8 Mistakes First Time Home Buyers Make
You need to love your choice, but use your head!
That first home is a very BIG deal. It’s the single biggest financial investment most of us will make in our entire lives and that notion can be daunting. But if you use your head and avoid some mistakes that others have made, you can save yourself a lot of grief, and money, in the process!
Is buying a good idea?
A lot of young people—and some not so young—firmly believe that ownership is the way to go; that renting is just throwing good money after bad. But that’s not always the case. Sometimes, renting is a preferable option for a couple of reasons:
- If you’re not going to be in that house for very long because of school / job or other changes in your life, renting might be a better option. Why? Because the closing and maintenance costs that would normally be amortized over the life of a mortgage will end up costing you a lot more, to say nothing of the cost of breaking a mortgage before the term is up!
- You aren’t financially prepared for the extra costs that go into buying a home: homeowner’s insurance (vs. content), mortgage loan insurance (if you don’t have a sufficient down payment), closing costs (which can include land transfer taxes, title searches / insurance, reimbursement to seller of fuel or propane, legal fees and more, adding up to 2.5% of the purchase price of the property), property taxes, maintenance fees (condo), repairs, and general home maintenance, to name a few. These can add up FAST! You need some extra funds for the unexpected.
Not having a pre-approved mortgage
Any realtor will tell you that in a hot, fast market, you need to know how much you can spend and what your absolute limits are. The best way to do this, and look good on paper for a prospective buyer who is considering multiple offers, is to have a pre-approved mortgage in hand before you go house shopping. Otherwise, you will end up looking at homes that you can’t afford, which is like standing outside your favourite designer boutique with your nose pressed against the window! Not fun!
Before you even go for a pre-approved mortgage, you need to have a SOLID understanding of your financial position: your current debt load payments and monthly expenses, your income, extraordinary expenses like vacations and so on. Be realistic. Don’t assume you will be willing to forego any kind of vacation for the next five years! Stretching your budget too far will leave you feeling stressed all the time, wondering how you will make it all work.
Skipping the home inspection
In a hot market, where inventory in the lower brackets is slim, buyers might be tempted to skip the home inspection in hopes that this will put their bid above others. The reality is that you could be walking into a money pit and you won’t know it until after you’ve signed on the dotted line. First time buyers usually don’t have the financial resources to take on major repairs, so it’s important to consider this before putting in an offer!
Hoping the house will be a gold mine
First time buyers often have visions of selling their first home a few years down the line for a massive profit, so that they can upgrade to a bigger, better home. The reality is that unless your first buy is in a very hot market—which also means it will be an expensive property and mortgage—that likely isn’t going to happen. Buy a home that you will want to live in, not just an investment property.
Not thinking with your head
You’ve seen what you think is your dream home. You’ve fallen in love and you know what they say about love: it’s blind! Your choice house ticks off a lot of boxes on your wish list, though it isn’t in the right location in terms of school catchment or for your job, and the roof is going to need replacing in a year or two, or the furnace is on the blink and it’s November. But it’s SO pretty! STOP! This kind of thinking will land you in a pile of extra debt, to say nothing of another move in short order, which will add to your costs. Be sensible and think practically. Make a pro / con list. Do whatever it is you need to do to make sure that your head rules!
Not asking for comparables in the area
A realtor worth their salt will offer up comparable sold properties in the area, so that you can see whether the price being asked is in the ballpark and what you can reasonably offer. If they don’t, ask for them. It’s important to understand the market / neighbourhood you’re interested in, right down to the last dollar, cent and local park.
Not knowing the neighbourhood
You’ve asked your realtor for homes in a specific area that you know very well but they take you to see one that is in another area, but is ‘just darling’ and you ‘have to see it’. Before you run headlong into falling in love with that home, make sure you check out the neighbourhood. How close are you to schools? What are the crime stats like? Do people seem friendly or is every house covered in security, with a vicious looking dog at the gate? What about shops and restaurants? Health services? Whatever neighbourhood features are important to you, make sure you’re comfortable with what’s available.
Being fussy about details
You’re buying a house and suddenly the idea of compromise is frightening: you want all the goodies for the money you’re spending! The cool countertops, double sinks in the bathroom, a jacuzzi tub and separate shower… you name you, you want it. But here’s the thing: in a first home, you probably can’t have it. Don’t get bogged down in finding the PERFECT house with everything on your wish list or you could be living in Mom and Dad’s basement for a long time to come!
Another way this is true with first time buyers is their inability to see past a hideous wallpaper job, or some other cosmetic flaw in the home. You can’t let a ‘flaw’ that could be remedied with a quick paint job be the determining factor in whether or not you buy a home! Have some vision and see the potential to add a little value. If the house is structurally sound, in the right neighbourhood and is big enough to see you through the foreseeable future, don’t dismiss it as an option!
Still another way to fall into this mistake is to love the staging done by the realtor, and miss the actual issues in the home. For example, a staged kitchen will have a lot of small appliances removed and put into storage, but in real life, you will have some out all the time, like coffee machines, etc… Is there enough counter space or are you just seeing what the sellers want you to see?
It seems like a lot to worry about, but with the biggest financial investment you’re ever likely to make, is there room for errors that can easily be avoided? No. Take the time to figure out some of these important issues before you start house hunting and you’ll find the journey a lot smoother.
Do you have any first time buyer tips, from your own experience, that you’d like to share with us! Comment below and let us know!