Buyer beware of the many pitfalls associated with your purchase
1. Not checking your credit report and score
You've clicked through hundreds of online listings, compared floor plans and square footage, and are eager to jump-start your search. But before you even think of setting foot in an open house, make sure you get a copy of your credit report. The cleaner your credit report and the higher your credit score, the more likely you are to be preapproved for a mortgage at a low interest rate.
Review your credit report a few months before you begin your house hunt, and you'll have time to ensure the facts are correct and dispute mistakes before a mortgage lender checks your credit. You can access a free copy of your credit report at www.equifax.ca once every 12 months.
2. Not getting preapproved
After you've assessed your credit report, it's time to establish with a qualified lender how much you can afford. "First-time home buyers need to take the time to get an approval from their lender before looking at homes," advises Mark Wesgate a licensed Realtor with RE/MAX Escarpment Realty Ltd. In Burlington Ontario. "This includes getting a credit check and giving their lender a copy of T-4's, pay stubs, and bank and brokerage statements." Getting preapproved can help you save time by looking for homes that you know you can afford instead of lusting after something out of your price range. And it will put you in a better position over another bidder with no preapproval.
3. Not creating a long-term budget
If the housing crisis in the U.S. proved anything, it's that mortgages were given to people who clearly did not have the means to pay them back. Although different here in Canada , home buyers should create a budget before even beginning their home search to determine just how much house they can really afford. A good rule of thumb is to devote no more than a third of your monthly household income to housing costs, which include mortgage principal, interest, taxes, and insurance. There are several work sheets available online to help you figure out how your income, debts, and expenses affect what you can afford each month for the next 15 or 25 years.
4. Forgetting about the hidden costs
You grossly underestimated what you can afford to pay each month. You factored in the purchase price of the home but didn't consider the cost of taxes, insurance, utilities, and fees. There are several hidden costs that first-time home buyers neglect to prepare for. They can be anything from the closing costs to appraisal fees, escrow fees, homeowner's insurance fees, property taxes, and even moving costs. Another factor is the cost of repairs and maintenance. "When you're renting and the furnace goes out, what do you do? You call the landlord," Consider ,as a good rule of thumb, to set aside roughly 1.5% of your total purchase for final closing costs.
7. Thinking you'll get everything on your "wish list"
Another mistake people make is being too close-minded while searching for their home, Wesgate suggests sitting down with your real estate broker before searching for a home and creating a need/want list. Some of the items you might want to include as "must haves" or deal breakers are the areas you'd want to live in, square footage, or accessibility to transportation. The second part of the list would be things you don't necessarily need but wish to have, such as a garage, new kitchen appliances, or an extra room for an office. "As you search for your home, you may realize there are certain parameters you really want or don't want," says Wesgate. "Understand that a certain amount of flexibility is essential." Your aim is to be able to afford everything you need—as well as some items you want—all while staying within a long-term budget.
8. Not keeping your feelings in check before hiring a home inspector
You've already chosen the perfect paint color to match your living room set. But hold on: Before you start picking out accent pillows for your sofa, you need to bring in a home inspector to check the safety of your potential new home. Inspectors will evaluate the structure, construction, and mechanical systems of the home and will give you the approximate price of repairs that may be needed. They will examine everything from the electrical system, water heater, and HVAC system to the foundation and floors.
Buyers should find and hire their own inspector—independent of the real estate broker—to ensure there isn't a conflict of interest. When you make your offer, make sure the seller is aware that your offer is contingent on the house passing inspection. You can also add a clause to the contract stating that the seller will pay up to a certain amount for any repairs required as a result of the inspection.
9. Not researching your neighbourhood
You may be living in your dream home, but your neighbourhood's a nightmare. Or you may have children or are planning to have children in the near future, but you didn't consider the quality of the schools or parks in the vicinity. You should ask yourself a number of questions during your home search, such as "Are there good schools nearby?" , "Do I feel safe coming home at night?" and “How easy it it to get around my neighbourhood?” either by foot or car and lastly what are the future projects scheduled in the area.
Wesgate suggests that if schools are an important factor, you should go check them out personally. Speak with the principals or the parents waiting on the steps outside to pick up their kids. To learn more about the community, open up the local newspaper, Wesgate says. You can find out about community events or even how good the local high school hockey or football team is. Today's buyers can gather all sorts of neighbourhood information from real estate blogs and websites like www.walkscore.com. "It is the responsibility of the buyer to check , school options, churches, and shopping," says Wesgate. "Remember, you can change your house, but you can't change the neighbourhood."
10. Not considering the resale value of your home
You've just started the home-buying process. The prospect of selling a home hasn't even crossed your mind. Besides, you're thinking you might live in whatever home you buy forever. Yet life is full of surprises, whether it is a job transfer or having another child or taking care of an aging relative.
When the time comes to put your house on the market, will your home be easy or difficult to sell? While you're on the hunt, it's a good idea to account for preferences of the typical home buyer. Just because you love to landscape or enjoy a bright-pink backsplash doesn't mean a prospective buyer will. "How we make our plans initially has a big impact on our ability to adjust those plans and to deal with whatever comes our way,"