By Alyssa Furtado, RateHub.ca
Special to the Financial Independence Hub
You’re about to make one of the biggest decisions of your life by purchasing a home. And it will likely be your biggest and most complicated financial commitment. So you should make a plan that captures everything you need to do to avoid costly mistakes.
Here’s a list of five mistakes you shouldn’t make when purchasing your first home.
1.) Failing to get pre-approved for a mortgage
It’s vital you know how much you can spend before you start looking for your first home. To figure out how large of a mortgage you can afford, use a mortgage affordability calculator. This will help estimate how much you will be pre-qualified for by a lender, who will conduct a credit check and review your finances. You can arrange for your pre-approved mortgage rate to be held for a period of about 90 to 120 days while you search for the right property.
2.) Not researching mortgage rates
Your first instinct will be to approach your current bank to obtain a mortgage, but you should do some research first to find the best mortgage rates. You might be able to find a better rate at a competing financial institution. Doing your research and comparing rates before you meet with a lender will ensure you get the best interest rate possible. You can also contact a mortgage broker to help you find the best rates.
3.) Skipping a home inspection
Once you find the property you want to buy, remember to get a home inspection. A good home inspector can catch items that can be costly for you after you’ve purchased your home. A minor repair can be done prior to closing and a major issue can be used to negotiate a lower purchase price. In a seller’s market you may want to book a home inspection during your viewing to avoid delays. If there is a deficiency the bank will want proof of repairs to ensure the property is worth the value of the mortgage.
4.) Assuming you can only make monthly mortgage payments
While monthly mortgage payments are common, you can make payments more frequently. Many lenders will let you set up a schedule based on your preference, so this could be weekly, biweekly, accelerated weekly, or accelerated biweekly payments. If you opt for accelerated payments, you can reduce the amount of interest you pay during the lifetime of your mortgage. This means you could save thousands of dollars and pay off your mortgage faster.
5.) Not budgeting for closing costs and other expenses
When you buy a home, there are closing costs you have to pay. These include legal fees, title insurance, land transfer taxes, and prepaid property tax and utility adjustments. These costs are usually about 1.5% to 4% of your home’s purchase price. In addition to closing costs, you need to save for expenses such as movers and the installation costs of utilities, internet, and cable. Finally, you’ll need to buy home insurance. Again, you should comparison shop for the best home insurance rates. Preparing for these additional expenses will ensure you know how much money you need to save for the total cost of your home purchase.
The bottom line
Buying a home is an experience you’ll never forget. Avoiding the five mistakes will save you money and purchasing a home less stressful.
Alyssa Furtado is a passionate entrepreneur, financial expert, digital marketer and educator and founder of RateHub.ca, a website that compares Canadian mortgage rates, credit card deals, deposit rates and insurance. Its goal is to empower Canadians to search smarter and save money.