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Purchasing a home is a significant investment, and there are a number of mistakes that home buyers often make. Knowing what these mistakes are and how to avoid them can help you navigate the process with ease and avoid any unnecessary stress.
Not Getting Mortgage Pre-approval
Mortgage pre-approval gives you an idea of how much you can afford to spend on a home, and it also shows sellers that you're serious about buying. Mortgage pre-approval lets you write an offer with confidence. Oftentimes buyers completely fall in love with a house they have seen only to find out they can't afford it. This could dampen the mood of the whole buying process.
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Not Hiring a REALTOR
One of the biggest mistakes that home buyers can make is not hiring a REALTOR. Many people think that they can save money by going it alone, but the reality is that hiring a professional will end up saving you money in the long run.
A good REALTOR will have a deep understanding of the local market and what homes are actually worth. You could unintentionally overbid or fail to make a competitive offer at all on a great value if you don't have an understanding of market value. In addition, a REALTOR will be able to help you navigate the often complicated and confusing process of buying a home, from start to finish. It could save you a lot of money.
Focusing Too Much On Interest Rates
Focusing too much on interest rates is another trap that could make home buyers miss out on potential opportunities. While interest rates are important, they aren't the only factor that determines the overall cost of owning a home. The various sorts of mortgages, payment plans, and flexibility will have a far bigger influence on the overall cost of home ownership than the interest rate alone.
If you're interested in finding the lowest interest rate possible, it's important to compare rates from multiple lenders. But don't make the mistake of only looking at interest rates. Be sure to also compare the fees, terms, and conditions of each loan.
Not Knowing The Down Payment Options Available
Another mistake that home buyers can make is not being aware of all of the down payment options available to them. The most common down payment option is taking out a loan from a bank or financial institution, but there are other options available as well.
The Home Buyers' Plan (HBP) is a program that allows first-time home buyers to withdraw up to $35,000 from their Registered Retirement Savings Plan (RRSP) to use as a down payment on a home. The money must be repaid within 15 years, and the home must be a qualifying home as determined by the HBP.
Another option for first-time home buyers is the First-Time Home Buyer Incentive offered by the Government of Canada. This incentive allows first-time home buyers to receive a 5% or 10% (free of interest) of the purchase price of the home.
Forgetting About The Closing Costs
When you're buying a home, it's important to factor in all of the costs associated with the purchase – not just the price of the home itself. Closing costs can add up quickly, and if you're not prepared for them, they can cause a real headache.
Service Charges:
These are fees charged by your lending institution for things like processing your mortgage application and setting up your loan. They can vary from lender to lender, but they're typically in the range of $200 - $300.
Legal Fees:
You'll need to hire a lawyer to handle all of the legal aspects of your home purchase, and their fees can vary widely. In Alberta, legal fees for a home purchase typically range from $500 - $1,500.
Property Taxes:
You'll be responsible for paying property taxes on your new home, and these can vary depending on the municipality in which you live. In Alberta, property taxes typically range from 0.5% - 2.5% of the assessed value of the property.
Appraisal Fee:
Your lending institution may request an appraisal of the property, which would be your responsibility to pay for. Appraisals can vary in price from approximately $175 -$300.
Property Insurance:
You'll need to insure your new home, and the cost of this will vary depending on the value of your home and the level of coverage you choose. In Alberta, property insurance typically costs between $500 and $1,200 per year.
Land Transfer Fee:
Alberta does not charge any land transfer fee, however, there is a property registration fee.
The property registration fee is divided into two parts:
The land component has a flat fee of $50 plus $2 for every $5000 of the purchase price.
The mortgage component also has a flat fee of $50 plus $1.5 for every $5000 of the total mortgage amount.
For example, if you are buying a home for $450,000 with a 20% downpayment (mortgage amount of $360,000), your property registration fee would be $388 ($158 Mortgage Registration Fee and $230 Property Registration Fee).
Closing costs can be a significant expense when you're buying a home, so it's important to be prepared for them. By knowing what to expect and budgeting accordingly, you can avoid any nasty surprises down the road.
Not Knowing Your Budget
Lastly, it is important to know how much you can afford to spend on a home so that you do not end up in financial trouble.
It's important to be aware of all of the costs associated with buying a home (not just the monthly mortgage amount), including the purchase price, closing costs, property taxes, and insurance. Without knowing your budget, it's easy to overspend and end up in financial trouble.
To avoid this mistake, sit down and create a budget before you start looking at homes. Be sure to factor in all of the costs associated with buying a home, and be realistic about what you can afford. Once you have a budget in place, stick to it.
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