Five financial risk to consider when buying property

It is easy to get lost in the excitement of buying property, especially if it’s your first. It’s the opening of a new chapter with new memories. However, this can soon turn sour if you have not considered the financial risks that come with buying a house.

To protect yourself, here are five financial risks you need to be aware of to ensure that your home buying process is not hindered.

1. Not crunching the numbers

There are ongoing property costs that extend beyond the price tag of the house that you need to be aware of. There are additional costs you need to be aware of, and these are additional to the purchase price.

You will have to pay for rates or land tax, depending on your shire or council rules. You also need to pay for statutory cost like stamp duty, mortgage registration fees etc.

If you do not factor these in before getting a home loan to secure your mortgage, you could find yourself under-financing your property from the get-go. Talk to your conveyancer or solicitor to get a good understanding of the total amount of funds you will need.

2. Failing to evaluate the property

If you are trying to skimp on finances by not doing a full professional evaluation of the house before you move in, you will be in for a truckload of problems that could burn holes in your finances.

It is important that before you move into a house you check it for any infrastructural problems, pest and roach infestations, and repairs that need to be done. There are some things that are best left to the professionals or else you will be left footing a hefty bill.

Using the help of an appraiser will help you know the value of the property and its condition, which will give you an insight into whether you are investing in a golden egg or a dud.

3. Skimping on home insurance

Insurance might be the last thing that people want to hear about, but when it comes to protecting your home, it is vital. According to the Australian Bureau of Statistics, 1.8 million Australian households have no house and contents insurance.

Your home is one of the most valuable investments you will ever make. It will also shelter the most precious items that cost you money to install into your house, and these can easily be snatched away with a break in.

Furthermore, your house could be damaged by natural disasters Homeowners insurance policy will have you covered for fire, theft, and hail damage which will give you peace of mind. The last thing you want is to have no house due to damage, but you still have to fork money towards your mortgage.

4. Going for something beyond your financial reach

Checking your home loan borrowing capacity is usually a good gauge of how much house you can afford. This process evaluates your financial standing and your current income and provides an estimate of what you can borrow.

Purchasing a house that costs more than what your lender is willing to offer is dangerous as this will lead to a major financial shortfall.

You also need to ask yourself if you would still be able to afford your home should the interest rate increase by 1-2%.

5. Ignoring the location of the property

Whether you are planning to stay in the house for a short or long period, failing to take its location into consideration can cost you financially. Purchasing a house that is not close to any amenities such as schools, shopping centres, and easy access to transport might make it harder to sell in the future.

Plus, the neighbourhood in which you buy your house in can affect the house value by 10%. It is important that you conduct adequate research into the house you are interested in buying.

A rushed process could leave you with a financial burden you will regret later. Take time to do your research and if need be engage a professional to assist you.

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This article via Your Mortgage does not constitute advice; readers should seek independent and personalised counsel from a trusted adviser that specialises in property, a tax accountant and property design specialist.