Buying a home for the first time is an exciting time. You’re making quite possibly the most significant financial transaction of your lifetime.
While buying a home is something to celebrate, it’s important to do your homework. This experience is entirely new to you and the last thing you’d want to do is make a mistake that will cost you. Here are the five biggest mistakes first time homebuyers make and how to avoid them.
Mistake #1: Buying Too Much Home
Before heading out house hunting, it’s a good idea to get pre-approved for a mortgage. When you’re pre-approved, you’ll know exactly how much you can afford to spend on a home. Your mortgage broker is going to tell you the maximum amount you can spend, but keep in mind, that doesn’t mean you should spend the entire amount.
Take some time to crunch the numbers and see if you can afford the mortgage payments on a monthly basis. Don’t forget to take into account property taxes and condo fees (if applicable).
You’ll want to leave yourself some financial breathing room or you could find yourself “house rich, cash poor,” with very little money to save, let alone to spend on going out and vacation. By buying a home within your limit, you’ll be better prepared the next time life throws a financial curveball at you.
Mistake #2: Forgetting to Budget for Closing Costs
If you’ve never bought a home before, it’s easy to overlook closing costs. Closing costs are the legal and administrative costs you will need to pay when your house closes. They’re just a drop in the bucket, right? Wrong. While you typically only have to show 0.5% – 1.5% of your home’s purchase price to your lender, closing costs can add up to 4% of the purchase price. On a $350K home, you could be spending upwards of $14K in closing costs.
Your lender won’t cover these costs, so it’s your responsibility to put this money aside in addition to your down payment. Examples of typical closing costs include land transfer taxes, real estate lawyer fees and home inspection fees.
Mistake #3: Buying Based Solely on Looks
Have you ever stepped foot inside a house and it became love at first sight? You see everything you’re looking for in a home: granite countertops, stainless steel appliances and an open kitchen. You’re ready to make an offer right then and there. But before you do, take the time to look at the bones of the home.
I’m talking about the roof, windows, furnace and structure. Anyone can install a new backsplash in a kitchen or toss some fresh paint on the walls, but replacing something significant like the roof can cause a lot of stress. Don’t get distracted by the stuff that’s supposed to “wow” homebuyers. You want a home that’s sizzle and substance, not just sizzle.
Mistake #4: Skipping the Home Inspection
In a hot housing market, when you’re competing against multiple buyers for a house, you may think that including too many conditions can cost you your dream home. But what is worse than losing your dream home? Winning what turns out to be your nightmare home. For example, the home could have flooding issues. But if you don’t know the signs to look for you’ll totally miss it. That’s an expensive mistake.
A home inspection sounds like a lot, but once you get the report you’ll be happy you did it. This is especially important for older houses. The report will provide you with a handy checklist of all the things you should do to make sure your home is in great shape. Don’t cheap out on it.
Mistake #5: Not Shopping Around for a Mortgage with your Mortgage Broker
We comparison shop for everything from TV’s to vacations, but so many people just take whatever mortgage their bank offers them. There’s nothing wrong with your local bank branch being your first stop for a mortgage, but it shouldn’t be your only stop. By just taking the first offer, you’re likely leaving money on the table.
Buying a home is quite possible the single-biggest financial transaction of your lifetime. Let that sink in for a moment.
Your local bank may have the best mortgage, but you won’t know for sure without shopping around. And the best way to do that is with an experienced mortgage broker.
When you’re buying a home for the first time, you don’t have to be alone. When you leverage a team of professionals, including a mortgage broker, real estate agent and real estate lawyer, your first home buying experience is more likely to be a pleasant one, setting you up for financial success for years to come.
Tatum Neufeld, BComm
Mortgage Broker • Mortgage Tailors