New homebuyers have most likely made every mistake in the book when it comes to buying their first home. They’ve overpaid, overspent and bought homes they just couldn’t afford. And, most of the time, these missteps happen because buyers aren’t informed or don’t ask the right questions. Many of these missteps can be avoided. Here are some of the most common missteps buyers wish they knew to avoid the first time around:
I wish I hadn’t borrowed the full amount the bank told me I could afford: just because you’re approved for it doesn’t mean you should buy the most expensive house you can. A general rule, it’s wise to take 20% less than what the bank will lend you. For example, if you go to a bank or a mortgage broker, after evaluating your finances, income and savings, you qualify for a $400,000 mortgage. Though it may be tempting to take the full amount, knocking a fifth of the loan of the amount—which comes to $320,000—will automatically get you into a house that’s more affordable, safeguarding your family and financial security.
I wish I hadn’t been sucked in by the extra-low short-term adjustable rate mortgage: always go with a 30-year or 15-year fixed loan-and skip adjustable, creative financing, balloon payments and teaser loans. You never know what life may bring, so having consistent mortgage payments for the entire length of the loan allows you to better predict your ability to pay each month. A fixed mortgage offers confidence that the payment you have today will be the same in 10 or 15 years from now, no matter how the market, interest rate, or the economy changes over time.
I wish I hadn’t used up all my cash to buy the house: your home purchasing costs don’t stop with the down payment. You have to factor in closing costs, appraisal fees, buyer’s broker fees, loan application fees, loan broker fees, structural inspection fees etc. The down payment and closing costs are considered to be the ‘up-front costs’. After that, you’ve got ‘ongoing costs,’ which primarily consist of property taxes, homeowners insurance, hazard insurance, condo or co-op fees and moving expenses. Don’t be left with a zero balance in your checking account by the time you get the keys; factor in these additional costs ahead of time.
I wish I hadn’t wasted my time hunting foreclosures and short sales, only to miss some really good deals: just because it’s a distressed property doesn’t mean it’s a good deal; foreclosures aren’t a guaranteed bargain. If you’re looking for a steal (and you want it in a timely manner), avoid short sales and even some foreclosures. The deals can drag on for months and generally have higher interest rates. And even if the distressed home you’re looking at is well priced, the hoops you’ll have to jump through may just have an opportunity cost high enough to offset your monetary cost savings.
I wish I knew the one essential question to ask before I had bought my condo: there’s one question that can save you thousands of dollars and help you avoid a condo building that will become a money pit: has there been any discussion of possible future improvements, changes, renovations, or maintenance or any financial difficulties that would result in an assessment or charges to be leveraged against all condo/home owners? Make sure to get the answer in writing. This question is critical because the condo association board must answer honestly or it could be held liable. All condo meetings must provide notes that can be subpoenaed, so any discussion of assessments, current or future, could be proven.
We all make missteps when we do something for the first time. Buying a home is one of those things that are just too important to make mistakes on. Keep in mind these common mistakes to ensure that you buy safe, sane and secure when it comes time to closing on your first home.
CENTURY 21 Miller Real Estate Ltd.
Brokerage Independently Owned and Operated
#4 Office in Canada
By Production CENTURY 21 Canada 2013
467 Speers Road,
Oakville, ON L6K 3S4