Top 5 mistakes first-time homebuyers make

Common mistakes made by first-time homebuyers…

And how to avoid making those first-time homebuyer mistakes! I tend to revise this list from time to time, based on what I’m seeing with my clients.  So here’s my latest list of the top five mis-steps first-time homebuyers (and even experienced homebuyers!) make:

1.  Not getting a mortgage pre-approval

You may be wondering, why is a pre-approval important, anyway?

Well, for one thing, it tells you what you can afford… Why risk falling in love with a place if you can’t afford it?  As well, it gives you opportunities to repair / improve your credit report and credit score.  If any issues need to be dealt with, it’s better to do that well before you have found and want to buy the house of your dreams.  If you’re starting to look for a place seriously, it allows you to lock in your interest rate for 90-120 days.  So, you’re protected from rate increases.  In a more general sense, getting a pre-approval also helps you figure out any goals, obstacles, and special needs you might encounter in your unique situation.  And finally, you also will be able to determine what documents you’ll need to provide to the lender.

2.  Looking only at your mortgage rate

While the rate is important, there are also many other things you need to consider. The second first-time homebuyer mistake is looking at the mortgage rate and nothing else. Look at the lender’s pre-payment privileges, flexibility on amortization, customer support, and how they treat their clients at renewal.  A “no frills” mortgage with a rock-bottom rate may make sense, but a lot of times it may NOT.

3.  Not picking the right mortgage lender for you

Does walking right into your bank branch sound like a good strategy?  Many times, it isn’t. I’ve been told way too many stories of people walking into a branch and getting a so-called pre-approval.  After puting in an offer on a property, these people find themselves scrambling when they are told that the branch didn’t take something about their situation or credit profile or income into account.

In particular, if there is anything unusual about your situation, such as being self employed, new to Canada, or you have past credit issues, not all lenders will be as good at helping you with your financing. And even on things like rate, I have often been successful at getting a much better rate for my clients, than the one they were offered when they walked in on their own. Something about competition?

4.  Going on a spending spree

I see this often, such as when people start a new job, leave a marriage, move to a new city.  The thought process is something along the lines of  “Hey, let me get a new car or furniture suite, and then I’ll be ready to get a new home”. The impact of that car payment can mean you qualify for $100,000 less on your mortgage.

So if you’re thinking of buying a home in the next few years, figure out your mortgage financing as early as you can. Once your home purchase closes, THEN start thinking about acquiring more stuff.  The same thing goes for locking yourself in on offers like “buy furniture, don’t pay for 2 years,” and that kind of thing.  Don’t make any major purchases prior to closing on your home!

5.  Changing your financial situation prior to closing

Changing jobs, quitting a full-time job and starting a new business, applying for new credit cards, closing existing credit cards, letting payments slip, and pretty much anything that might impact your financial situation in any way is another first-time homebuyer mistake you should avoid.  Your mortgage lender can check your credit up to the day of closing, and if anything has changed, they have the right to change their minds about giving you the mortgage.  I can’t emphasize this enough – keep everything the same or better!

If you’re interested in looking at more information about credit, check out my articles on establishing credit or repairing bruised credit.

And feel free to get in touch to get your plans together!

Photo credit: [c] sewupari studio for vecteezy.com