Buying a home for the first-time is an exciting time. You’re making quite possibly the most significant financial transaction of your lifetime.
You’re also making the exciting jump from renter to homeowner.
While buying a home is something to celebrate, it’s important to do your homework. As a property virgin, this experience is entirely new to you. The last thing you’d want to do is make a mistake that will cost you dearly.
Here are five of the biggest mistakes first-time homebuyers are prone to make and how to avoid them.
Mistake #1: Buying Too Much Home
Before house hunting, it’s a good idea to get pre-approved for a mortgage. When you’re pre-approved, you’ll know exactly how much you can afford to spend on a home.
Your mortgage broker is going to tell you the maximum amount you can spend, but keep in mind, that doesn’t mean that you should spend the entire amount.
Take some time to crunch the numbers and see if you can afford the mortgage payments on a monthly basis. Don’t forget to take into account property taxes and strata (condo) fees.
You’ll want to leave yourself some financial breathing room in case mortgage rates go up or you run into a financial emergency.
By overspending on a home, you could find yourself “house rich, cash poor,” with very little money to save, let alone to spend on having fun (say goodbye to dining out at restaurants and going on vacation every year). Don’t make this mistake.
By buying a home within your home-buying limit, you’ll be better prepared the next time life throws a financial curveball at you.
Mistake #2: Forgetting to Budget for Closing Costs
If you’ve never bought a home before, it’s easy to overlook closing costs.
They’re just a drop in the bucket, right? Wrong. Closing costs can add up to four percent of your home’s purchase price.
On a $600K home, you could be spending upwards of $24K in closing costs.
And your lender won’t cover these costs, so it’s your responsibility to put this money aside in addition to your down payment.
Examples of typical closing costs include land transfer taxes, real estate lawyer fees and home inspection fees. First-time homebuyers do get some breaks on closing costs, but they’ll still cost you a pretty penny.
Mistake #3: Buying Based Solely on Looks
Have you ever stepped foot inside a house and it became love at first sight? You see everything you’re looking for in a home: granite countertops, stainless steel appliances and an open kitchen. You’re ready to make an offer right then and there.
But before you do, take the time to look at the bones of the home.
I’m talking about the roof, windows, furnace and structure. Anyone can install a new backsplash in a kitchen or toss some fresh paint on the walls, but replacing something significant like the roof can cause a lot of heartache.
Don’t get distracted by the stuff that’s supposed to “wow” homebuyers. You want a home that’s sizzle and substance, not just sizzle.
Mistake #4: Skipping the Home Inspection
In red-hot housing markets, a new trend is for homebuyers to skip home inspections. And it makes perfect sense – when you’re competing against 10 other buyers for a house, including too many conditions can cost you your dream home.
What’s worse than losing your dream home? Winning what turns into your nightmare home.
For example, the home could have flooding issues. But if you don’t know the signs to look for you’ll totally miss it. That’s an expensive mistake.
A home inspection sounds like a lot, but once you get the report you’ll be happy you did it. This is especially important for older houses. The report will provide you with a handy checklist of all the things you should do to make sure your home is in great shape. Don’t cheap out on it.
If you’re worried about including the home inspection condition in your offer, consider getting a “pre-inspection.” That’s a home inspection before you make an offer. That way you can make an offer with the confidence and peace of mind that you’re buying a rock-solid home, not a money pit.
Mistake #5: Not Shopping Around for a Mortgage
We comparison shop for everything from televisions to vacation packages, but so many people just take whatever mortgage their bank offers them.
There’s nothing wrong with your local bank branch being your first stop for a mortgage, but it shouldn’t be your only stop. By just taking the first offer, you’re likely leaving money on the table.
Buying a home is quite possibly the single-biggest financial transaction of your lifetime
Let that sink in for a moment.
Your local bank may have the best mortgage, but you won’t know for sure without shopping around. And the best way to do that is with an experienced mortgage broker.
There you have it, five of the costliest first-time homebuying mistakes.
When you’re buying a home for the first time, you don’t have to be alone. When you leverage a team of experienced professionals, including a mortgage broker, real estate agent and real estate lawyer, your first homebuying experience is more likely to be a pleasant one, setting you up for financial success for years to come.
What’s the most expensive real estate mistake you’ve made or seen a homebuyer make? Tell us in the comments below!
Alan Harder is a partner with MortgagePal, an online mortgage brokerage with agents in BC, Alberta and Ontario.