buying a home? here are five costly mistakes to avoid
Homeownership is a dream many people share, but it doesn't come without its challenges. It's important to know what you're getting into. From understanding the mortgage process to determining how much house you can afford, from saving for a down payment and the closing costs to starting the exciting journey of home shopping - there's a lot to think about!
But even after you've done your homework and are ready to take the plunge, there are still some potential pitfalls that could trip you up, and if you're not prepared for them, they can come as a nasty surprise.
Here are five mistakes home buyers make that can end up costing dearly:
1. Not Getting Pre-Approved For a Mortgage
Getting pre-approved for a mortgage is one of the most important steps you can take when buying a home and is usually step number one in the home buying process. This will give you an idea of how much you can borrow and what your monthly payments will be. It also shows your real estate agent that you are serious about buying.
Making an offer without a pre-approval could mean you could lose out to another pre-approved buyer. It is always advised to have your offer conditional on financing. In addition, it's an excellent way to find out if any red flags in your credit history need to be addressed before you start shopping for a home.
Getting a realistic idea of your budget before beginning your home search is essential. Keep in mind that along with the home's purchase price, you’ll also have additional costs such as closing costs, moving costs, and furnishing costs. Once you’ve established your budget, stick to it!
Banks provide pre-approvals at no charge, so there’s no reason not to get one.
2. Failing to Compare Mortgage Offers
Once you've been pre-approved, it's important to compare mortgage offers from different lenders before you commit. Choosing the right mortgage can potentially save you thousands in taxes and interest. Review each loan's interest rate and fees to find the best deal, and be sure to compare the terms and conditions of the mortgage, such as the length of the loan, the repayment schedule, and any prepayment penalties.
It's important too that you understand what is expected from you as the borrower. There are different types of loans available, each with pros and cons.
A fixed-rate mortgage means that the interest rate and monthly payments will stay the same for the entire term of the loan. This can be helpful because it means you always know what to expect each month.
When you first get them, variable-rate mortgages have lower rates, but they could go up over time. This could make your monthly payments unaffordable.
Be sure to ask your lender questions so you can be prepared for what to expect when it comes time to sign on the dotted line.
3. Failing To Do a Thorough Home Inspection
A thorough home inspection is essential, and any offer should be contingent on it. A certified home Inspector works independently and objectively to comprehensively analyze the home's major systems and components and identify any potential property problems that could cost you a lot of money down the road.
Some things a home inspector will look for during a home inspection include:
- Water damage
- Pest infestation
- Electrical problems
- Plumbing issues
- Foundation problems
- Roof damage
- Heating and cooling system problems
- Asbestos or lead paint (in older homes)
An inspector will also provide you with a detailed report of their findings which can be used to negotiate with the seller. Be sure to attend the inspection so that you can ask questions and get a better understanding of any potential problems.
4. Not Understanding Who The Agent Represents
Real estate agents play an important role in the process of buying and selling homes. They provide valuable guidance throughout the negotiation process, helping to ensure that both buyers and sellers are satisfied with the final agreement.
For the seller, a real estate agent helps to determine the fair market value, advertises the home to potential buyers, arranges for interested buyers to view the home, and guides the process of facilitating an agreement.
The agent’s job is to make the process of selling a home as smooth and stress-free as possible. Real estate agents are experts in their field and have a wealth of knowledge and resources at their disposal. They will work diligently on your behalf to ensure that you get the best possible outcome from your sale.
For the buyer, a real estate agent is an invaluable resource. An experienced agent will have a deep knowledge of the local housing market and can help find the right type of home at the right price. They also help the buyer prepare the offer to purchase and present it to the owners in the best light possible.
In most cases, the agent will normally receive a commission that is paid by the seller, so there is no direct cost to the purchaser. As a result, it is important to choose an agent that you feel comfortable working with and who you feel confident will represent your interests throughout the purchase process.
5. Not Knowing How Credit Score Affects Mortgage And Borrowing Options
Your credit score is one of the most critical factors in determining whether you'll be approved for a mortgage, loan, or credit card. Your credit score is based on your credit history, which is a record of your past borrowing and repayment habits.
The information in your credit history is used to calculate your credit score, which is a number that represents your creditworthiness. A high credit score means you're a low-risk borrower, which is essential to lenders. A low credit score could lead to a higher interest rate and could mean you won't be approved for a loan.
If you have bad credit, there are still options available to you. You may be able to get a bad credit mortgage from a private lender, although the interest rate will likely be higher than if you had good credit. You can also work on improving your credit score by paying your bills on time, maintaining a good credit history, and using a credit monitoring service.
Improving your credit score can take time, but it's worth it in the long run. A good credit score will save you money on interest and could help you get approved for a mortgage, loan, or credit card with a lower interest rate.
If you're unsure of your credit score, you can get your credit report from Equifax Canada and TransUnion Canada.
It's wise to be aware of these costly mistakes before buying a home to avoid them. By being aware of these mistakes and taking steps to prevent them, you'll put yourself in a better position to buy a home that meets your needs and budget.