04 Mar First Time Home Buyer? How to Avoid Mistakes
It’s spring and many first time home buyers are falling in love…with the idea of buying their first home. Thanks to Carola Singer, Senior Mortgage Associate for Verico Canada First Mortgage for preparing this important list.
Are you gearing up to buy your first place? Arm yourself with these tips to get the most out of your purchase and avoid making 10 of the most costly mistakes that could put a hold on that sold sign.
1. Not Knowing What You Can Afford – What the lenders says you can afford and what you know you can afford or are comfortable with paying are not necessarily the same. If you don’t already have a budget, make a list of all your monthly expenses (excluding rent). Subtract this total from your take-home pay and you’ll know how much you can spend on your new home each month. You should figure out what you are comfortable for a monthly payment and I can take it from there to see how much that qualifies you for.
2. Skipping Mortgage Qualification What you think you can afford and what the bank is willing to lend you may not match up, so make sure to talk to your mortgage broker and get pre-qualified for a loan before placing an offer on a home. Beware that even if you have been pre-qualified for a mortgage, your loan can fall through at the last minute if you do something to alter your credit score, like finance a car purchase. I always tell my clients not to take on new debt before possession date. If you want to finance a car or furniture wait until after you are closing your mortgage. Also changing jobs in the middle of a purchase deal can jeopardize financing as often people are on probation for three months and a lot of lenders require that one is out of the probationary period. In essence pre-qualification/pre-approval will give you a budget and protects your interest rate for a period of time. Mortgage brokers know what you need to provide for documentation to verify the info you provided. I request documents upfront for income and down payment so I can provide more detailed information to my clients. It’s better to be proactive than reactive and talk about different financing questions prior to an offer as far as qualifying, what term, variable or fixed. It’s not a one-size-fits-all. Everyone has different plans.
A purchase contract without conditions is a binding contract whether the buyer can meet financing conditions or not. It is extremely important to always put a condition of finance on any purchase offer whether you think you qualify slam-dunk or not. Not just the buyer has to qualify but the subject property as well. This protects the buyer if for some reason their financing goes sideways or the appraisal doesn’t match the value.
3. Failing to Consider Additional Expenses Once you’re a homeowner, you’ll have additional expenses on top of your monthly payment. You’ll be responsible for paying property taxes, insuring your home against disasters and making any repairs the house needs. If you’re purchasing a condo, you’ll have to pay maintenance costs monthly regardless of whether anything needs fixing because you’ll be part of a building strata. CMHC, Genworth, Canada Guaranty and lenders usually require a lot more documents on condos to check for reserve fund levels, potential special assessments etc. This is in the clients best interest.
4. Being Too Picky Go ahead and put everything you can think of on your new home wish list, but don’t be so inflexible that you end up continuing to rent for significantly longer than you really want to. First-time homebuyers often have to compromise on something because their funds are limited. I remember when we bought our first home I eliminated a lot of places because of coloring. If it’s paint, it’s easy and inexpensive to fix and you should be prepared for some maintenance as a homeowner anyways.
5. Lacking Vision Even if you can’t afford to replace the hideous wallpaper in the bathroom now, it might be worth it to live with the ugliness for a while in exchange for getting into a house you can afford. If the home meets your needs in terms of the big things that are difficult to change, such as location and size, don’t let cosmetic imperfections turn you away.
6. Being Swept Away Minor upgrades, cosmetic fixes and staging are inexpensive tricks that are a seller’s dream for playing on your emotions and eliciting a much higher price tag. If you’re on a budget, look for homes whose full potential have yet to be realized. First-time homebuyers should always look for a house they can add value to, as this ensures a bump in equity to help you up the property ladder. Also in a time where one might run into competing offers remember your top dollar. It doesn’t matter if you really want the house if it’s over your budget.
7. Compromising on the Important Things Don’t get a two-bedroom home when you know you’re planning to have kids and will want three bedrooms. Don’t make a compromise that will cause major issues in the future.
8. Neglecting to Inspect Before you close on the sale, you need to know what kind of shape the house is in. You don’t want to get stuck with a money pit or with the headache of performing a lot of unexpected repairs.
9. Hiring the right real estate agent,mortgage broker and lawyer Make sure you hire a realtor and mortgage broker you feel you can trust. It’s the biggest purchase and debt you will incur in your live and you want to work with someone who has your best interest at heart and is knowledgeable and committed in their industry. Are they doing this full-time and how experienced are they? Do they come recommended? Make sure the lawyer is a real-estate lawyer. If you don’t have a contact your mortgage broker or realtor should have a couple for you you can choose from.
10. Listening to the “experts” When you get advice make sure they know what they are talking about. There are lots of “experts” (friends, family, colleagues) out there with lots of free advice. Even though they mean well, they usually don’t have the extensive knowledge we do. They might see a mortgage that looks like a really good deal but don’t realize that the mortgage is completely restricted and has limited prepayment options. This is my job, to compare mortgages for potential pitfalls as well as perks over another. They might see a private listing for a home but won’t be able to pull the history on it like a real estate agent could.
There you have it. So forget Easter egg hunting- let’s go house hunting!