Setting out to buy your first home is one of the more exciting parts of adulthood. It’s often accompanied by feelings of great pride and responsibility. But sometimes all the excitement can cloud the buyer’s judgment and good sense.
First-time homebuyers may make mistakes because they just don’t have as much experience in the real estate market yet, which means oversights can happen.
Here are six common mistakes first-time homebuyers make, and how to avoid them.
1. Only considering the mortgage payment when estimating what you can afford
Transitioning from a renter’s life to an owner’s life can be deceptive. You might look at what you’re currently paying in rent and find that you could afford a house worth X amount of money for a similar monthly payment. But this is a trap.
Owning a house isn’t just about the monthly mortgage payment. There are a lot of other expenses that come with buying your first home, including property and land transfer tax, closing costs, inspection costs, and repair and maintenance costs. If you don’t take all of these extra expenses into account, you could wind up “house poor” — where all the expenses that come with owning a house actually start putting you in debt.
2. Looking for a house before you’re approved for a mortgage
This is one of the most common first-time home buying mistakes. It can be tempting to start perusing real estate websites and even booking viewings before you’ve been to the bank, but this is a big no-no if you haven’t yet been approved for a mortgage.
It’s crucial to know what mortgage amount you’re pre-approved for before you start house hunting. This ensures you’ll stay within the price range you can truly afford and don’t wind up disappointed, or mislead the sellers.
3. Not having an emergency expenses fund built up
Similar to underestimating what it costs to actually own and maintain a house by only considering the mortgage payment, not having an emergency expenses fund can also get you into trouble.
You don’t want to drain all your savings to buy a house. What if the furnace breaks two months after you move in? Where will you pull that money from? Make sure you have an adequate slush fund for those inevitable repairs.
4. Taking the first interest rate you’re offered
Here’s where you could be leaving money on the table. When you’re pre-approved for a mortgage, you’re also pre-approved for a certain interest rate. It’s in your best interest to not take the first quote/rate you’re given. Use a free online mortgage rate comparison tool to compare mortgage quotes and make sure you’re getting the lowest rate.
5. Forgoing the home inspection process
Home inspections are a crucial step before closing on a house. A home inspector is someone who takes a close look at the home’s structure (things like the roof and the foundation) to see if there are any red flags and to make sure things are working as they should. Home inspections can save you money by catching any unexpected issues before you move in, rather than after.
Home inspections aren’t mandatory, but they are recommended. In fact, the Canada Mortgage and Housing Corporation (CMHC) suggests making an inspection a condition of your offer. According to the CMHC, an inspection can cost around $500.
You can find a home inspector by doing some online research or asking your real estate agent for recommendations. Depending on the province you live in, you might be able to find a home inspectors association that can recommend an inspector.
6. Not checking your credit report for any red flags
One of the most important things you can do to ensure the mortgage approval process goes smoothly is to take a peek at your credit report.
You risk not having the mortgage approved or the sale go through if you have any outstanding bad credit, like an old credit card that went into bad standing because you never paid it off. These things can come back to haunt you at the most inconvenient of times in your adult life — so don’t let them. Get ahead of any issues and deal with them well in advance of buying your home.
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About the author
Lisa is a senior editor in the personal finance space. Her work has appeared in Reader’s Digest, Toronto Life, Canadian Living and TVO. As a child, she diligently hoarded the $50 bills that fell out of her Christmas cards. Adult Lisa is working hard to resurrect those stockpiling tendencies.