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Buying your first home is a major life milestone and possibly one of the biggest decisions you’ll ever make, both from a financial and long-term commitment perspective. And while being ready for every possible outcome isn’t possible (not to mention unrealistic!) it is possible to prepare for potential pitfalls you may run into during the home buying process. From identifying and making the most out of saving opportunities, to explaining how working outside of your budget will cost you in the long run, here are some common pitfalls first-time buyers tend to experience, and how two REALTORS® recommend avoiding them.
1. Attempting to manage without professional assistance
For Regan O’Rourke, a REALTOR® and salesperson with Royal LePage Property Consultants Limited in St. John’s, Newfoundland, the buying process starts with the expert assistance of a REALTOR® and mortgage broker.
“REALTORS® have fiduciary responsibilities of confidentiality, utmost care and loyalty, and are bound by a Code of Ethics. They’ll inform you regarding essential facts which affect current market conditions, all while protecting and promoting your interests,” he explains. “They’ll discover facts pertaining to a property in order to avoid error or misrepresentation and ensure transaction agreements are presented in writing in clear and understandable language.”
Experienced professionals will “fully inform you regarding all the expenses directly related to the real estate transaction and mortgage brokers will help you get pre-approved and depending on your credit rating and down payment they will design a home buying timeline.”
2. Overlooking assistance programs and hidden costs of homeownership
As a first-time buyer, it’s definitely worth looking into assistance programs available for first-time home buyers in Canada. In a bid to make homeownership more affordable, the Government of Canada has several federal programs including the Home Buyers’ Amount Tax Credit (HBA) the Home Buyers’ Plan (HBP), and the First-Time Home Buyer Incentive. Provincial governments also offer first-time buyers land transfer tax refunds, while the Canada Mortgage and Housing Corporation (CMHC) offers mortgage loan insurance. Although each assistance program isn’t applicable to all buyers, taking the time to learn about them to see if you qualify and what could work for you is worthwhile.
Your mortgage isn’t the only cost you’ll need to take into account when buying a home, either. Nick Kyte, a REALTOR® in Ottawa, Ontario, says “when it comes to closing costs, it’s best to have more funds available than not, as the general rule of thumb 1.5% to 4% of the purchase price will be required to cover those costs”.
Moving costs are often overlooked when it comes to budgeting for a first home as well, along with home inspection fees, legal or notarial costs, and fees associated with different taxes and interest.
Kyte says it’s important to factor in these expenses when figuring out how much you need to save, adding “first-time home buyers should also note expenses associated with purchasing appliances, as not all homes come with all them included. Furnishing can also be expensive”.
3. Moving too fast or purchasing more than you can afford
Hastily charging forward can and likely will cost you in the long run. This is why it’s strongly recommended a home buying timeline is mapped out with your REALTOR® and mortgage broker well in advance, in addition to working through any potential credit report issues that may prevent you from being pre-approved on a loan.
The Canadian Real Estate Association has a Homebuyers’ Road Map to help guide you through the journey along with your REALTOR®.
Another closely related pitfall is buying more than what is actually affordable. It’s tempting to want to step even just slightly outside of your budget when you feel as though you’ve found that “unicorn” house. Unfortunately, as with accelerating to the purchasing finish line, overextending yourself can cause problems further down the line, especially in the event of falling upon financially tough times.
“Finding a home that meets all your wants and needs is next to impossible as a first-time home buyer,” Kyte points out. “Be honest with your budget, taking into account lifestyle expenses like dining out, travel, and weekend getaways. These all add up. If you’re already at your max budget, look for a more affordable option that allows you to have a life and build equity so you’re all set to upsize when the time is right.”
Instead of looking at the maximum loan you’re eligible for, think about a realistically affordable monthly payment that will allow you to maintain other important financial obligations and have some wiggle room in the event of an emergency.
O’Rourke encourages first-time buyers to “discuss what your preferred monthly payment vs. your qualifying monthly payment with your REALTOR® to determine if your housing needs can be purchased with your preferred payment.”
Making the decision to buy your first home isn’t something to take lightly. Even with all of your research, not to mention the tips, tricks and anecdotes from family, friends and colleagues about their experiences of buying their first home, it can still be overwhelming. Your REALTOR® can help you navigate the process and answer any questions you have. Their expertise will be invaluable along your home buying journey.
Kyte suggests “having a professional team assembled to support your home buying journey, which would include a REALTOR®, mortgage broker, lawyer, financial advisor and accountant, to name a few. Ensuring you have trusted professionals that answer your questions accurately and provide sound advice is the foundation to build upon when searching for your first home.”
Remember, you shouldn’t wait until the last minute to reach out to a REALTOR®. Working with a professional from the beginning of your home buying journey can help you feel more prepared as you embark on this exciting milestone.
