Buying your first home is exciting – but, given it’s also one of the biggest financial decisions you’ll make, it normally comes with a side of hot terror.

Even when you’ve taken the first steps to figure out what you can afford and what exactly you’re looking for, low supply and plenty of competition can mean you spend many a Saturday night feeling deflated, angry and frustrated about something you thought was going to be an exciting endeavour.

I have helped hundreds of people sort out their financial world and get on the property ladder.

For most of them, the journey to find and secure a property is one that is much more emotionally draining than they were initially prepared for.

For others, it was clear they didn’t do all their numbers before they purchased, leaving them feeling overcommitted, stressed and genuinely unsure if they had done the right thing.

To make sure your homeownership journey starts on solid ground, here are the biggest financial mistakes to watch out for and how to avoid them:

1. Underestimating the true costs of homeownership

Many first-home buyers focus solely on the deposit and mortgage repayments, forgetting the extra costs that come with buying and owning a property.

Here are some costs you need to make sure you have considered:

• Stamp duty: This can add tens of thousands of dollars to your upfront costs (unless you’re eligible for concessions)
• Maintenance and repairs: Unlike renting, there’s no landlord to cover these. Can cost $2000-$5000 a year (or more)
• Rates, insurance and strata fees: All of these will add ongoing costs
• If you’re buying as part of a strata scheme, make sure you know the current strata costs (generally quarterly), and look to see if there is a healthy sinking fund or any special levy coming your way anytime soon

Before you buy, create a detailed cost breakdown so you know exactly what you’re signing up for. A mortgage broker or financial adviser can help estimate ongoing costs.

2. Taking on more debt than you can comfortably afford

I get it, a higher budget means you get more options. Maybe it means a place in your ideal location or somewhere that has just been renovated exactly to your taste.

But just because a bank approves you for a large loan doesn’t necessarily mean you should take it.

Many first-home buyers stretch their borrowing To The Max, only to find themselves struggling when interest rates rise, or unexpected expenses pop up.

Reality check

If rates increase by just 1-2 per cent, your repayments could jump by hundreds of dollars a month. Could your cashflow handle that?

The cost of living is rising, so make sure you’re not budgeting too tightly. If your basic costs went up what would that mean for your day-to-day cashflow?

You may be perfectly happy to skip going on holidays for a while once you get a mortgage. But if you know that wouldn’t work for you, will you have enough surplus to still travel (even if it’s less luxe than it used to be)?

Action

Stress-test your budget by calculating repayments at 2-3 per cent above current interest rates.

Trial sticking to the proposed mortgage amount to ensure it allows you to live comfortably, not just survive the next 30 years.

If you’re thinking about moving to a new location, I would always recommend staying there for a few weeks and doing your usual routine, going to work, etc. This will allow you to get a good feel for the area and if it will work for you.

Buying a home is a long-term commitment, and unexpected life events (job loss, medical expenses, or emergencies) can happen.

Without a safety net, a financial shock could force you to sell under pressure – or worse, fall behind on your mortgage.

Your financial safety net

• Aim to have three-six months’ worth of expenses saved as an emergency fund
• Build a cash buffer to cover unexpected home-related expenses (repairs, rate rises, etc.)
• Consider income protection insurance if you know you’d be in hot water if you’re income stopped due to illness or injury.

Stress-test your budget before buying to check you can actually afford that property. Photo: Pexels.com

3. Choosing the wrong loan structure

Not all mortgages are created equal. Picking the wrong loan features can cost you thousands over time.

Fixed versus variable rates Fixed loans provide certainty but may lock you in at a higher rate should interest rates fall. Variable loans offer flexibility but come with repayment fluctuations. You may be able to look at doing a combination of the two.

Offset accounts and redraw facilities Can help reduce interest payments and give access to extra funds when needed. Check the fine print to understand how exactly they work.

Going directly to your bank I would always recommend finding a good mortgage broker who has the ability to look at multiple lenders to find you the best deal. You want one who is going to negotiate not only at the start of your loan, but ongoing as well. The loyalty tax is real, and you need to make sure you are still getting the best deal every single year.

4. Letting FOMO drive your purchase

After losing out on a few properties you had your heart set on, hysteria can quickly set in.

It’s easy to panic and rush into buying a home out of fear of missing out. But buying the wrong home, in the wrong location, or at the wrong price can be a bigger mistake than waiting.

Common FOMO mistakes

• Buying a property in a poor location just because it’s “cheap”
• Ignoring hidden defects or red flags in a home due to market pressure
• Overpaying for a property just to “get in before prices rise further”
• Losing your cool at an auction and bidding over your set budget

How to avoid it

• Do your research Ensure the property suits your long-term needs and has good growth potential
• Get independent building and pest inspections A must before signing any contract. I have heard some horror stories over the years, so you really need to have a budget set aside for these
• Know your limits If a property goes over your budget, walk away. Another opportunity will come, or it may be time for a pivot to your strategy

Don’t rush in just because you’ve already missed out on a few properties. Photo: AAP

5. Forgetting about future goals

Your first home should suit your life plans for at least five-10 years. But many buyers focus only on their current needs, forgetting to consider:

• Future career changes Will your income grow, or will your job require relocation?
• Family plans Will the home be suitable if your family grows? Or will you be able to afford your mortgage on one income and parental leave?
• Exit strategy If you need to sell or rent it out, will it be attractive to future buyers/tenants?
• Consider location carefully Areas with good schools, transport and amenities tend to hold value better, also consider how adaptable a property may be, should your situation change in the future.

6. Relying too much on parental help without a clear agreement

Many first-home buyers are turning to the “bank of mum and dad” for financial assistance. Whether it’s a gift, loan, or guarantor arrangement, parental support can be a huge help, but it can also lead to complicated family dynamics and unexpected financial risks.

Common mistakes include:

• Not having a formal agreement If it’s a loan, are there repayment expectations? What happens if circumstances change? Get it agreed in writing.
• Parents risking their own financial security Acting as a guarantor means putting their home on the line. If you default, they could lose their property. They should seek independent advice before gifting or agreeing to anything.
• Unequal support causing family tension If one sibling gets financial help and another doesn’t, resentment can build, which isn’t ideal around the family dinner table. You want to have open and clear conversations within the family to avoid future conflict.

What to do from here

Buying your first home is a huge milestone, but it needs proper planning.

The best way to avoid costly mistakes is to educate yourself, seek expert advice and make well-informed decisions – not just emotional ones.

Your first home should set you up for financial success, not stress. Take your time, do your research and ensure you’re making the right choice for your future.

Jessica Brady is a qualified Financial Adviser and leading money expert. She is on a mission to educate and empower everyday Australians to be better with money through her online money programs and via the Financially Fierce Podcast. You can learn more at jessicabrady.com.au

This article is general advice only, all of the comments above do not take into account your objectives, financial situation or needs.

Before acting on any information, you should consider the appropriateness of the information provided and the nature of the relevant financial product having regard to your objectives, financial situation and needs. Jessica is licenced through Paragem Pty Ltd – AFSL 297276. ABN 16 108 571 875, Authorised Representative Number 001259972.

This article first appeared on View.com.au. Read the original here