Buying a home and taking out your first mortgage is often the biggest financial decision you'll ever make.
As such, it is no surprise that many first home buyers have concerns about the home buying process.
While some of their worries are valid, others are myths that they have heard from their family or friends.
Regardless of whether you're buying your first home or your tenth investment property, it's important to differentiate property market facts from fiction.
MYTH 1: “I shouldn't buy now as the property market will crash”
This myth is, arguably, one of the more common ones. Many first home buyers are scared to buy because they believe the property market is just days away from crashing. The reality is, the Australian economy is historically reliable and our property market is notoriously strong. While the rest of the world experienced a huge drop in property prices during the Global Financial Crisis, the Australian property market escaped relatively unscathed.
That said, it's important to note that our property market is also cyclical in nature. Meaning, it's perfectly natural that over a period time, property prices will fluctuate. As a property buyer, you need to understand that there will always be ebbs and flows in property prices. So long as you don't borrow more than you can afford, and you're diligent with paying down your mortgage, buying property tends to be a good decision - regardless of what is happening in the market at the current point in time.
MYTH 2: “I need to pay off all my other expenses before I can apply for a home loan”
While being debt free is always nice, you do not need to be debt free in order to apply for a home loan. So long as you can prove that you are capable of managing all of your debts, your lender will not dismiss your application for finance.
MYTH 3: “If my parents go guarantor on my home loan, they'll be out of pocket”
A lot of first home buyers wrongly believe that their parents will be out of pocket if they go guarantor on their loan. This is simply not the case.
A guarantor is a third party to a home loan. They can help you get a home loan by offering additional security support. Guarantors are generally limited to spouses or immediate family members.
If your parent goes guarantor on your loan, they do not have to pay the bank money - nor do they have to give you money. Instead, they put their property (be it their owner occupied or investment property) up as security for your loan. That said, if you default on your loan, your guarantor is responsible for paying back the debt.
MYTH 4: “I have a bad credit history so I can't get a home loan”
Some buyers believe that a bad credit history will stop them from obtaining finance. They worry that their financial reputation has been irreparably tarnished because they have missed the occasional bill payment. While a bad credit history can make it harder to secure a home loan, it doesn't make the process impossible.
MYTH 5: “You need a 20% deposit to buy your first home”
This is simply not true. While it's always good to have a decent sized deposit, you can still secure a loan with a 5% or 10% property deposit.
Your mortgage broker can help you find the right loan through the right lender for your needs.
MYTH 6: “It's cheaper to rent”
Some people believe they will never be able to get onto the property ladder because they cannot afford the mortgage. They also believe it will be cheaper to rent for the rest of their lives rather than buy and pay down the mortgage debt. Determining whether to rent or buy all comes down to personal preference.
That said, anyone who is putting off buying purely because they think it's more expensive than renting, is doing themselves a disservice.
Regardless of your situation, a defeatist attitude will not bring you closer to your dreams of property ownership. Realise that there is potential everywhere and your local mortgage broker can point you in the right direction.