Buying a home can be a dream come true or a nightmare, depending on how you do it. These tips will help ensure you don’t get burned.
Not only is buying a home the biggest purchase most people ever make, but it’s also one of the most complex.
Homebuying involves research, comparison shopping, price negotiation and contract signing. Interest rates, your credit score, the size of your down payment, and whether you have to pay private mortgage insurance all affect what you pay.
It’s easy to see why first-time homebuyers might feel less than confident they’re getting the best deal on their new house.
These five tips for first-time homebuyers will buy you peace of mind to go with that fenced-in backyard.
- Get pre-approved
This step sets the parameters for the entire home buying process. You will always be tempted by what you could buy if you spent “only” another $5,000, $50,000 or $500,000. The price range doesn’t matter. The temptation is the same. Getting pre-approved for a loan gives an upper limit to your house search and helps keep you from pursuing a house that you can’t get a loan for. This mistake can cost you money (see the next tip) and valuable time.
- Use a real estate agent
A good agent can help you navigate each stage of the homebuying process and help you avoid costly errors. For instance, when making an offer on a house, you’re entering a legal contract. Generally, you have to put up a deposit — called earnest money — for sellers to take you seriously. Earnest money is typically 1–2 percent of the offer price.
Say the seller accepts your offer but the bank turns you down for a loan (this can still happen even if you’re pre-approved). Obviously, you can’t buy the house, but if you you didn’t set up the offer contract correctly, you could be considered in breach of the offer contract, and you could lose your earnest money.
- Don’t become house poor
An important thing to remember is that your pre-approval amount is the maximum you can borrow, not how much you should borrow. Mortgage lenders have typically approved loans up to 28 percent of applicants’ gross incomes, so long as that does not push their total monthly debt payments (including car payments, student loans, etc.) past 36 percent of gross income.
These standards have become more lax, however, allowing people to borrow in excess of those amounts. The danger in borrowing that much, however, is that there is little money left to do anything else with. It’s sustainable if everything goes well, but when an unforeseen house repair pops up or hours at work get cut, they quickly find themselves in an emergency.
- Know your market
Researching homes has gotten a lot easier with the rise of online property searches and research tools. It’s now easy to compare features, neighborhoods and prices. That’s good for buyers because location remains the top determinant in the long-term value of a home. You can find crime data, school scores and measure how close a house is to shopping, dining, recreation and transportation routes.
- Use your imagination
You can’t change the location of a home (not cheaply anyway), but you can change the landscaping, the paint color or the carpets. If you can see the beautiful essence of an ugly home in a good neighborhood, you’ll do far better than buying the best-looking home in a lesser neighborhood.
Buying a house is all about knowing your limits, knowing your needs and patiently waiting for the right house for you. With the right prep, a good agent and a good search tool, you can be home sweet home before you know it.
Zolo.ca is Canada’s largest private real estate brokerage. Zolo.ca is a full service real estate, brokerage and mortgage company that has real estate agents throughout Canada. Zolo.ca’s online real estate marketplace has over 8 million Canadian homes and up-to-date MLS listings.