5 Mistakes by First Time Home Buyers (And How to Avoid Them)
After you have scoped out the neighbourhood, scrimped and saved enough for your first down payment and found your custom kitchen and perfect patio you’re trading the world of rental apartments, condos and town homes for one of the biggest financial commitments of your life: Your first home.
Owning a home has long been the quintessential symbol of achievement, with that being said buying a house is not as easy as you may think. As it turns out, this dream can quickly turn into a financial nightmare if you're not careful.
Even middle-aged professionals, who may otherwise be financially savvy, still make rookie mistakes. Recent college grads fall victim to this as well by considering the investment of owning -- as opposed to throwing money away into renting without worrying about the details.
Knowing the dangerous mistakes ahead of time in the buying process might mean the difference between building financial security and digging your own grave of debt. If you're scared the home buying nightmare might make a financial fool of you, continue to read the next points carefully to save yourself from a debt disaster.
Here are some tips that might help you avoid headaches and heartache before you sign the dotted line.
#1 Underestimating the Costs
First-timers should save months in advance and budget for the money they’re sure to spend. These expenses include:
Closing costs and fees: Be ready to spend about $5,000 in closing costs alone. That’s because, as a buyer, you’ll have to pay for certain fees like attorneys, lenders, appraisals, titles, and inspection fees. Keep in mind Property Transfer Tax, Property taxes, and GST (if you are purchasing a newly constructed home)
#2 Making a Huge Purchase Before You Buy Your Home.
Hold off on that new furniture set or American Express card until you’ve actually moved in.
Why? Because lenders are going to check your debt load before closing and if you’re on the hook for a massive last-minute purchase, it could kill a deal.
Many loans are approved based on a specific debt-to-income ratio and minimum credit score. If you go purchase a Mercedes a few days before closing, and the dealership pulls your credit, your score could be affected, your ratio thrown off balance and you’ve just blown yourself out of qualifying for your mortgage. It may be best to keep everything status quo during this time.
#3 Going Solo
Time is money, right? So maybe you’ve decided to save on both by looking for and buying a home yourself. After all, who needs an experienced real estate agent or reputable lender when you have your mouse and keyboard at your side?
A lot of people.
Local agents have the know-how and experience to navigate the oft-stressful home-buying process. They know the market and can provide buyers with information about their neighbourhood, such as average utility rates, schools and crime and will cost you nothing to have them assist you in your buying process.
#4 Skipping the Home Inspection
When facing closing and moving costs, one might be tempted to skip out on paying for a detailed home inspection.
You may think it doesn’t matter when you first move in but a quality inspector can identify what’s causing that crack in the basement, or trace the source of those damaged roof shingles. Unlike someone who is just a roofer or just an electrician, good inspectors will climb the roof, traverse the attic and go under the crawl space to find the things the buyer won’t see on the surface.
In turn a house doesn’t have a check engine light. You might think it looks OK because there are no telltale signs but there could be a problem you’re unaware of and the inspector has to look at everything.
#5 Not Getting a Pre-Approved Home Loan
It's easy to fall into the trap of thinking you first find the house you want, and then you can start thinking about the loan process, especially if you've already taken care of your credit. However, it's not quite that simple.
It's a good idea to put yourself in a seller's shoes. As a seller, you may be taking in several bids, especially in today’s current Vancouver market, and trying to cipher through and compare them; you may not base it solely on amount.
As the seller, you've already put a lot of time and effort into selling your home, and you'd like to finish things up without too much hassle and delay -- especially before those other, more legitimate-looking bids move on.
For these reasons, sellers prefer bids from prospective buyers who already are pre-qualified or pre-approved for a loan. Some sellers may refuse to consider you at all unless you've got a pre-approval letter from your lender. In addition, some realtors won't even show a property to a buyer without this pre-approval.
As you now are more informed on your way to successfully owning your first home, feel free to contact us for any additional or more in debt help.
We love nothing more than helping out new homebuyers through what could be a nightmare into a joyous and memorable occasion.