Set yourself up for homebuying success

Buying a new home soon – say in the next year or two?  It’s a very exciting time!   Even if you’re not a first-time homebuyer, you might have heard that mortgage rules have changed since the last time you bought.  I’m sure you want to avoid the top homebuying mistakes to make sure you but yourself in the best possible position when your actual purchase happens.

In my experience, there are a few home buying mistakes that come up again and again.  Here they are:

Not doing mortgage planning

The very first thing you should do before doing much more than glancing through the real estate listings online is to go to your mortgage broker or a good mortgage professional and review your financial situation.  Getting preapproved for a mortgage is just a part of that (beware the “non-preapproval). You do want to lock in your rate, and get a feel for how much you can afford.  You don’t risk finding a house you fall in love with but can’t actually buy. In addition, you want your mortgage professional to review your credit score and credit report. If there are any problems with your credit, errors on the credit report (which happens more often than you might think), or your credit score is too low, you can then work together to develop a credit improvement plan.

Getting set for mortgage financing can take as long as two years, so the earlier you start, the better. Your reward will be qualifying for the best possible interest rate on your mortgage and, therefore, saving money.  Or you can explore alternatives such as B lenders to see if you want to take that route as a temporary measure to get you in a home sooner.

Not planning for your down payment

You will need anywhere from 5% of your home’s purchase price as a down payment. Money in an RRSP (up to $60,000, for first time home buyers), money in bank accounts or brokerage accounts, or a gift from a family member are possible sources. If you’re getting the funds from your next home for the new purchase, that also needs to be looked at, and you need to figure out if you would consider bridge financing as well.  Although there are still a few lenders that offer what they call a cash back mortgage, this is getting more and more rare and difficult to get.  The true “no money down” real estate purchase is almost non-existent in Canada at this point.  So the bottom line is that you will have to prove that you have a down payment.

Not budgeting for closing costs

Don’t get caught forgetting about closing costs. You will need to demonstrate that you have at least 1.5% – 3% of the purchase price to cover costs including lawyer fees, provincial land transfer tax, plus Toronto’s MLTT if applicable (though first-time homebuyers get a rebate for some of it), home inspection, title insurance, interest adjustments, and other charges. See my blog post about closing costs for more details.

Setting yourself up to be house rich and cash poor

We’ve all been there. You’re out looking at homes, and you go see “the one” – the house with that perfect kitchen or the perfect yard for entertaining. The catch is that it’s just a tad above your top price. But if you tighten your belts, you could just about manage it, right?

Before you rush in, make sure you spend some time looking at something less exciting: the numbers. If you have a pre-approval, you should know by now how much you qualify for. Work through how each month’s budget would look like it you do max out. Do you have any money left over for things like home maintenance? Unexpected expenses such as a new roof or new car? Fun things like travel? And what happens if interest rates go up, or you or your partner don’t get that expected bonus – will you still be able to afford the payments?

Hiding information about your financial situation from your advisors

Often people will not disclose negative financial information because they are concerned that they will “look bad”, don’t feel it’s relevant, or don’t think it will come to light. Unfortunately, surprises during the home financing process are usually not happy surprises! It is better to be forthright about your situation. There are very few circumstances we haven’t seen before, so we usually have a solution. I work with people recovering from bankruptcy, consumer proposal, and the like.  As long as we know what we’re working with, we can help you figure out the game plan to get what you want.

Changing something about your financial picture before closing 

Remember that you have been approved for your mortgage based on a certain set of financial circumstances – income amount, employer / self-employment information, current debt load.  If at all possible, do not run out and sign for a new car lease, or quit your job to start a business, or anything else that impacts the set of numbers you provided when you applied for your mortgage!  If you do have to make a chance, give your mortgage professional a heads up as soon as you know that something is changing, so that you have as much time as possible to go to Plan B.

Feel free to call me to discuss your options. In the meantime, I wish you smooth and surprise-free home buying!

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