A blog cannot deal with all aspects of a subject and is not intended to replace professional advice. It's purpose is to highlight information and identify areas of possible interest. Anyone wishing to discuss this blog or to make any comments or suggestions about this blog is invited to do so by either posting comments or emailing me directly.
A house is often one of the biggest investments most Canadians ever make, so it’s important to plan ahead, think about what you need in a home ,and what you can afford. Here are some of the mistakes that first-time buyers often make:
Getting pre-approved for a mortgage is a fundamental first-step in the buying home process and signals to your agent that you’re serious about buying. Many short-sighted agents won't even start providing you with services until you are formally pre-approved to purchase. Once you are formally approved, keep in mind that the amount they communicate to you is the absolute maximum amount the lender feels you can afford for mortgage principal and interest based on your income, expenses and credit score. This figure doesn’t account for other expenses you may face such as: renovations or emergency home repair, as well as regular household costs such as food, clothing, entertainment, transportation and ongoing maintenance. You need to determine how much you are comfortable spending on your direct housing costs today and in the future. Many people feel that they wish to purchase a home far less than their maximum approval amount – don't ever feel pressured by anyone to buy at your maximum.
A credit rating is a record of your credit history and your current financial situation. A good credit rating can improve your ability to get loans, so if your score is low, you will want to work on improving it before you apply for a mortgage.
Being a homeowner brings a few new expenses, including property taxes, any additional insurance costs, regular maintenance and an emergency fund for repairs. Possibly utilities may be an additional cost, but most renters today already pay utilities either separate from their rent or included in it. Don’t forget to factor in the cost of any renovations your new home may need. The great thing that many people foreget is that savings is automated through the portion of your mortgage payment that pays down the principal.
All lenders will require mortgage loan insurance when you make a down payment of less than 20 per cent, and premiums for that insurance can be as high as 3.75 per cent of the value of the loan (on a 25-year mortgage). Under the Federal Government Home Buyers’ Plan, first-time buyers can use up to $25,000 in RRSP savings ($50,000 for a couple) for a down-payment. A larger down-payment will save thousands of dollars in interest over the life of your mortgage. If you are saving for a large down-payment, just make sure you use it for that and not spend it on more convenient things - like vacations or automobiles.
First-time home buyers rush into the market when interest rates are low. While rates are important, other things have a greater bearing on the overall cost of home ownership, including the cost of the house, the type of mortgage, the amortization period, doubling up payments, annual prepayment privileges, weekly or semi-monthly payment privileges, and mortgage portability.
Paying off your mortgage sooner saves you interest costs, while a longer amortization period reduces your regular payment and frees up cash flow. You can save thousands of dollars in interest by choosing a shorter amortization period, paying weekly or biweekly instead of monthly, or increasing the amount of payments by even a small amount.
In Alberta, we don't have the huge many of the closing costs needed in other provinces. When calculating closing costs, assume you will need an approximately $2,500 cover such things as the home inspection, legal fees, mortgage & title registration fees, property insurance, utility hook-ups and moving costs.
In Alberta, you have the right to bring your own agent to the negotiations or even just to preview an open house. The buyers' agent that you hire is almost always fully compensated - either by fee or compensation - by the seller through the seller's agent. In the rare circumstance where they aren't, you won't pay any more for the house since you and your agent will take into account their fees when you make an offer on a home. As a buyer, make sure you have a written contract with your agent to allow them to do this - before you go looking at homes. This can also protect you from "bonus commissions" that are sometimes offered to get agents to steer their clients to difficult or over-priced homes.
As an Accredited Buyer's Representative (a designation bestowed upon few Calgary real estate agents by the National Association of REALTORS in Chicago) I have certified experience working with buyers and love helping especially first-time buyers get started in home ownership. When you are ready contact me and we can help you determine if now is the right time to get started on the process started.