Common Mistakes First Time Buyers Make When Buying Their First Home
There are many avoidable mistakes made by Canadians when buying their first piece of real estate. To help you steer clear of making some costly mistakes, Cody Rowe - Mortgage Broker has put together a list of the most common mistakes people make when buying their first house and how to avoid them.
1. They get pre-qualified, not pre-approved
There are many apps and websites that allow you to enter your information and generate a mortgage approval amount. Clients commonly make the mistake of relying on this information when they start shopping for a new home because it’s easier and faster than speaking with an advisor. Because finance rules are complicated, clients do not understand how income and credit guidelines work in mortgage finance, and commonly enter the incorrect information and either short themselves or approve themselves for too much. A pre-approval requires a full review of a buyer’s credit, income, and down payment information to confirm your details and check for any issues that may need to be addressed prior to your home purchase. If you wish to ensure that your home purchase goes smoothly, schedule an appointment with your mortgage broker to have an in-depth conversation about your financing options.
2. They look at homes before getting pre-approved
Looking at houses is so much fun that many forget the most crucial step of the home buying process - making sure they’re approved for the home. Before you get excited about that beautiful kitchen or go crazy over that amazing master bedroom, make sure you’re not getting your hopes up and that you speak to your mortgage broker about confirming a pre-approval. You should do this as early as possible but at least six months before you’re thinking of buying as this provides time to work through any issues that arise related to credit or down payment.
A mortgage broker specializes in real estate finance and represents the client during the mortgage negotiation process. Before negotiation begins, they’ll review your financial situation and assist you in building a plan for your future home purchase. They’ll also help you address any credit concerns if any exist so you go into the approval process with confidence and the ability to negotiate for the best interest rate. Many people opt not to hire a mortgage broker because they think of it as an added expense, when in fact, their services are completely free for 95% of home buyers. Therefore, choosing to not hire a mortgage broker is a big mistake that could end up costing you a lot of money in the long run.
3. They trust their bank is giving them the best rate
Being a good customer and having all your accounts with your bank doesn’t mean that they will automatically give you the best interest rate. Banks are in the business to make money, so by hiring an independent mortgage broker who can negotiate and shop for the best mortgage for your needs it creates an even playing field and keeps your bank honest during negotiation. Hiring an independent mortgage broker to work for you is a complimentary service and does not cost you anything, so what do you have to lose?
4. They only save for their down payment
If you are purchasing your first home, there are additional expenses that accrue during and after you take ownership of your home that you must budget for. As part of your mortgage approval, you will be required to show proof of closing costs in the form of 1.5% of the purchase price. If you have not included this as part of your home purchase, make sure to discuss this with your mortgage broker.
5. They don’t do a budget before buying their home
Homeownership is a fantastic goal to fulfill, but being ‘house poor’ is a reality that far too many people find themselves in once they start making their mortgage payments. What is the point of buying a home, if you’re constantly stressed or forced to give up hobbies and passions that bring you joy? When you start to put your budget together, don’t forget to factor in other expenses like property taxes, strata fees, maintenance costs, along with your day-to-day purchases like groceries, insurance, entertainment, investments, etc. Find out how much you can afford to pay for a mortgage and base your home search on prices around what will make this possible.
6. They skip the home inspection
You wouldn’t buy a car before getting it inspected, right? So why would you act any different for possibly the biggest purchase you’ll ever make? Paying the extra money for a professional to do a proper home inspection will protect your investment, as well as save you thousands of dollars and months of headache in repair costs. It’s common for unforeseen problems to arise during the home inspection, these issues can be used to negotiate further on the price so you can include the cost of repairs into the purchase. An inspection can end up saving you money, so don’t skip this step!
7. They don’t include the cost of improvements in their mortgage
Around one-third of all new buyers renovate their homes in some way within the first six months of taking ownership. When taken out-of-pocket, this can lead to draining the savings account or lead into using forms of credit to pay for the project at higher interest rates. By speaking with your mortgage broker early on, you can have a strong conversation about including the cost of improvements in your mortgage so as to make it more affordable and prevent paying more than you need in interest costs.
8. They focus on getting the “best” interest rate
The best mortgage is not always the one with the lowest interest rate. In fact, you should be wary of banks promoting only the lowest interest rate, as it typically means you’re getting a ‘no frills’ mortgage that will cost you large penalties whenever you need to make changes during your term. Speak with your mortgage broker and have a full conversation about your long term goals, so your financing can be built around this bigger picture. Don’t shoot yourself in the foot because you wanted to save yourself $10 - $50/month, and now you have a $30,000 penalty cause you were too focused on the short term.
9. They don’t use a mortgage broker
You may enjoy your advisor at your bank, but let’s not forget the reality that they are employees of the bank, and for that reason will always be limited as to what solutions they can provide in your best interest. At the end of the day, their job is to make the bank money, not you. By hiring an independent mortgage professional, you are adding one of the best assets in your real estate journey. The services of a mortgage broker are completely free, and by hiring someone who works for YOU, you can feel confident that you have someone working in your best interest and who will shop the market to get you the best product available for your needs. They will review your credit, help you address any concerns and when it is time to purchase, will negotiate on your behalf and ensure you don’t just receive the best interest rate for your situation, but also ensure you are protected from any large penalties when a life event happens. When you hire us as part of your real estate team, you’re not just hiring us to work with you on one purchase, but for the life of your journey in real estate.
Our services include first time home buyers, renewals, refinancing, reverse mortgage, private lending, commercial mortgages, self-employed mortgage, investment properties, new to canada mortgage, etc.
We serve clients across Comox, Vancouver, Campbell River, Victoria, Mill Bay, Cobble, Hill, Duncan and Nanaimo, and British Columbia.
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