As more than 45% of the 620,000 Canadian home buyers in 2015 can attest, buying real estate for the first time is an exciting, but a sometimes uncertain experience. There are many aspects of home buying that the average Canadian doesn’t encounter in everyday life, and it’s almost impossible to completely prepare yourself.
Many first-time home buyers find themselves making easily avoidable mistakes, which is why I’ve put together a list of missteps to avoid if you’re considering buying your first property. Keep reading to better prepare yourself for your home buying journey.
1. Not comparing mortgage rates
Most first-time home buyers automatically turn to the bank where they keep their savings and chequing accounts to receive a mortgage pre-approval. But accepting the rate your bank gives you is a mistake because it’s rarely where you can find the best mortgage rates.
For example, when I applied for mortgage pre-approval in March of this year, I asked my bank, Tangerine, for a quote on a five-year fixed mortgage rate. It quoted me the posted rate of 3.79%.
I knew this rate was high so I turned to a mortgage broker, who asked me a few simple questions and then shopped around my application to several lenders, eventually offering me a pre-approved five-year fixed mortgage rate of 2.29%.
While a 1.5 percentage point difference in your mortgage interest rate may not seem significant, it’ll save you thousands of dollars in interest over the five-year term.
For example, if you purchase a home for $450,000 with a 20% down payment, you’ll need a $360,000 mortgage. If you chose a 25-year amortization and monthly payments, your mortgage payment would be $1,853 at 3.79% interest, and you’ll pay $63,413 in interest over the five-year term.
Compared to the lower mortgage rate of 2.29%, your mortgage payment would be $1,575, which is a difference of $278 a month!
You’ll also pay less interest over time. Over the five-year term of the mortgage, you’ll pay $37,915 in interest, which is $25,498 less than the higher mortgage rate of 3.79%.
Shopping around for the best mortgage rate is worth the time and effort.
2. Not interviewing multiple realtors
When choosing a realtor, most first-time home buyers rely on referrals from family and friends and it’s easy to understand why. An online search will yield dozens of realtors all claiming to be the best and sifting through the field to find the right fit can be intimidating.
But you should be cautious of working with a realtor that your parents or older relatives recommend. You want someone that understands you, your ideal neighbourhood, and what you’re looking for in a home. You might want a realtor that caters to your age group, not the age group of your parents.
A good way to find the best realtor is to meet a few. Choose at least three realtors that meet your criteria and set up interviews to find one that’s right for you. Trust me, you’ll know when you find the right one.
3. Choosing a home based on a hypothetical future
After you’ve received a mortgage pre-approval and found a realtor, you’ll be ready to start looking at homes. At this point in your home buying journey, it’s important not to get carried away with your wish list.
Since you’re a first-time home buyer, you probably have a smaller budget. That doesn’t mean you won’t be buying your dream home right away and you should adjust your expectations to reflect that. If you’re single, you don’t need a large home for a hypothetical future family. If you think you may want to live in the suburbs one day but you enjoy a busy, social lifestyle right now, think twice before buying a home that’s a one-hour commute from the city.
Remember, this is your first home. You can always upgrade, renovate, or relocate later. Purchase a home that meets your needs now, not an expensive home that fulfills the needs of a hypothetical future.
4. Falling in love with a staged home
Staging a home is a tactic realtors use to make a home more attractive to prospective buyers. A realtor will stage a home by removing the seller’s existing furnishings and replacing it with stylish furniture, rugs, and art. Staging is a common real estate practice and it can have a positive impact on both the sale price and the time it takes to sell the home.
Staging has been known to sway the opinion of first-time home buyers so don’t let that beautiful furniture fool you. When you begin looking at homes, try to keep in mind that the atmosphere created by staging furniture will not remain once the keys are in your hand. Focus instead on the elements that can’t change, like the square footage, layout, and updates in the home.
The bottom line
As a first-time home buyer, you’re bound to encounter a few bumps along your journey to homeownership. But if you follow these tips to avoid common mistakes, you’ll enjoy a smoother ride.
- The Dos and Don’ts of Getting a Mortgage Pre-Approval
- How My Wife and I Saved a 50% Down Payment
- What is the Home Buyers’ Plan and How Does It Work?
- First-time Homebuyer Stories: Karen
- First-time Homebuyer Stories: Rosemary & Andrew
Flickr: Joe Mabel