First-Time Home Buyer Mistakes
These Common Mistakes Can Become Very Expensive
Buying a new home is arguably the largest purchase you will make in your lifetime. As a First-Time home buyer, stepping into the world of homeownership can be simultaneously exciting and overwhelming. It can seem frightening when you’re beginning to navigate through the Buying Process. While every home buyer’s experience will be uniquely their own, there are a few common mistakes that every first-time home buyer makes. But don’t worry – it’s my job to help guide you through the Buying Process so that you will avoid these mistakes.
1. Skipping the Pre-Approval Process
It can be very tempting when your starting out the home buying process, it can be tempting to jump right into looking at homes. But before you hope online, walk into a builders’ show home or an open house, it will be beneficial to know exactly what you can afford to spend on your home. And it is crucial that you know the difference between being pre-qualified and pre-approved.
Pre-Qualified: A lender has given you an approximate figure of what you can borrow that is based on a few general questions about your income, basic debts and possibly your credit score.
Pre-Approved: A formal analysis of your financial situation based on your income, debt load, along with other financial factors. Once completed, you will receive written confirmation that indicates the mortgage amount you can afford, and the fixed interest rate that will be held for typically 90 – 120 days.
By now, you should see just how important it is to get pre-approved, and when working with me I will not take out a home buyer without having a pre-approval in place to ensure that we are looking in your correct price range that you are comfortable with. Remember, it’s better to know exactly what you can afford to spend on a home, instead of blindly jumping into the home search and then be crushed when you can’t afford to buy the home you thought you could.
2. Not Knowing How Much You Can Afford
While having your pre-approval completed is important, knowing how much you can afford to spend on a home based on the type of lifestyle you have is crucial. Depending on your lifestyle choices, what you can comfortably spend will not always match with the cost of buying to your maximum buying amount. Make a budget that breaks down your income and monthly expenses, and then use a mortgage calculator to find out how much you can comfortably afford.
3. Forgetting About the Future Additional Expenses
Potential first-time home buyers need to be aware that there are more financial commitments that go along with home ownership outside from the down payment and monthly mortgage payments. This is a common mistake made by first-time home buyers in that they forget, or simply just don’t know, that there are additional expenses that go into buying a home. These can include property taxes, home insurance, home maintenance, utilities, replacing your furnace or hot water tank are just a few of the extra expenses that the new home owner can encounter.
4. Going with the First Agent That Contacts You
If you have gone online and registered on a real estate website to look at homes, chances are that you will be contacted by an agent that is working on that teams’ website. You have never met this person, so you really don’t have any idea how this they work, their personality or how much time they will be willing to spend with you. It’s important to interview potential agents, or ask your friends and family for referrals, but still interview them to see if they are a match to you and your personality. You don’t want to get halfway through your house hunt and then realize that they are not best suited for you. The right REALTOR® can make your home buying process easier, less stressful and help guide you so you avoid costly mistakes.
5. Not Listening to Your REALTORS® Advice
I know it can be hard to fully trust someone that you really don’t know, but when it comes to buying your home…you really should listen to your REALTORS® advise! They are a trained professional who has your best interest at heart. Failing to take their advice into consideration, may end up costing you Several thousands of dollars in the end.
6. Working with the Listing REALTOR®
Here is a quick summary of the responsibilities for Buyer’s agent and Seller’s agent…
Buyer’s Agent: Have a fiduciary duty (legally mandated obligations) to the home Buyer. The agent will act in the buyer’s best interests and making sure that their personal information stays confidential, accounting for all initial deposit funds are delivered to the correct location, and all documents associated with the purchase are filled out correctly and sent to the buyer’s lawyer and mortgage broker.
Seller’s Agent: Have a fiduciary duty (legally mandated obligations) to the home Seller. Oftentimes, and agent can perform Dual Agency (acting as a mediator between the buyer and seller) in the home purchase transaction. However, in the end of the day, their primary duty is legally with the seller.
It’s for this reason, that starting the home buying process without your own buyer’s agent can be a big mistake! It’s always wise to hire your own agent to represent your interests and negotiate for you in the transaction.
7. Being Too Picky
Without a doubt, you should buy a home that meets your needs and fits your budget. However, it’s important to not fall into the trap of having too high of expectations that will end up stopping you from buying a home altogether. It’s important to broaden your search, relax your search criteria, and not get caught up in chasing a few unnecessary wants. At the end of the day, you’re not looking for the “home of your dreams” just yet, but a starter home that will be more affordable now, so you can get your dream home in the future. So, while you may want the hardwood floors, granite countertops, gas fireplace, remember that this home should be filling a need rather than a want.
8. Unwilling to Compromise
Before you start looking at homes, start by making a list of your needs versus your wants in a home. Your ultimate decision will be made on your needs that are most important to you like price range, surrounding neighbourhoods, and how close it is to shops and other amenities, and not if it has hardwood floors or granite countertops. However, some first-time home buyers are unwilling to compromise on their wants, and it causes them to miss out on an opportunity to buy a home that fits perfectly with their needs.
9. Lacking Long-Term Vision
Now by compromising on your needs and wants doesn’t mean that your starter home has to be hideous or make you miserable until you move onto your next home. There are plenty of ways to customize your home to better suite your liking – you just need to have a little vision for the potential. If you can afford to do so right away, you can have the carpets replaced, or if you’re handy and not afraid of some hard work and sweat you can do the updates yourself, just be careful not to go overboard on your budget. Or if you can’t afford the updates before you move in, don’t worry! Take the time to create a plan, save up the money, do your comparative shopping, and then make the changes to make it your home and your style.
10. Not Hiring a Professional Home Inspector
This leads to the next point…you just found a home that meets your needs, don’t overlook the importance of having a home inspection done before your remove conditions. I can’t emphasize to hire a licensed professional and not unqualified family member or friend. The inspector will check the exterior structure, roof, attic, electrical, plumbing and the basement – among other areas in the home – to ensure that you avoid getting stuck with an endless money pit of home repairs. Additionally, should any issues be found during the home inspection, your buyer’s agent will you and help find a way to have the issues repaired, or negotiate a lower purchase price.
11. Too Emotionally Invested
It’s true that buying a home IS an emotional rollercoaster! It can be filled with ups and downs, triumphs and a few slip ups…hey it’s natural. There is nothing wrong with being emotional, just remember, don’t let it cloud your judgement or worse blind you from reality that it is a transaction. Be careful not to get too attached until the Conditions for Purchase (Financing, Home Inspection, Condo Doc Review) have all been met and removed. Keep in mind…home may look like it’s in good condition, but some major structural problem could be discovered during the home inspection, or issues with the condo docs like a special assessment, causing you to pull out of the sale. Just breathe, stay calm…at least until you remove conditions, then let the excitement explode!
12. Not Planning for the Closing Costs
As stated earlier, there are more expenses that factor into the home buying process aside from the down payment, insurance and taxes. There are also the closing costs that need to be paid when you meet with the lawyer. These costs include the lawyers fee plus any courier costs of sending the mortgage documents to and from the lender and sellers lawyer. For a better idea of how much it could cost, you should speak to a real estate lawyer.
13. Don’t Change Your Financial Picture
It’s very important to remember not to change your financial situation from the time you apply for the mortgage and the time your purchase closes, even if you have been approved and removed conditions! That means, DO NOT buy a new car, take out any new loans or credit cards, purchase new appliances or new furniture (unless you pay in cash), or change jobs during this period of time. It’s vital that your financial picture and credit score stay the same at the time of you home purchase closing as it was when you were approved. If it is not, it could prompt the lend to revoke your financing and collapse the deal!!
14. Diving into Home Renovations Too Quickly
Buying a home and starting the renos can be exciting, as well as increasing the value of the property, but don’t rush into it. Overextending your credit to get all the changes you want completed doesn’t always pay off in the long run…as you could become house broke. Instead, take time to make a solid plan to ensure that you can safely afford the cost of the renovations. Also, by living in your home for a while before starting your projects can help you plan the best functional changes to the layout and you might be able to purchase your materials on sale…and who doesn’t like a discount?!
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What Buyers Really Need to Know
- Questions That Are a Must Before Hiring a REALTOR®
- The Costs Associated With Buying a Home
- The Different Types Real Estate Relationships
Tips for First Time Home Buyers
Resources for Buyers
- Axiom Mortgage Solutions Easy Application
- Canada Mortgage Direct Easy Mortgage Application
- CMHC Home Buying Calculator Tools
- Energy Efficiency Alberta's Home Improvement Rebate Program
- Mortgage Calculator