1] House shopping without knowing what you can afford.
Once first-time home buyers have made the decision to buy, the irresistible urge to start viewing properties kicks in and can often lead to disappointment and sometimes discouragement, particularly when your lender tells you after the fact that you cannot afford the house you have fallen in love with. Before you start checking out properties, meet with your bank / lender or mortgage broker and get a pre-approval. The pre-approval will have a three or four month expiration date so you can confidently go house shopping knowing that you are in a position to write an offer when the ‘right’ opportunity comes your way.
2] Taking on new debt or changing jobs during the time frame between pre-approval and purchase, which might negatively impact your mortgage application.
Your financial situation / credit score can be negatively affected if you were to change your employment, take on new debt / loans or purchase big ticket items on credit. So once you have your pre-approved mortgage in place it is a good idea to stay the course regarding the above mentioned actions until your property purchase is finalized and the funds have been advanced to you.
3] Not saving enough for a down payment.
The minimum down payment for a residential property purchase is 5% but it is a good idea to put down 20% of the purchase price, which means you won’t be faced with having to take out a high ratio mortgage and avoid mortgage default insurance premiums. If you are concerned about the amount of deposit you can raise, speak with your bank or a trusted financial advisor for their professional advice.
4] Not realizing how many additional expenditures will need to be paid on or before closing.
These expenses will include; deposit, house inspection, property insurance, legal / conveyancing fees, applicable taxes and moving costs. Speak to your mortgage lender and real estate agent to ascertain exactly what costs you will need to account for.
5] Not having a wish list of needs and wants.
Not having a wish list with your needs and wants itemized is a bit like going on a long driving holiday without a road map. It really is important to have a clear understanding of what your first home needs to have, such as the number of bedrooms, bathrooms, yard area, one or two vehicle garage, proximity to schools, work, etc. And then the wants; such as a fireplace, a view, maybe a hot tub or pool. Having this check-list will prove invaluable as you will need to compromise on features unless of course money is no object.
6] Viewing too few or too many properties.
While there may be an urge to write an offer on the first or second house you walk through, it is always a good idea to see a few different properties before deciding to write an offer on one. It is not unusual to find several similarly priced homes offer radically different features, floor plans and upgrades that make them unique.
Conversely if you view too many properties the process can become confusing as it can become challenging to differentiate between houses and their features and most importantly you might miss out on a house you recently viewed and loved but chose to continue the search while in the meantime another buyer’s offer was accepted and that house is off the market.
It isn’t unusual to narrow down a search to more than one property, in which case secondary (although important) considerations will help the decision making process, such as; resale value, future development potential, proximity to parks and recreation facilities and shopping.
7. Becoming house rich and cash poor.
Optimism reigns supreme when first-time buyers are searching for their dream home and why shouldn’t it? This experience is going to be a lasting memory and the feeling of owning your home is an exhilarating one. Sometimes to the point where you might feel that a positive approach will see you through the process which potentially may cause you to over estimate your financial ability to handle the significant financial commitment you are about to make.
When deciding how much of a mortgage payment you can afford, it is really important to budget all of your fixed monthly expenses, living expenses, savings, vacation fund, education and rainy-day fund, because owning a home will result in repairs and maintenance at some point, usually when it is least expected. And, if you choose to buy a condo or townhouse, in addition to monthly strata fees you may at some point in time (as a strata complex ages) be required to contribute your share of the costs for repairs of such things as a roof, gutters, balconies / decks etc.