Avoid These Top 10 Home Buying Mistakes
Buying a your new home can be exciting, enjoyable but yet stressful. Where do you start and do you need to do? Start by doing research on what not to do and avoid these home buying mistakes.
1. Failing to Use a Professional Real Estate Adviser
- A home is not only the greatest asset of your life but also the greatest investment. With any investment surround yourself with professionals to provide you with the proper information, to perform the due diligence and necessary contractual paper work required to protect you. A real estate sales representative has the education, knowledge and expertise to guide you through the home buying process hassle-free and ensure that you are protected.
2. Window Shopping for Homes You Can’t Afford
- Everyone wants the grand house or chic modern open concept loft, however most buyers don’t know if they are able to afford it. It is critical that a buyer knows not only what they can afford (Down Payment and Mortgage) but also their credit rating. By knowing these components you are able to establish a maximum home purchase price, what you are expected to put upfront known as the down payment and what you require your lender to provide you for your mortgage amount. Knowing how much you are able to afford can allow you to set expectations and narrow down your home search criteria, saving everyone time and resources. Getting a full mortgage pre-approval from your bank or broker will help you understand how much you are able to afford. A mortgage pre-approval is a commitment from the lender that states the purchase price and your interest rate and is guaranteed for a specific amount of time, usually 90 to 120 days.
3. Not Revisiting Your Target Neighbourhood a Few Times
- It is critical that you view the home at different times of the day and at night, on the weekday and weekend. Most home showings are done on the weekends or at night time during the weekday where traffic is less congested or businesses around the area are closed. Make sure you visit the home and area during these times as well to ensure that there are no unforeseen surprises. Some examples are strange smells coming from businesses only open during the work day, loud trains rolling by in the middle of the night and unforeseen traffic congestion during the morning and evening rush hours. You want to ensure that you are comfortable with not only the home you purchased by the neighbourhood of your choice.
4. Not Knowing Your Credit Rating
- Not everyone qualifies for a mortgage or is willing to lend the entire amount, and it all depends on your credit! Your credit rating is important for acquiring a mortgage from your financial institution and can tell you the ease of obtaining the mortgage. A high credit score will allow you to obtain a mortgage easier and provide you with better terms. A low credit score will tell you that you might have difficulty obtaining a mortgage or the terms of the mortgage might not be as favourable as you would like. You can obtain your credit rating free of charge from a credit rating institution like Equifax or Transunion and if you get one early you can start taking steps to improve your score.
5. Buying the Wrong Home
- Buying a home is a long term endeavor and you should be satisfied with the home you purchased. There are a multitude of home options out there at a range of prices and it is critical that prospective buyers list what is important and key features they want in a home. Once you have a compiled list, take a real hard look at each item on the list and classify them into two distinctive lists of “must-haves list” or “wants / wishes list”. Prioritize or rank each item on the two lists to ensure that you know what you can or cannot live without. Determine the neighbourhood, housing style, number of bedrooms, bathrooms, parking or proximity to the workplace, public transportation, schools or other amenities. Since funds are not unlimited, determining the “must-haves” vs. “wants / wishes” and knowing your budget will help you narrow down your search criteria and to purchase the right home.
6. Skipping the Home Inspection or Using a “Friend"
- When purchasing a car, would you not get it inspected by a professional or ensure that you know what is wrong with it? Your home is most people’s largest asset and investment, but whether it is brand new or resale; there are always issues that arise. A home inspection done by a professional can help distinguish a home that is a money pit and requires extensive repair and money to fix versus a home that is in good condition that has normal wear and tear. Using a Professional inspector will check everything from the foundation to the roof shingles and everything in between. When purchasing a home, a home inspection should always be inserted as a clause in the Agreement of Purchase and Sale and performed to ensure you are protected.
7. Waiting and Waiting and Waiting Until Prices Fall
- Should you buy now? When should you buy? Will home prices fall? When is the best time? Will you receive any incentives? Should you keep looking? Those are the age old questions that everyone asks. Buyers always want the lowest price, while sellers always want the highest price for their property. Buyers need to be comfortable with the price that you are paying and that is a fair price. Remember when you are renting you are paying someone else mortgage down and not building equity in your own home. When you become a homeowner, you are investing in yourself and building up your own equity. And with interest rates at an all-time low, waiting for home prices to come down might not be as beneficial as when interest rates rise.
8. Not Saving for Closing Costs
- Everyone concentrates on the down payment which is the largest outlay of money that a buyer pays upfront, but there are other closing costs that a prospective buyer must take into consideration. Lawyer fees, land transfer taxes, utilities, moving, insurance, property tax and others must be paid at time of closing. Be prepared to ensure that your home closing goes smoothly! For a complete list of items to do before closing date please read Top Things to do before your home closing date?.
9. Not Knowing Rebates Available and Taxes that Apply
- You may also be eligible for government programs and tax rebates that will help decrease the total cost in your home or help you purchase the home like the Home Buyer’s Tax Credit and Home Buyer’s RRSP Plan. There are restrictions on these plans, so ensure that you do your research know what you are eligible for.
- Property and Land Transfer Taxes are applicable on purchasing property in Ontario. The owing amount and portion that has been pre-paid that must be remunerated will be assessed at the time of closing. Land transfer tax is also due at the time of closing and is the responsibility of the buyer. When purchasing a property in Ontario will net you one Land Transfer Tax, while Toronto will qualify you for double land transfer tax. Toronto has a separate land transfer tax levy on top of the provincial land transfer tax. Make sure you are aware of the total cost that you must pay.
10. Not Understanding Your Mortgage
- Your mortgage is a complex legal bind contract that needs to be understood and by understanding your mortgage you could save thousands of dollars. The key factors of your mortgage are the interest rate, amortization term and payment terms, however there are other factors that you should look for. Does your mortgage allow pre-payment privileges and if so, at what amount and frequency. Is your mortgage portable and is there a fee? If you break your mortgage what is the fee? Do you require mortgage insurance and what are the benefits of having a open, close fixed, variable or a hybrid of the mix. By understanding your mortgage and the terms / options you can choose what is right for you and potentially save thousands of dollars off the interest.
Please contact Nicholas Chan for further information on purchasing a home, how to avoid home buying mistakes and to have a hassle-free experience! Contact me at (416) 889-6906 or by email at Nicholas.Chan@century21.ca or by clicking here.