As a first time home buyer, the whole buying process, specifically, the mortgage financing portion can be very confusing. It’s important you work with an experienced Mortgage Broker that is willing to take the time to educate and guide you.
7 ROOKIE MISTAKES FIRST TIME HOME BUYERS NEED TO AVOID
1. Don’t get pre-qualified – A lot of work goes into finding your dream home. Why spend all the time searching the MLS, going to open houses and making offers only to find out you don’t qualify for a mortgage? The first step in the home buying process should be getting pre-qualified so you can shop with confidence when writing offers. Getting pre-qualified will help you build your budget as well. Click here to get pre-qualified.
2. Not working with a Realtor – You should always work with a Realtor who is an expert in your desired neighbourhood. If you want to buy downtown Vancouver, don’t work with a Realtor from the Fraser Valley. You want a local, area-specific Realtor negotiating on your behalf. They will be aware of any potential zoning, bylaw restrictions or building issues. They will have a grasp on what has been selling and at what price points. Anyone can run comps with a few clicks on their computers. You want to work with someone who is an expert in your neighbourhood.
3. You don’t research the neighbourhood – You decided to move to a new neighbourhood because it fits your budget. You are over the moon excited with your new purchase. After moving into your new home, you realize your commute to work is horrendous. Your feelings of joy and excitement turn to anger and frustration as you sit in traffic every day on your way to and from work. Look around for restaurants, gyms, grocery stores and places you frequently use currently where you live.
4. Failing to stick to your budget – I see this one a lot, especially in the Greater Vancouver marketplace. During the first phone call, I usually ask “what’s your budget?” Decide how much per month you are comfortable spending on housing and stick to it. You might not get the southwest facing balcony with 2 parking but be ready to compromise. Don’t sacrifice retirement savings today so you can shell out all of your money into your house. In a rising interest rate environment, you need to have room in your budget for potentially higher mortgage payments due to higher interest rates at mortgage renewal time.
5. Focusing on the lowest interest rate – As a first time home buyer, the easiest thing to do is focus solely on the interest rate of your mortgage. This mistake could cost you thousands down the road. Make sure you focus on the terms of your mortgage as well as the interest rate. Have plans to sell the house within 5 years? Consider the variable rate because the prepayment penalties are only 3 months interest. The lowest rates often come with the least amount of flexibility and the highest penalties. Make sure you discuss your plans for the property with your Mortgage professional.
6. Opting out of mortgage insurance – Legally, every mortgage in Canada must be offered mortgage insurance in the form of life and disability insurance. Your home is your largest investment so why wouldn’t you protect that investment? Most people decline this insurance often saying “I have coverage at work.” I can tell you from first-hand experience, most work plans only cover you if you have an accident at work. If you are snowboarding in Whistler and brake your leg how will you make your mortgage payments if you have to book off work for 6 months? Always speak to an insurance professional and protect your investment.
7. Not budgeting for closing costs – Many first time buyers aren’t aware of closing costs. Closing costs are an out-of-pocket expense that is required in addition to your down payment funds. As a general condition of financing, lenders want to see 1.5% of the purchase price available in cash to pay your closing cost. For example, if you buy a place for $550,000, the minimum down payment is $30,000 (5% on the first $500K and 10% on amounts between $500K – $1M). You would also need $8,250 (1.5% of the purchase price) available to pay your closing cost. That means in order to get a full approval and fund your mortgage, you need a total of $38,250.