Tips for first-home buyers


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Some time ago I noticed this post on the Stuff website and although it screams of real estate agent babble, there are a couple of good points in there.  I also wanted to add some points of my own.

The 10 points in the original post are:

  1. Save, save, save
    • Yes, this is very wise. You’ll either be able to save money by borrowing less, or you’ll be able to purchase a much better property with less maintenance/repairs required and with better re-sale value.
  2. Research KiwiSaver funding options
    • Hmm. Maybe. KiwiSaver is being marketed as a panacea of first home buyers, but that’s not necessarily so. There are rules around withdrawing your KiwiSaver for your first home and these very rules might actually prevent you making the purchase.  It also takes a long time to get your KiwiSaver out, and in a seller’s market, you may have serious competition who do not need as long to arrange funding.
  3. Get mortgage pre-approval
    • Yes. At the very least you should have a general idea from your bank as to the price range that you can consider. Contrary to popular belief, having a pre-approval does not make you a cash buyer. The bank can withdraw their offer if your circumstances change, their lending criteria change, or the house that you have chosen is not suitable mortgage security. Always include a finance clause in your offer, or submit full property details to your bank prior to the auction so that you know you have finance before going unconditional.
  4. Write a must-have list
    • Yes, but be very reasonable and remain within budget. Some things may be non-negotiable and these are what needs to be on this list. It’s not a wish list – that can be an upgrade consideration at some point in the future.
  5. Be prepared to compromise
    • Really just a continuation from number 4. If you have a wish list then you may (you will!) have to give up something on that list to gain something else. You need to decide which feature you’d rather have.
  6. Look for opportunities to improve
    • Yes, but be careful. Kitchens and bathrooms cost a lot of money to replace. The article suggests living with a dated kitchen or bathroom until you can afford to replace it. Only buy a house that needs improvements if you are sure that you can either live with it the way it is, or you can actually afford to do the improvements. Also be careful that the improvements are only cosmetic and that you’re not going to be opening a can of worms!
  7. Assemble your team
    • Yes. Get a good solicitor recommendation early on. Make sure you heed their advice. This is a huge decision and an emotional one. Make sure you have an unemotional professional who can point out things that you may have missed. [I don’t even mind if you email me any questions you might have. I love helping people buy their first home or investment property. Your question could be one that others would also like answered.]
  8. Do your due diligence
    • Yes. This is where you get your building report done, sort your finance, discuss the LIM and title with your solicitor, and perhaps get a valuation (often the bank will require this as part of their conditions of lending).
  9. Get auction wise
    • Hmm. Maybe. If you’re in Auckland and you’re desperate to buy, then unfortunately auctions are a massive hurdle that you’ll have to contend with. I’d really rather that first home buyers didn’t have to tackle this hurdle because it is just so costly and risky. An auction is unconditional so you have to know everything that you need to know about the property prior to the auction. This costs a lot of money (building reports etc.) and there is a very high likelihood that you won’t win the auction. Coping with auctions really requires a separate blog post, so I’ll conquer the topic another time.
    • If there is any way that you can avoid auctions for your first home – e.g. you’re not in Auckland – do it! Put in a traditional conditional offer and take the time to talk to your solicitor and building inspector after you have the property under offer.
  10. Be prepared for disappointment
    • Oh yes! This one is definitely the truth, but there will be another, probably more suitable, home around the corner. Trust me, I’ve been there so many times!

And 5 more of my own:

  1. Learn how to deal with real estate agents
    • Understand that they are working for themselves first, then the vendor, and then the buyer. Real estate agents are not your friend, they are trying to earn their living. Don’t believe everything that they tell you and make sure you ask the right questions e.g. “is there anything that you need to disclose about this property?”
  2. Look at A LOT of properties before getting really serious about purchasing.
    • You need to know the areas and the values better than the real estate agent. This is your future home, it’s worth learning all that you can to make sure that you get the best value for your money.
  3. Learn how to do your own initial building inspection
    • Learn a little about construction methods and materials. Know how to identify monolithic cladding, asbestos, potential hidden problems (something that smells funny, or has a very fresh paint job). The odd rotten weatherboard is not the end of the world, but a damp monolithic house, or a house on a slope that appears to have subsidence issues might not even be worth putting forward for a building inspection report. Learn to rule some houses out yourself so that you don’t waste too much money on reports. Leave the potentially expensive repairs to the professional investors/developers. Your first home is not the one to take a big risk on.
  4. Learn how to spot a ‘P’ house
    • Methamphetamine is a real problem in New Zealand these days and whilst investors have been learning what to look for, the average first home buyer might not. A sad story here of how some Kapiti owners got caught out with a ‘P’ house.
  5. Be creative about ways to purchase
    • The reason I’m hesitant about suggesting that KiwiSaver is the best thing since sliced bread for first home buyers is that I have heard of parents combining with their children to purchase a rental property whilst the child still lives at home. KiwiSaver withdrawals stipulate that you must live in the house yourself and that you are purchasing it as a home, not as a rental. If you are able to purchase a rental property, perhaps not in a location suitable for you to live in (e.g. too far from your place of work) then you can have your tenants assist in paying down the property so that you can gain a foothold on the property ladder and amass a bit of equity. When the timing is right then you could sell that house and purchase one to live in. KiwiSaver will not allow you to do this and you also wouldn’t be able to withdraw your KiwiSaver for your eventual home either because you wouldn’t technically be a first home buyer. I think the rules are too restrictive in a property market that requires creativity.

 

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