by Paul McBeth
So buying a house is a piece of cake? Good Returns spoke to a real estate agent and a financial specialist about some of the things that they think home-buyers and borrowers commonly forget or get wrong.
Martin Shepherd, Auckland-based financial specialist in residential and commercial lending:
One "Not having their finances actually pre-approved: people often make assumptions about what they can borrow. That can be based on what their neighbour could borrow or another one is on the rental they're paying." Shepherd said that home buyers sometimes think they can borrow a certain amount because the instalments are a similar size to their current rent payments, when that's not necessarily the case.
Two "Property investors who don't give any thought to structures such family trusts or LAQCs (loss-attributing qualifying companies) to maximise taxation benefits or as "best practice" for protecting assets. Do they have a go-forward plan? If they're an investor, they're not only looking for finance to complete the purchase but a structure and a mortgage facility that will allow them to develop their investment portfolio."
Three "First home-buyers with low equity deposits, less than about 20 per cent, can be up for lenders' mortgage insurance, the fee structures may vary... Buyers need to be aware exactly what all the costs are. If you're a 90 per cent first home buyer, your choice of institutions may well differ from someone borrowing 50 per cent."
Chris Mulcahy, Wellington agent with Leaders Real Estate:
One "They don't understand the process and they don't trust the agents. Sometimes home buyers don't believe that we can be professional and honest: they think that we're all out to rip them off." Bottom line: if you don't feel you can trust the agent after checking their references, testing their negotiating skills and asking any other questions you need to, don't hire them in the first place. Once you've decided on an agent, let them get on with the job.
Two "Playing games, procrastinating: you'll miss out." There's such a thing as the sheep effect, Mulcahy says: he's seen buyers with a clear run at a property who don't do anything for a few weeks. Then, the minute someone else shows an interest, they'll think the property must be worth having after all, they'll get around to putting in an offer - and they'll often miss out.
Three The flip side to that is impulse buying, or buying out of desperation/frustration. You've had enough of looking or you jump in and buy something you really won't be happy with longer term. As Mulcahy says, "Real estate is nothing about houses, it's about psychology. Most people buy from the heart not the head".
Related articles:
Ready, set, borrow (common holdups on fast settlements)Moving house: it all adds up (costs associated with home-buying)