Common Mistakes First-Time Home Buyers Make
Buying a home is a considerable investment that can impact your finances in many different ways. This is why you need to get it right, so you can avoid the burden of paying a high mortgage or, worse, getting stuck in a house you don’t actually like. But first-time homebuyers are vulnerable to making mistakes due to inexperience. That said, a newbie like you can avoid some common home-buying mistakes, notably the following:
Home Searching Before the Mortgage is Pre-Approved
Searching for homes without a pre-approved mortgage often results in heartbreak: You see a house you like, only to find out that you can't afford it. Just like that, you’re back to square one, looking for another house that’ll fit your budget.
To avoid this pitfall, review your financial situation first and make sure you get pre-approved for a mortgage. Real estate agent Karyn Filiatrault recommends getting pre-approval from a qualified mortgage broker rather than from a bank, as they can find the best rate and terms most suitable for you. Afterward, you can start that home search, keeping in mind how much you can afford to spend.
Ruining Your Credit Score
You’ll need to keep your credit score as high as possible for the entire duration of the home-buying process. Otherwise, there’s a risk that the deal will fall through due to your compromised credit score.
So, keep your credit as is: Don’t apply for a new credit card, don’t use an existing one for a shopping spree, and don’t co-sign loans for friends or family. In other words, don't do anything that will compromise your credit score — before, during, and even after the real estate deal.
Not Getting Incentives
Taking advantage of incentives and plans is a great way first-time homebuyers can ease their financial burden. But many fail to take advantage of these and are left shouldering the entire cost of the house.
Incentives like the homebuyer's tax credit entitle you to as much as $750 in tax credits. Another is the Homebuyers' Plan (HBP) under the Registered Retirement Savings Plans (RRSP). Understanding RRSP withdrawals will let you take advantage of the HBP, which allows you to withdraw a maximum of $35,000 tax-free for your home's down payment. It is payable in 15 years, and payment starts two years after the withdrawal. Worth checking out, too, is the First-Time Home Buyer Incentive – a shared-equity mortgage with the government, in which it invests 5−10% in your newly bought home.
Buying More Than You Can Afford
Former first-time home buyer Shannon Houston details how newbie home buyers often think they can buy a house that is actually out of their financial standing. Worse, they don’t take into account other expenses, like hiring home inspectors, buying insurance, and even paying for home repairs or renovation. If you make this same mistake, you’ll just end up “house rich, cash poor.”
To avoid this mistake, Houston recommends setting a budget, making sure you consult with a mortgage broker, a local bank or credit union, and even a lawyer (for the closing and moving costs). Have these professionals itemize every expense you’ll incur and review everything to make a detailed budget.
Buying a home for the first time is a big investment and can be overwhelming. This feeling can leave you prone to making mistakes that will have long-term implications. That said, you can minimize mistakes through due diligence and by keeping the pointers above in mind.
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This is an exclusive article for mortgagesandbox.com
Prepared by Amelia Lennox
