Your home will be your single biggest investment and it makes sense to plan your purchase and avoid the mistakes that people before you have experienced. Detailed below is our list of the most common mistakes that continue to be made and the easy way to avoid them.
Mistake #1 Not identifying needs vs wants.
There may be a big difference between the kind of home you want and the kind of home you need. To avoid wasting time, causing yourself and your real-estate agent frustration, and running the risk of regretting your choice later, realize that it’s important to satisfy the needs first and the wants last. In the long run, the greatest view in the world is not likely to make up for not having enough bedrooms.
What will you need in 5 years, or 10? Try to estimate your future needs as well as your immediate needs. Buying a home now that’s big enough to accommodate a larger family, a home-based business or in-laws joining the family may be a better financial move than having to find a larger place in just a few years.
Mistake #2 Not Identifying The Difference Between What You Can Afford And What You Qualify For.
Most lenders will quickly tell you how much you can afford when they really mean to say, this is the amount you will qualify to borrow. It is up to the home buyer to put together a budget that represents the cost of the lifestyle they have now and how much is left over for housing costs. To get the home that meets your needs you may have to adjust your lifestyle, it could be as simple as accepting you won't be able to eat out as much or as complex and selling the car with the big monthly payment.
Mistake #3 Not Working With A Licensed Professional Realtor.
Numerous home buyers have the perception that by going direct to the realtor representing the seller they can negotiate a better price. Experience shows that this is not the case and more often than not an experienced realtor will be able to advise you of the best price to offer a home based on their up to date knowledge of the market as it relates to similar properties being sold recently.
Quality realtors can often save home buyers time and money as they often have previous knowledge of properties that can be eliminated from a home search before spending time going to look at them. Their understanding of local markets with information pertaining to traffic patters, school background and residential trends can often make the difference between making a good purchase and a bad purchase.
Mistake #4 Not Planning For The Common But Not Visible Associated Purchase Costs.
Over and above the purchase price there can be a wide variety of extra expenses that can add thousands of dollars to the aquisition of your first home. Property transfer taxes, title insurance, tax hold back, interest adjustment and estopel certificates to name a few are often expenses that the first time home buyer will not learn about until closing. A large last minute bill can start off the first home buying experience with the home owner being financially off balance. A good rule of thumb is to plan for an amount equal to 1.5% of the purchase price. Both your realtor and mortgage broker can assist you to properly budget for costs specifically associated with your purchase.
Mistake #5 Failing To Have A Proper Home Inspection
In your agreement with the sellers, one of the conditions should be a favorable report from a house inspector. To find a good inspector, ask for recommendations, then make sure the inspector is certified (the home-inspection industry is not licensed or regulated). Ask how many inspections they have performed and what kind of report is provided to you (you might confirm how long it will take to get the report). Also ask if you can be present during the inspection. If they say no, find someone else.
The inspector’s job is to check the property and tell you what defects need to be repaired or replaced. Based on his report, you might want to walk away from the property or negotiate with the seller for repairs or an allowance for repairs. In most jurisdictions, sellers are required to make complete disclosure of defects in writing. Make sure you have this disclosure and so does your inspector.
Mistake #6 Failure To Read Important Strata Documents
When purchasing a strata, at the time your offer is accepted and before you have to remove your subject conditions you will be presented with potentially hundreds of pages of strata documents to read and review. This pile of paper is made up of strata council meetings, budgets, by-laws, financial statements, engineering reports and proper time needs to be spent reading and understanding these documents. Often a purchaser will step away from a purchase because they have found out that there are problems with a noisy neighbour or there is a building maintenance issue that could turn into a major special assessment down the road. At the end of the day, the purchaser is responsible for having done their home work.
Mistake #7 Not Shopping Around For Your Mortgage
Not all lenders were created equal. Either from an interest rate perspective or a mortgage product. It is difficult to know what to look for when most people only talk about the interest rate. While interest rate is important, it comes down to finding the right mortgage that will produce the lowest cost of home ownership. Factors affecting this will include prepayment options, penalties and the costs of getting the mortgage, do you have to pay for title insurance, earthquake insurance and the format the mortgage is registered. A licensed mortgage professional can provide you with access to a wide variety of lenders, this variety affords greater selection of products, pricing and mortgage amounts. It is not uncommon for the amount you qualify for to vary by 10% or more from two or more different lenders.
Mistake #8 Screwing Up the Offer
It’s not over once you’ve found the house you want. Now you have to make an offer. Some common mistakes at this stage include:
• Low-balling - New buyers often offer too little or want too many concessions from the seller.
That can alienate the seller, with the result that he simply rejects the offer without even a counter.
• Paying too much - Avoid bidding wars at all costs. Sometimes the threat of another buyer is simply a ploy to scare you into upping your offer. Even if there is another buyer, don’t play the game. Whoever eventually “wins” will be the loser because the price will be too high. In case there isn’t another buyer, let the seller know you’ll be interested if the “deal falls through.”
• Being afraid to negotiate - Most of us hate to haggle, but negotiation is the key to the best deal. Know your bottom line and be prepared to walk away if you can’t meet it. Knowing as much as possible about the seller’s situation, including his time frame, is an enormous help (a Buyer’s Agent can be very helpful here). Likewise, try to keep information about your own financial situation to yourself; the seller will be looking for information about you that they can use to their advantage during negotiations.
• Being pressured into a quick deal - Don’t let the seller’s side pressure you to a quick close. It could be a sign that something’s not right. If the property has been on the market for a long time, there’s probably no rush. Remember, there’s always another place that’s right for you.
• Not asking the seller to pay for extras – Don’t be afraid to ask the seller to pay for the home inspection and a survey of the property (you need to know where the boundaries are and exactly what you are purchasing). Your agent can advise you on this.
Mistake #9 Location, Location, Location
Did we mention location? Location is the key. The value of your home is affected by those around you. The home may be perfect, but look carefully at the neighborhood too. No home is an island (usually) and the value is affected by the homes that surround it.
Factors determining the best location include:
• Surrounding homes - the condition of other homes, including buildings and grounds
• Size Matters - the relative size of your potential home compared to the others. A small home surrounded by large ones may have taxes disproportionately high because of the neighborhood.
• Placement - the outer edge of an area is less desirable than being in the middle, surrounded by similar homes, except if the property borders woods, a park or other open space such as a golf course.
• Best Buy - the least expensive home in the best area or in an area in transition is a best buy. You can buy low now to sell high later.
Mistake #10 Becoming Too Emotional
Here are five emotional mistakes first-time home buyers often make:
1. Love Hurts - Falling in love with a home. The buyer has to reconcile dreams with realities. It’s often difficult to look at the pros and cons of a home rationally if you let yourself become too emotional about a particular property. Beware of real estate agents trying to play on your emotions to encourage you to say yes. Never buy the first home you see without looking at some others.
2. Keep Control - Losing control of the situation is frustrating and can lead to imprudent decisions. Don’t let yourself be swayed or sidetracked by an assertive agent or by undue advice from family or friends (they don’t have to live there, you do!). Personality clashes with agents, mortgage broker or others with whom you are trying to work can also be upsetting.
3. Decisions, Decisions - Not being able to make a decision. If you can’t decide about anything from budgets to what kind of house you want then maybe you aren’t ready to commit to home ownership. If you’re simply worried that something better will come along after you’ve made your offer, remember that there’s more than one home out there with your name on it. Take the time you need to make a sound decision, but don’t be afraid to commit to a new home purchase.
4. What are you getting into? - Not realizing the responsibilities of home ownership. It’s great to own your own home, but it takes time and commitment to maintain this large investment. Make sure you are prepared.
5. Is it the right time? - Buying before you are ready. If you are suffering cold feet over becoming a homeowner, sit down and take stock of the situation. Examine your motives for thinking you should take this giant step, looking at what it will mean to your lifestyle and budget. Talk it over with your financial counselor, your real estate agent and your mortgage professional. Remember that there are thousands of first-time buyers a year in Canada and most of them felt the same trepidation as you. Most of them are happily taking on their exciting new challenge.