Thinking of buying your own place? It’s normal to feel a little overwhelmed. After all, it’s the biggest purchase you can make. In an effort to remove some stress from the equation, here are a few tips from the experts.
What to do when you’re a first-time home-buyer:
1. Get pre-approved
A good REALTOR® will ensure you are pre-approved for a mortgage before they begin to work with you. This is an important first stem in the home-buying process. You don't want to start house-hunting and fall for a home you ultimately cannot afford.
On top of that, you may think you have decent credit; but there may be hidden problems with your credit that you aren't aware of. Even people who are making half a million dollars a year, or more have made some financial mistakes in the past; and often it costs them when it comes to getting a mortgage.
A mortgage broker or associate will be able to guide you through the pre-approval process, and your credit is one of the three major factors that will be considered before you get approved for a mortgage. The other two are your income and your down payment.
These days a down payment of 20 percent in a "rarity" with first-time buyers. But that's how much you have to have down if you want to avoid paying CMHC's mortgage default insurance. It's calculated based on the size of your mortgage and how much you have down.
Of course the bigger the down payment you have the smaller your loan (and overall interest charges) will be. One way to help boost your down payment is to borrow from your RRSP. First time buyers can pull out $25,000 tax-free and have 15 years to pay it back. If you're buying with your partner, you can contribute $50,000 together.
2. Find a REALTOR®
While having a REALTOR® is not necessary when buying a home, it is recommended -- especially if it is your first time going through the home buying process. Having someone who is experienced, and knowledgeable about the market leading you through the process could take a big weight off of your shoulders. Your real estate agent should be your quarterback, and a good agent should have a network of professionals such as home inspectors, credit counselors, insurance agents, lawyers etc. who will become a part of your team.
3. Stay mindful of your budget
One of the biggest things you have to consider in this decision is your lifestyle; and what that requires from a cost perspective. You may be able to afford your own home, but you are also going to have to realize that you might be giving up going out for drinks after work or out for dinner with friends because your going to be paying a mortgage now.
Ask yourself, if you lost your job and weren't working for three months, would you be able to afford your home? Or are you stretching yourself too thin? You should also keep that in mind during your search. Just because a bank approves you for a certain amount, doesn't mean that you have to spend it all. The worst thing to do, is to go into home-ownership "house poor."
4. Be Open.
We've all seen the Real Estate shows with teh gorgeous multi-million dollar properties. Your first home will most likely look nothing like that. You may walk in and it may have horrible wallpaper and the kitchen needs updating. But the fundamentals are there and you can add to it down the road ... so just have an open mind.
Wallpaper can be removed, walls painted and cupboards changed. The things you should bemore concerned about is the size and layout, along with the condition of the roof, plumbing and hot water tank.
What NOT to do as a first time home buyer...
Remember, you won't be in this home forever. The average person only lives in their first 2 homes for 7-10 years. Not everything has to be 100% as you have always imagined. They call it a starter home for a reason.
Keep the emotion out of your purchase. This is quite common with first time buyers, check your emotions at the door and think with your head. Always keep in mind the re-sale value of the home you want to purchase, and remember that in real estate it's all about location, location, location.
Don't Make Big Purchases before getting approved for a mortgage. This may seem fairly obvious but you'd be surprised how often buyers buy a new car or spend a large amount of savings on a vacation, snowmobile, boat or new toy. The bank then adjusts your loan terms unfavorably or flat out denies the buyer a mortgage. Remember, an approval is contingent upon your current income, credit and savings remaining the same. Do yourself a favor and halt on the spending until after you close on your new home.
4. Don't Forget About Closing Costs
Closing costs can add up. The CMHC recommends putting aside anywhere from 1.5 to four per cent of the purchase price to cover them. Oh, and don’t forget to also save for a rainy day. You never know when that hot water tank could break down. On the bright side, first-time home-buyers can qualify for a tax credit of up to $750. It may not be much, but hey, every dollar counts when you’re a new homeowner.
If you have real estate questions, please feel free to contact me direct at 780.232.1971.