Six Common Mistakes First-Time Home Buyers Make
And how to avoid them…
Amid the excitement and stress of purchasing your first home, mistakes are common. There are after all, a lot of different steps and a lot of different parties that you as a buyer will have to deal with.
While everyone’s experience is slightly different, here are a few common mistakes.
- Buying Outside Your Price Range This is the big one. First-time home buyers may fail to account for additional regular expenses or other major jobs or repairs, and go for as much house as they (think they) can afford. Ideally, you want to keep your debt-to-income ratio (which means all of your debt, not just your mortgage) below 40% and ideally around 36%. For the most accurate gauge on what you can afford, it’s best to speak with a mortgage broker so they can do a full analysis of your finances and determine the best mortgage price and terms for your personal situation.
- Trying to Time the Market According to Leo Wilk Real Estate, timing the market is the same as trying to time any other investment: No-one can do it with any kind of consistency or accuracy. “The best anyone can do is evaluate (their) personal situation and try to make the best purchase you can given the current market,” he advises. That often means working with an experienced real estate agent. Also, “a buyer’s market”—a market in which listings outnumber prospective buyers by a certain margin, giving buyers greater leverage—does not guarantee that any purchase will be a deal.
- Missing First-Time Buyer Programs Governments often offer programs for residents buying their first homes. The Government of Canada offers a first-time home buyer incentive, a shared equity mortgage that covers up to 10% of a first-time buyer’s purchase price on a new home. (Buyers will then have to pay that same percentage back to the government on the new value of the home after 25 years or when the property is sold, whichever comes first). In Ontario, there are also incentives that allow new home buyers to withdraw money from their Registered Retirement Savings Plan (RRSP), tax-free, to go towards the purchase of a new home. There are also land transfer tax rebates for first time buyers that your lawyer can request.
- Falling for Staging It’s increasingly common to have homes professionally staged when they’re listed. That means unblemished kitchens, spa-like bathrooms, and playful bedrooms. But while many buyers swear they can see past this, Moneysense’s Romana King warns many often fail. “Stagers will often remove necessary appliances—such as coffee makers, microwaves and blenders—to make counters seem more spacious,” she notes. “Some will even go as far as to remove doors to make older homes seem more airy and open.” It’s important to try to envision how your own stuff will look in the space, not how the space looks.
- Not Getting an Inspection If you have some leverage as a buyer, it’s best to include an inspection as part of your offer. For less than $1,000 the inspector could uncover issues that might affect how much you’re willing to pay for the home. You can also ask your real estate agent to book a two-hour buyer viewing and order an inspection during that time if it’s a seller’s market and you suspect there may be a bidding war. That way you have a better idea of how it’ll affect your bid.
- Forgetting Closing Costs The down payment and the coming mortgage is not the only thing you need to worry about after you’ve successfully purchased your home. Before you buy, it’s important to factor in your land transfer tax, legal costs, home insurance premiums, and title insurance. Moneysense has put together a list of costs that should be on your radar.