Buying your first property can be an exciting yet stressful experience. It is important to understand the challenges you may face and plan accordingly. Here I have provided five of my most helpful tips for first-time home buyers.
1 – Don’t focus solely on the rates! Everyone’s first question is “what’s your best rate?” While a low rate is important because it helps save money, it is even more important to find a mortgage that’s right for you. The average home buyer sells their property in 38 months. If you choose to opt for a five-year fixed mortgage like everyone thinks you should, you may end up paying tens of thousands of dollars to break your contract. Life moves quick; don’t put yourself in a bind in the future to save $10–15 a month on your mortgage payment. Instead, see a broker and let them help you make an educated decision. You’ll thank me later!
2 – Get a pre-approval. Getting a pre-approval is different than getting pre-qualified. Getting pre-qualified is just based on your credit, down payment and income, but doesn’t require any proof or hold true value. A pre-approval will be thorough and will help kick off your home buying process while also locking in an interest rate for 90–120 days.
3 – Allow some wiggle room. When saving for your down payment be sure to keep a separate fund in case of emergencies, as you may not have the same cash flow that you did prior to making such a big investment. You will also incur closing costs, which are normally about 1–1.5% of the mortgage. However, if you reside in Ontario, you are eligible for a refund on all or part of the land transfer tax, and this will save you a large portion of that closing cost, so don’t worry.
4 – Don’t stress about having 20% down. Many people think that you need to have 20% of the total value as a down payment to purchase a property or that if you don’t have 20% you will pay much more each month. While your monthly payment will be more, the difference won’t be drastic. With the way the real estate market is going and has been going for the past 20 years, you will make that money back in the equity built by buying purchasing the property sooner. If you wait and save for another year or so to avoid paying mortgage default insurance the housing market may increase by that same amount, if not more, during that time. Get a foot in the door of the real estate market as soon as you can.
5 – Don’t make any large purchases while going through the mortgage approval process. This may seem obvious to some but others may not be aware that doing so will jeopardize your entire mortgage approval if you decide that it is a good time to go purchase a car or an engagement ring on your credit card. Such expensive purchases will impact your debt ratio, throwing your mortgage approval out the window. Save the major purchases till after the closing.
For any questions regarding this blog or anything else mortgage related, please contact me at cmayner@mortgagewellness.ca.
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