First-time home buyer? Don't make these mistakes!
Buying your first home can be exciting and frightening all at the same time! It is easy to become overwhelmed with everything that you must remember when purchasing a home for the first time...especially when thousands of dollars are involved! Being informed about what to do and what not to do, will empower you and help you to make the right decision when the time comes to it. So - let's take a look at what to avoid:
#1 - Not Being Pre-Approved
When thinking about purchasing a home, this is one of the first steps that you should take. Speak to a mortgage broker and find out what you will be able to afford. Next, work with your broker to get Pre-Approved as this will actually give you buying power. You will know what you will be able to spend on a home in the event of a bidding-war and it will also show that you are a serious homebuyer.
#2 - Not Remembering About Closing Costs
It is easy to get caught up in the price of a house and overlook the additional costs such as legal fees and disbursements that must be paid at the time of closing. By doing this unfortunately, you can find yourself scrambling to cover these additional fees. Your mortgage broker can give you an idea of how much your closing costs will be, but it is a good rule of thumb to put aside at least an additional 1.5% to 4% of the purchase price to cover things such as Land Transfer Tax, Mortgage Registration Fee, Title Insurance, Interest owed to vendor and any other additional costs.
#3 - Not Considering Your Deposit with your Offer to Purchase
Just like with your closing costs, don't forget that you will have to make a deposit when you purchase a home! The deposit is applied to your down payment should your offer to purchase be accepted.
It is important to remember that the total amount of your down payment could also drastically change the amount of interest you pay over the length of your mortgage. A higher down payment will save you thousands of dollars in interest.
As of October, 2009, in order to qualify for a High Ratio Mortgage (down payment of less than 20%), you will need a minimum of 5% of the purchase price as a down payment. The source of the funds that you use for your down payment must be verified before you have final financing approval for a mortgage. Your mortgage broker will be able to advise you on the options available for making a down payment.
#4 - Not Considering Mortgage Payment Options
A good suggestion is to use an online mortgage calculator to crunch the numbers. Think about what monthly payment you want to make and then try some variations of it. You may be surprised to see that by even increasing this payment slightly, the amount of interest that you pay for the entire length of your mortgage will be reduced. Now what would happen if you increased your payments to accelerated bi-weekly or weekly? Reducing your amortization period by either increasing the amount or frequency (or both!) of your payments will save you thousands in interest costs.
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