10 Worst First-Time Homebuyer Mistakes

10 WORST FIRST-TIME HOMEBUYER MISTAKES

Are you gearing up to buy your first place? Arm yourself with these tips to get the most out of your purchase and avoid making 10 of the most costly mistakes that could put a hold on that sold sign.

Not Knowing What You Can Afford
 What the banks says you can afford and what you know you can afford or are comfortable with paying are not necessarily the same. If you don’t already have a budget, make a list of all your monthly expenses (excluding rent). Subtract this total from your take-home pay and you’ll know how much you can spend on your new home each month.

Skipping Mortgage Qualification
What you think you can afford and what the bank is willing to lend you may not match up, so make sure to talk to your mortgage broker and get pre-approved for a loan before placing an offer on a home. Beware that even if you have been pre-approved for a mortgage, your loan can fall through at the last minute if you do something to alter your credit score, like finance a car purchase.

Failing to Consider Additional Expenses
Once you’re a homeowner, you’ll have additional expenses on top of your monthly payment. You’ll be responsible for paying property taxes, insuring your home against disasters and making any repairs the house needs. If you’re purchasing a condo, you’ll have to pay maintenance costs monthly regardless of whether anything needs fixing because you’ll be part of a building strata.

Being Too Picky
Go ahead and put everything you can think of on your new home wish list, but don’t be so inflexible that you end up continuing to rent for significantly longer than you really want to. First-time homebuyers often have to compromise on something because their funds are limited.

Lacking Vision
Even if you can’t afford to replace the hideous wallpaper in the bathroom now, it might be worth it to live with the ugliness for a while in exchange for getting into a house you can afford. If the home meets your needs in terms of the big things that are difficult to change, such as location and size, don’t let physical imperfections turn you away.

Being Swept Away
Minor upgrades and cosmetic fixes are inexpensive tricks that are a seller’s dream for playing on your emotions and eliciting a much higher price tag. If you’re on a budget, look for homes whose full potential have yet to be realized. First-time homebuyers should always look for a house they can add value to, as this ensures a bump in equity to help you up the property ladder.

Compromising on the Important Things
Don’t get a two-bedroom home when you know you’re planning to have kids and will want three bedrooms. Don’t make a compromise that will be a major strain.

Neglecting to Inspect
Before you close on the sale, you need to know what kind of shape the house is in. You don’t want to get stuck with a money pit or with the headache of performing a lot of unexpected repairs.

Not Choosing to Hire an Agent or Using the Seller's Agent
Once you're seriously shopping for a home, don't walk into an open house without having an agent. Agents are held to the ethical rule that they must act in both the seller and the buyer parties' best interests.

Not Thinking About the Future
It's impossible to perfectly predict the future of your chosen neighborhood, but paying attention to the information that is available to you now can help you avoid unpleasant surprises down the road.

Misconceptions about mortgage brokers

A Few Misconceptions

Misconceptions occur in every business and the mortgage business is no different.

A recent example is this post by Boomer & Echo (B&E), a prominent blog that we typically enjoy. In it, B&E opines on why not to use a mortgage broker.

In the piece, the author gets some stuff wrong. As often happens, we came across it in our weekly blog scan and feel obliged to offer some counterpoints.

B&E makes four claims. They are:

1. Brokers push 5-year fixed rates.
   
   Counterpoint: Brokers sell a higher ratio of variable-rate mortgages than bank salespeople, and have for quite some time. That’s per executives we’ve questioned at banks with both broker and retail channels (e.g. CIBC and Scotiabank). In general, however, all mortgage professionals (bank or broker) sell a lot of 5-year fixed product. It’s the most popular term (has been for decades), it’s the easiest to qualify for, and it has the most competitive discounting (albeit, not presently).
   
2. Loyalty to your bank pays.
   
   Counterpoint: The Bank of Canada concluded exactly the opposite (more). To summarize, it’s research found that existing customers pay more than new customers. What’s more, no one lender continually has the best mortgage options. By comparison shopping, good brokers can save homeowners interest and identify the lender with the right flexibility/value tradeoff. The best brokers provide expert term analysis, proper deal structuring and helpful strategies to reduce a borrower’s amortization.
   
3. Bankers have better reputations
   
   Facts: The RBC specialist incident last April proved that reputation should be judged individually, not by virtue of where a mortgage advisor works. Generally, brokers and bank specialists are both paid by commission and the commission is similar whether they sell a 5-year fixed or variable. Neither is holier that the other in that respect, except that bank reps are hired to push only one brand.
   
4. Your better off doing it yourself
   
   Counterpoint: We have visions that people will someday get a mortgage online like they buy a stock at iTrade. But we’re not there yet. Good brokers provide counsel that saves time and money. Do-it-yourselfers sometimes discount the value of advice, mesmerized instead by brokers/bankers who can save them a few basis points in rate. For most, that’s a mistake because:
• Few individuals grasp the mortgage math needed to perform proper term selection. Term selection impacts borrowing cost far more than rate selection. A “good rate” alone does not equal a “good deal.”
• There are lots of creative techniques that skilled advisors can use to help people whittle down principal quicker.
• Lenders rarely disclose all of their mortgage restrictions until you sign their contracts. Brokers know the benefits and pitfalls of multiple lenders, and advise borrowers in advance.

It is possible to pick your own investments, do your own taxes or write your own will, but people still hire financial planners, accountants, and lawyers. There’s only so much time in a day and we can’t specialize in everything.

In all of those industries there are great and not-so-great practitioners. Brokers are no different. Interview several before picking one. Ask questions like:

• Which lenders they use most often and why
• How long they’ve been in business full-time
• Why their term recommendation is mathematically sound for your specific needs.

Sense if you can trust them. If they seem to care about you, and are competent, and make you feel comfortable, you’ll be glad to have them on your side

Courtesy of Canadian Mortgage Trends

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