculating the Cost of Lenders Mortgage Insurance (LMI)
This has become irrelevant for many after the expansion of the First Home Buyer Guarantee Scheme (FHBG).
If you qualify for the program your LMI cost will be zero!
However, if you are ineligible and liable for LMI you need to budget for this in your cash contribution at settlement.
Yes, it can be expensive but must always be weighed up against the opportunity cost of not purchasing now.
You will need to weigh up the cost of the LMI premium and compared to any anticipated growth in the market.
While also considering the rent you will pay in the meantime, and the lifestyle benefits of being in your own home.
But this all starts with understanding IF you are liable for a premium, and if so, how much.
Our brokers can conduct a preliminary assessment for you to evaluate your eligibility for the FHBG, or your likely LMI premium.
Clock below to get started.
4. Misunderstanding Various Government Incentives
Assuming eligibility for a First Home Owner Grant (FHOG) or stamp duty concession without verifying the operational rules is a potentially costly first home buyer mistake.
But there are also plenty of other state based incentives for first home buyers. Especially if they plan to build a new dwelling.
Eligibility problems generally revolve around three issues:
- Ignoring price caps for the relevant scheme.
- Breaching occupancy rules. All programs have a requirement for how soon you must move in (usually 6-12 months), and how long you must reside there to be eligible (also 6-12 months).
- Failing to submit the correct paperwork on time so that approval can be granted in a timely manner.
This is another reason why using a broker is so important as a first home buyer so you have some additional guidance on all of these details.
5. Underestimating Closing Costs
One of the most common sources of shock for a first home buyer is when they are presented with a complete list of costs to settle a purchase.
Luckily, this is done very early as part of the preliminary assessment and pre-approval application.
It is not enough to have a deposit ready, you also the cash to complete the transaction.
Legal fees, contribution to rates, and stamp duty (if applicable) stack up fast!
Unlike LMI, which can sometimes be capitalised into the loan, you need to cover these in cash upfront.
As a general rule of thumb, you should budget 5% of the purchase price for your closing costs, unless you are eligible for a stamp duty discount.
Here is a full list of potential costs that should be quantified as early as possible.
- Stamp Duty/Transfer Duty (or the discounted concession amount).
- Legal/Conveyancing Fees.
- Building & Pest Inspection Reports.
- Lender Establishment/Application Fees.
- Valuation Fees (if applicable).
- LMI (Only fees that cannot be capitalised).
- Settlement Adjustments (pro-rata council rates, water, and strata levies).
6. Credit File Blemishes
In the age of Comprehensive Credit Reporting a lender can see your full repayment history on other loans, and credit utilisation on credit cards.
Most people know that a default listing would be catastrophic for your mortgage prospects, but even a late payment could be visible for up to two years.
Other less obvious issues can include multiple recent credit enquiries, older paid defaults, or large unused credit card limits.
Combined, these issues can restrict lender options and slash your borrowing power.
The good news is that your credit file is easily accessible free of charge. Our brokers can also walk you through each item so you understand your position.
Working with a broker adds a crucial layer of protection for your credit report.
They can conduct a soft credit check that does not leave a mark on your report until you formally apply for a home loan.
This actively preserves your credit profile until you are ready for a formal submission.
7. Risking Your Loan Approval After Conditional Acceptance
Many first home buyers may not be aware that a conditional mortgage approval can be rescinded if there are changes to your financial circumstances.
Once your contract of sale is unconditional, and your finance is pulled, you have a big problem on your hands.
A lender retains the right to re-assess your financial stability until the contract is unconditional.
Any activity that introduces new risk could trigger a review of the approval.
It is best to avoid any major life changes, or credit related activity, while awaiting settlement.
For example:
- New Debt: Avoid new credit cards, personal loans, and Buy Now Pay Later (BNPL) services. Any credit activity could be trouble.
- Employment Changes: Do not change jobs or reduce hours. Even an internal promotion and pay rise can trigger a review (this happened to me!).
So for 6 weeks, be as boring and predictable as possible in the eyes of the lender.
8. Relying on Online Borrowing Capacity Calculators
There are far too many variables between mortgage lenders to rely on a generic calculator when setting your target budget.
Yes, they can be a helpful starting point, we have one here.
But you need something much more tailored to your individual finances and product needs before you can make genuine decisions.
You could waste valuable research time and emotional investment in something that is beyond your means.
Banks regulated by APRA apply a mandatory serviceability buffers (3% above the advertised rate).
Whereas non-banks may have a buffer set internally that can lead to a vastly different outcome for your maximum loan amount.
There are also various forms of income (e.g. rent on an investment property), expenses, and liabilities that can be treated very differently from lender to lender.
To avoid disappointment and wasted time, start with a broker to go through a thorough preliminary assessment.
Know your number first, then inspect.
9. Loyalty to Your Everyday Bank
One of the most expensive first home buyer mistakes is assuming loyalty to your everyday bank pays off.
I get that it is familiar and comfortable, but you may be paying a premium for the privilege, unless you get lucky.
There are so many options out there that could lead to either a cheaper rate, more flexible features, or a higher borrowing limit, that you are doing yourself a disservice by not shopping around.
You could also damage your credit file by applying to your bank and being rejected.
Especially when there are other lenders who will accommodate your circumstances.
Ideally, you will have an awareness of the following prior to a formal application:
- Credit Policy Fit: Yes, you will need a mortgage broker for this. They know the policies of a panel of lenders and can place you to advantage. All at no cost to you!
- Total Cost and Features: Interest rate, establishment fees, and annual package fees must all be accounted for and matched to your needs.
- Approval Speed: Confirm current processing times to ensure they align with your time-sensitive contract deadlines.
10. Rushing Property Due Diligence
Standard contractual cool down periods vary between states, and some are also shocked to learn that in an auction there is none!
A key lesson for first home buyers is to ensure they have adequate timeframes for things like building inspections, strata reports, site surveying, finance, and any other due diligence needed for that property.
Always spelled out in the conditions of the sale contract.
Some agents will try and pressure you to commit to things that are not in your best interest.
Your best defence is writing all your conditions alongside your offer in a email, or signed document.
Never rely on verbal commitments.
Then, make sure your conveyancer is aware of them and check are explicitly stated in the contract of sale.
11. Signing Contracts Without Adequate Legal Review
At some point you are going to hear a selling agent will advise you that “your offer will be stronger if it comes with a signed contract of sale”.
Don’t fall for this tactic!
You need thorough legal review prior to signing a contract or you are likely to run into problems and will have no leverage to solve them.
Professional legal review is non-negotiable. Make sure you have a competent solicitor in your corner before you even go house hunting.
They must be ready to move fast as soon as you are considering making an offer.
12. Failing to Budget for a Pre-Purchase Inspections
Depending on what you are buying, you may need a range of inspections on the property before committing to the purchase.
This can include things like building and pest inspections, surveying, etc.
You will be required to hire qualified professional services for each and this comes at a cast.
Don’t be tempted to skip these just because the place looks ok.
Cosmetic finishes often conceal major issues such as active termites, structural roofing defects, or drainage and moisture problems.
When these structural defects surface post-settlement you may be responsible for major repair bills.
Make sure you:
- Budget the Fee: View the building, pest or other inspection fees as a mandatory transaction cost.
- Use Findings as Leverage: If major defects are found, use the findings to renegotiate the purchase price or demand the vendor remedy the fault.
- Be Proactive: You have to move fast to ensure completion within your negotiated due diligence period.
13. Skipping Strata Due Diligence (Units & Townhouses)
Strata-titled units are attractive to first home buyers who need a lower price point, or want to live closer to a major city.
Never skip a comprehensive review of a strata report, and ideally have a professional do this for you.
There has been a prevalence of apartment buildings with major structural defects in recent years.
Being caught out with this could be catastrophic for your finances with five-figure special levies not uncommon.
Treat strata documents as the building’s financial health check. Key items to scan:
- Sinking Fund Balance: Compare the capital works (sinking) fund balance against the 10-year maintenance plan. Is the fund significantly underfunded?
- Special Levies: Check meeting minutes for any proposed or approved special levy (current or planned).
- Defects: Look for repeated mentions of structural problems, particularly water ingress or concrete cancer.
- Insurance/Arrears: Review policy exclusions and large levy arrears owed by other owners.
If the building’s financial forecast is weak, you must price in a risk buffer or walk away.
Failing to review this paperwork guarantees painful future financial liability.
14. Loving the House, Not the Location
It is easy to fall in love with the idea of a house becoming your home, but don’t ignore the surroundings.
The location can affect your quality of life and eventual resale value, no matter how much you love it.
A great house in a poor location can limits years of potential capital gain and see you fall behind.
A few basic checks beyond the front gate are usually sufficient:
- The Commute Test: Drive the route at peak hour, or test out public transport to your workplace. Can you live with the time required and the experience?
- Zoning: Are you next to commercial or industrial land, or an area under review for rezoning? Review local council plans for the area before you commit!
- Insurance Risk: Verify the property is not in a high-risk flood or bushfire zone, which mandates steep and rising premiums.
- Walkability: Confirm proximity to essential services (shops, medical, public transport).
Try and schedule an additional inspection on a weekday, and not just the Saturday open home.
15. Forgetting Important Work From Home Considerations
If you work from home regularly I am sure space for a home office is front of mind when inspecting the property.
But what about the quality of the internet service provider available at the address?
Mobile phone coverage?
The walkability of the neighborhood when you need some fresh air away from your desk?
All of these things can cause huge frustration for those who work remotely and can push people to the point where they want to move!
A few extra checks prior to committing can make a big difference to your quality of life.
Seek Expert Guidance to Avoid FHB Mistakes
The best way to de-risk your first property purchase is to work with an expert who can hold your hand through each step of the transaction.
Our expert team at Gusto Home Loans can do just that.
If you are ready to find out your true borrowing power and eligibility for government schemes then start your fast, free online assessment below.
