Buying your first home is exciting and scary all at the same time. It’s terrific there is so much readily accessible information online, but still – there is no substitute for having wisdom and experience in your corner. Do not take that long and wind­ing road to home ownership alone my friends. For one it’s lonesome and another, it often ends up costing you more. Here is a little help on that journey to help you avoid common first-time buyer mistakes.

Build your buying team early and engage the help of some serious pros. Your real estate agent will both drive a hard bargain and drive you to showings, while your new BFF Mortgage Broker works to drive down your payments.

Five Common First Time Buyer Mistakes

(1) They do not pre-qualify themselves for a mortgage before shopping

Sadly we have seen several recent instances of buyers who were totally not suited for a mortgage on the home they bought – and to make it worse, they bought under pressure without any condition of financing. This is so crucial, please don’t short cut this vital step.

(2) They over pay for a house in a hot market. What if the appraisal comes in low?

A pre approval is not a guarantee of a mortgage – rather it is simply the mortgage lender’s view that if all the info you provided checks out, then you are approved up to a certain spending limit.

The property you choose still has to be factored in. If you overpay, the lender will not want to finance your mistake. They will finance the true value of the home. This can mean having to come up with tens of thousands of dollars at the last minute to close the purchase.

(3) They underestimate their closing costs.

It’s such a grind saving up the down payment, but not enough consideration is given to all the one-time costs associated with your home purchase.

A rough rule of thumb is to have an additional 1.5% of the purchase price stashed away.

This is super important and if you don’t have it, your mortgage lender might think twice about your mortgage approval!

Land transfer taxes; legal fees & disbursements; PST on hi ratio insurance premiums; title insurance; adjustments for property taxes and condo fees; utility hooks ups and moving costs are the main ones.

CMHC’s  estimate the total cost of your home purchase will help you keep track of them all.

(4) They underestimate the cost of living in their own home.

Before you went out on your own, the bank of mom and dad may have insulated you from understanding the true cost of home ownership.

Mortgage payment, property taxes and condo fees are the obvious ones. But then there is also heating, hydro, water, cable, internet, and home insurance.

And just like your car, your home is always going to need some regular TLC – home maintenance costs can easily be a few thousand dollars a year.

(5) They sign up for a five year fixed rate mortgage with a major bank;

Setting themselves up for very large prepayment penalties if they have to break the mortgage before the term is up. This happens much more than people realize.

Friendly Lenders Offer Low Mortgage Penalties

I cannot stress enough the importance of understanding your lender’s mortgage prepayment penalty before you sign on the dotted line. Unless you are able to take your mortgage to your next property, breaking your mortgage mid-term can wreak havoc on your finances. Avoiding this and other first-time buyer mistakes puts you on firm footing for home ownership right out of the gate.

Tip of the Day

No fee banking does not have to mean no service banking. Find out from your bank what you have to do qualify for reduced or even waived account fees. You maybe pleasantly surprised.

— Money Matter № 127
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