3 Common real estate mistakes when buying your first home
With the spring real estate market in full bloom and May 1st being New Homeowners Day, it’s the perfect time to look at three common mistakes property virgins make. Buying a new home is an exciting time, but it can also be stressful, like walking through a minefield. But it doesn’t have to be if you do your homework.
Buying a home in Toronto and having paid off my mortgage in three years by age 30, I know a thing or two about home-buying. Many of these mistakes I learned the hard way. That’s why I’m writing a book. It’s called Burn Your Mortgage: A Simple, Powerful Path to Financial Freedom. I wrote it to inspire others to buy a home and pay off their mortgage sooner. Here’s a glimpse into three common mistakes I mention in the book (you’ll just have to buy my book next year when it comes out to learn the rest):
Mistake #1: Not Checking Your Credit Report Ahead of Time
A mortgage represents a whack of money. Lenders won’t just write you a blank cheque for your dream home. They want to see you have the ability to pay it back. When qualifying for a mortgage, lenders use four main factors: your income, down payment, debt ratios and credit history. While many first-time time homebuyers know about the first two factors, far too many forget about the last factor, their credit history.
You may be good at repaying debt. You’ve never carried a credit card balance in your life and you’ve paid off your student debt, but does your credit report reflect that? Your credit report tells lenders how much debt you have and how good you are at repaying it. Before applying for a mortgage, request a free copy of your credit report from Equifax or TransUnion. If there are any blemishes on your report, get them cleared up ahead of time to ensure the home-buying process goes smoothly.
Mistake #2: Buying Too Much Home
Just because the bank says you can buy a $750K home, doesn’t mean you should. With home prices heading into the stratosphere in Toronto and Vancouver, homebuyers are taking on bigger mortgages than they could have ever imagined to buy their dream home.
Buying a home is expensive, but it shouldn’t be a drain on your finances. Avoid being “house rich, cash poor,” a term that describes when your mortgage payments and other housing related costs are so onerous you have little money left over to enjoy yourself. Nobody want to be a slave to their mortgage for the next 25 years.
Prepare a budget ahead of time to see if you can truly afford a home in this price range. If your housing costs (mortgage, property taxes, utilities, home insurance, etc.) are too high, lower your expectations – and your mortgage – and look at homes at a slightly lower purchase price.
Mistake #3: Falling in Love with Cosmetic Upgrades, While Ignoring Structural Issues
With a shortage of homes in red hot real estate markets, homebuyers are often in a rush when viewing homes. Sellers these days are going to great lengths to wow prospective buyers the moment they walk through the front door. Referred to as the “HGTV Effect,” homeowners are spending millions on home renovations after watching their favourite reno shows on HGTV.
While just about everyone loves a newly-renovated kitchen with stainless steel appliances and granite countertops, don’t get caught like a deer in headlights and ignore the less glamorous things. I’m talking about any structural issues, landscaping issues or mold. I’ve seen far too many first-time homebuyers purchase a home based solely on its renovations, only to discover there are very costly renovations hidden behind the walls.
Being a first-time homebuyer is expensive enough as it is. Unexpected renovations can be a real drain on your savings. To avoid this, pay attention to any issues you see when viewing a home and get a home inspection done; it’s money well spent.
So there you have it; three common pitfalls to avoid when looking to settle in to your first dream home. Keep checking the Heritage blog for future tips from Yours Truly and do also keep an eye out for my book in 2017; it could save you a lot of time and money.
Happy House Hunting!