First home buyer mistakes: the traps to avoid before you buy

The most common first home buyer mistakes are easy to avoid once you know what to look for. They tend to cluster around four things: underestimating the true cost of buying, borrowing more than is comfortable, skipping the checks that protect you, and taking the first loan offered instead of comparing. None of these are about being careless. They happen because buying a first home is unfamiliar, and the costs and rules are easy to misread. This guide walks through the mistakes first home buyers make so you can plan around them before you sign anything.

The team at Finance Lab put this together to help you understand the path. We are credit licensed under Australian Credit Licence 389328. Nothing here is personal advice, and whether any loan, grant or scheme suits you depends on your circumstances and the lender’s criteria.

The quick answer: the main first home buyer mistakes

If you only remember a handful of first home buyer traps, make them these:

• Saving only for the deposit and forgetting the buying costs that sit on top of it.
• Borrowing close to the maximum a lender will offer, leaving no room for rate rises.
• Skipping the building and pest report, or signing the contract without a conveyancer.
• Taking the first loan offered instead of comparing the comparison rate and fees.
• Letting your credit report or spending slip in the months before you apply.

Each of these is covered below, with what the mistake looks like and what to do instead.

Mistake 1: only saving for the deposit

A deposit is the cash you put towards the purchase, and the loan covers the rest. The mistake is treating the deposit as the only number you need to save. The government money guidance service Moneysmart suggests a common savings goal is 20 percent of the purchase price, plus enough to cover the costs of buying. Those buying costs are real money, and they catch a lot of first home buyers out.

Stamp duty is one of the largest. It is a one-off state government property-transfer tax, and you typically need to pay it within 30 days of settlement. On top of that sit the cost of a conveyancer or solicitor, a building and pest report, loan application fees, moving costs and home insurance. The exact amounts depend on the state you buy in and the property, so confirm the current figures with the relevant state revenue office rather than guessing.

There is also the deposit timing trap. If you buy at auction, you can expect to pay a deposit immediately, for example 10 percent of the purchase price, on the day. That money needs to be ready, not still sitting in a term deposit you cannot touch.

It helps to keep a buffer beyond the purchase, too. Moneysmart suggests a good target for an emergency fund is enough to cover three months of expenses, so you do not have to borrow money if something unexpected happens after you move in.

For a closer look at how lenders measure your loan against the property value, see the guide on loan-to-value ratio. What is lvr first home buyer

Mistake 2: borrowing the maximum you are offered

Your borrowing power is the amount a lender may be willing to lend, based on your income, your expenses, your existing debts and the lender’s own criteria. A common first home buyer mistake is treating that maximum as a target. The figure a lender approves is a ceiling, not a recommendation, and borrowing right up to it leaves little room if your circumstances change.

The interest rate is the reason this matters. Small differences in a mortgage interest rate can make a big difference to the long-term cost of a home loan. A repayment that feels manageable at today’s rate may feel very different if rates move, so it is worth stress-testing the repayment against a higher rate before you commit, not after.

A realistic budget that includes the new costs of owning, such as council rates, insurance and maintenance, gives you a clearer picture than the lender’s maximum alone. A mortgage calculator can estimate principal and interest repayments and show how a higher or lower rate changes them, though the results are estimates and your actual repayments may be higher or lower.

Try the borrowing power calculator to get a working estimate before you talk to a lender.

Mistake 3: skipping the checks that protect you

This is where a small saving turns into a large risk. Two checks matter most, and both are easy to skip when you are keen and the property feels right.

Mistake 4: taking the first loan offered

Loyalty to your existing bank, or simply wanting the process over, leads many first home buyers to accept the first loan they are offered. The trap is that loans differ in more than the headline rate.

The number to compare is the comparison rate, which is a single figure for the cost of a loan that includes the interest rate and most fees. It gives you a fairer comparison than the advertised rate alone. Moneysmart suggests comparing lenders and getting a written quote personalised to your situation rather than accepting the first offer, noting an interest rate even 0.5 percent lower could make a difference over time.

It is also worth understanding the rate type before you choose.

Neither is automatically better; the right choice depends on your circumstances and how much certainty you want.

Watch out for paying for features you will not use. Some loan features could cost you more, so it is worth considering whether you will really use them before paying for them. An offset account or redraw facility can be valuable, but only if it suits how you manage money.

Mistake 5: ignoring your credit report and spending before you apply

Lenders use your credit score to assess risk, and a higher score means the lender will consider you less risky. The mistake is not knowing what is on your report until a lender does. Your credit score depends on the amount you have borrowed, the number of credit applications you have made, and whether you pay on time. A run of credit applications in a short window, or a missed payment, can work against you at exactly the wrong moment.

You have a right to get a copy of your credit report for free every three months, so checking it well before you apply gives you time to fix errors. In the months before applying, it also pays to keep your spending steady and avoid taking on new debts, because lenders look closely at recent statements.

Mistake 6: assuming switching later will be free

Some first home buyers choose a loan thinking they will simply refinance to something better in a year or two. Switching can make sense, but it is not free. When switching or refinancing a home loan you may face a discharge fee to close the current loan, an application fee for the new loan, a break fee if you are on a fixed rate loan, and lenders mortgage insurance again if your equity is below 20 percent. None of this means do not switch; it means factor the costs in rather than assuming the better rate arrives for nothing.

How a broker fits in

You do not have to navigate every one of these decisions alone. A broker can compare loans across lenders, explain the costs you may face, and help you build a realistic deposit and repayment plan around your circumstances. Whether any particular loan suits you still depends on your situation and the lender’s criteria.

If you would like a hand working through these traps before you buy, talk to the team at Finance Lab and we can walk you through your options.

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