You’re about to buy your first home and that’s something worth celebrating! Good for you! But before you get caught up in the excitement of buying your first home, set yourself up for success by avoiding these first time homebuyer mistakes:
1. Not understanding how much you can really afford
There’s more to the cost of a house than simply the listing price. Consider interest rates, closing costs, property taxes, maintenance and utilities and you’ll notice the cost of your home adds up quickly. Calculate all of your costs and take them into account when deciding whether or not you can afford a particular house.
Identify what monthly payment you can afford rather than fixating on the maximum loan amount you qualify for at the time. Just because you can qualify for a $300,000 loan, doesn’t mean you can afford the monthly payments that come with it. Factor in your other obligations that don’t show on a credit report when determining how much you can actually afford.
2. Not getting approval in advance for a mortgage
Before you start looking at houses for sale, it’s a smart move to get pre-approved for a mortgage first. This will help inform your decision-making by identifying exactly how big a loan the bank is prepared to give you, but can also prepare you in the event of a bidding war. If the seller knows that you’re pre-approved for your mortgage, it shows that you’re a serious buyer and will put you in good stead than a buyer who is not pre-approved.
3. Draining your savings to pay for the down payment
Something that will help you in the long run is understanding that the larger your down payment, the more money you’ll save on interest payments. However, does it make sense to drain your savings to get that large down payment? There may be times when it does, but in general, it’s not recommended. If you empty your savings, you won’t have anything to support you in the case of an emergency. Save steadily for your down payment and always make sure you still have a reserve fund set aside for unexpected expenses.
Aim to have three to six months of living expenses in an emergency fund. Paying mortgage insurance isn’t ideal, but depleting your emergency or retirement savings to make a large down payment is even riskier.
4. Not interviewing a variety of lenders
Always consider all of your options. As you begin the process of getting pre-approved for a mortgage, don’t just go with the first bank who approves you. Fees and rates will vary from lender to lender, as will the services and products they provide. The more you shop around, the better basis for comparison you’ll have to ensure you’re getting a good deal and the lowest rates possible.
5. Not understanding Canada’s first-time homebuyer programs
The Canadian government offers something called the RRSP Home Buyer’s Plan (HBP), which allows qualifying first-time home buyers to withdraw, tax-free, a maximum of $25,000 from their RRSP to put towards a down payment. This program may be helpful to some but it’s important to understand the advantages and disadvantages. With the rising cost of housing in Canada, the $25,000 withdrawal may not be enticing enough when you consider that you will need to put all of that money back into your RRSPs to avoid paying a penalty. And while you have 15 years to pay the money back, if you default on the payment, you’ll have to pay tax on the outstanding amount. Consult with a financial professional to help you decide whether this program makes sense for you.
6. Failing to get a home inspection
The housing market can be competitive so it’s tempting for first-time home buyers to try to make their offer as attractive as possible. Waiving a home inspection may seem like a good way to show trust to entice the seller, but it’s not recommended. What if you make a purchase as large as a house, move in and then find that essential utilities aren’t working or that the home has engineering or structural damage? The cost of repairs could be hefty. You might save a few hundred dollars by not conducting a thorough home inspection but problems down the road could cost you thousands. So avoid kicking yourself later for not getting the home inspection done in the first place.
7. Not considering resale value
When you’re buying a house, selling that same house probably the last thing on your mind — but it should be. How do you know if a home will have good resale value? While there are no guarantees, consider how desirable the location is, whether there are good schools nearby and whether the layout of the home is appealing. While you may appreciate unique design features or quirky neighbourhoods, they may not appeal to everyone, narrowing the pool of potential buyers down the road.
8. Moving too fast
Buying a home for the first-time can be complex, particularly when you get into the weeds of the mortgage process. Rushing the process means you might be unable to save enough for a down payment and closing costs, address items on your credit report or make informed decisions. Consider mapping out your home-buying timeline at least a year in advance. Keep in mind it can take months — even years — to repair poor credit and save enough for a sizable down payment. Work on boosting your credit score, paying down debt and saving more money to put you in a stronger position to get pre-approved.
Avoid these first time homebuyer mistakes by speaking with a REALTOR®
It’s easy to jump right into the real estate market to check out your options and social media makes it so easy and fun to do! Before you place an offer or get caught up in a bidding war, speak with a professional REALTOR® to help avoid these first time homebuyer mistakes.
Contact a Fully-licensed REALTOR® today!
Looking for an experienced REALTOR® that specializes in real estate across Wellington County? At Royal City Realty we are focused on helping you unlock your future.