Since buying your first home is a big decision of your life, it’s easy to get swept up in the whirlwind of home shopping and make mistakes that could leave you with buyer’s remorse later. The lure of first-time homeownership is powerful. Thus, even as a first time home-buyer, your focus could be building generational wealth or creating an investment to sell when you retire.
1. Shopping for houses before Mortgage Pre-Approval
Many first-time buyers start shopping around for homes before ever getting in front of a mortgage lender. In today’s market, housing inventory is tight because there’s far more buyer demand than affordable homes on the market.
In such a competitive market, you’ll find it almost impossible to get your offer taken seriously unless you have a mortgage pre-approval (or cash in hand). That’s because sellers won’t want to take a risk on someone who isn’t even certain they can get a mortgage — especially when they have many other offers on the table.
2. Talking to only one lender
First-time buyers often get a mortgage from the first (and only) lender or bank they talk to, and that’s a big mistake. By not comparing offers, you’re potentially leaving thousands of dollars on the table.
The more you shop around, the better basis for comparison you’ll have to ensure you’re getting a good deal and the lowest rates possible.
3. Buying the house over your budget
It’s very tempting to fall in love with homes that might stretch your budget, but overextending yourself is never a good idea. With home prices trending upward, it’s especially important to stick close to your budget. It puts you at the risk of foreclosure in unforeseen times.
4. Exhausting your savings
Spending all or most of your savings on the down payment and closing costs is one of the biggest first-time homebuyer mistakes. Aim to have at least three to six months’ of living expenses in an emergency fund, even after you close. Paying mortgage insurance isn’t ideal, but depleting your emergency or retirement savings to make a large down payment is a risk best avoided.
5. Not being careful about your credit
A mortgage lender will pull your credit report at pre-approval to make sure things check out and again just before closing. Your lender wants to make sure nothing has changed in your financial profile.
Try to keep the status quo in your finances from pre-approval to closing. Don’t open new credit cards, close existing accounts, take out new loans or make large purchases on existing credit accounts in the months leading up to applying for a mortgage through closing day.
6. Making a decision over emotions
Buying a house is a major life milestone. It’s a place where you’ll make memories, create a space that’s truly yours and put down roots. It’s easy to get too attached and make emotional decisions, so remember that you’re also making one of the largest investments of your life. Emotional decisions could lead to overpaying for a home and stretching yourself beyond your budget. Having a monthly budget and being realistic about it, is the correct approach to it.
7. Miscalculating the hidden costs of homeownership
If you were shocked from seeing your new monthly principal and interest payment – wait until you add up the other costs of owning a home. As a new homeowner, there are many other potential expenses to budget for, like property taxes, mortgage insurance, homeowners insurance, hazard insurance, repairs, maintenance and utilities and more. Homeowner pays $2,000 annually for maintenance. Not having enough cushion in your monthly budget — or a healthy rainy day fund — can quickly put you in the red if you’re not prepared.
8. Not tapping into First Time Home Buying Incentives
Speaking of saving money, don’t forget to take advantage of these first-time homebuyer incentives in Canada. It could save you some serious dough. Some first time home buyer programmes are:
- RRSP Home Buyer’s Plan: Allows first-time homebuyers to withdraw up to $35,000 from their RRSP (or $70,000 for a couple) to finance a down payment. The RRSPs must be at least 90 days old, and you must sign an agreement to build or buy a home; but as long as you repay within 15 years, the withdrawal is tax-free.
- First-Time Home Buyers’ (FTHB) Tax Credit: Offers a $5,000 non-refundable income tax credit amount on a qualifying home acquired after January 27, 2009. For an eligible individual, the credit will provide up to $750 in federal tax relief.
- GST/HST New Housing Rebate: Reimburses eligible homeowners for part of the GST/HST paid on the purchase price or cost of building a new house, on the cost of substantially renovating or building a major addition onto an existing house, or on converting a non-residential property into a house.
- Mortgage default insurance: Known as “CMHC insurance,” this is a mandatory insurance policy for those who purchase a house with less than a 20% down payment.
If you are a first time home buyer or know someone in the same boat as you, reach out to H. Jaggi homes. We will make your process easy to navigate and answer all your questions in this journey. As a team of experienced realtors, we can help you get into home ownership! It is easier than you think!