Buying your first home comes with many big decisions, and the prospect is as daunting as it is exciting for first time buyers. Before you know it, you will get swept up in the whirlwind of home shopping and fall prey to common mistakes that would come back to haunt you as buyer’s remorse later. Since homeownership has many far-reaching implications, you need to make the most rational decision possible, which is where a little knowledge and preparation can set you up for success. Avoiding these all-too-common first-time buyer mistakes can make sure you are on the right track for your first condo purchase.
Spending More Than You Can Afford
Before you start looking for a condo, take a good hard look at your financial standing and figure out how much you can comfortably afford to pay each month, without stretching your finances thin. Look within the price range that best caters to your bank balance and wont lead you down the road to frustration. Attending an open house and falling head over heels for a place you can never afford is a bumpy start to your house buying journey. Being adamant on your choice of neighbourhood or not prioritizing your wish-list wants over needs can lead to overspending. You need to stay flexible and focused. As a rule of thumb, your monthly mortgage payments should not exceed 28 percent of your monthly gross income. This percentage should be even lower if you have other outstanding dues as well. Make estimates based on your current income, not based on what you think you will be making a few years down the line.
Draining All Your Savings
Don’t make the mistake of putting every penny of your savings towards the down payment and closing costs. Some people pull all their finances to make the 20 percent down payment, which translates into substantial savings on the monthly mortgage payment, but this means you are left with no savings at all. In reality, you are just picking the wrong poison. Why live on the edge when we don’t know what tomorrow has in store for us. While paying mortgage insurance isn’t ideal, it means you at least have three to six months of living expenses in an emergency fund.
Waiting To Buy With A 20% Down Payment
As experts say, the best day to buy real estate is yesterday. Especially when we talk about the Toronto real estate market, where condo prices continue to soar by the day, the longer you wait, the more you will have to pay. But here’s the thing, the prospect of paying up a staggering sum for a down payment, scares off most people. The commonly believed notion that you must put 20 percent down payment is a myth. If you are delaying your property purchase because you need to save up 20 percent, in order to save avoid paying private mortgage insurance, you will never be able to buy a condo in Toronto at all. It’s better to pay a mortgage insurance premium with a 5% or 10% down payment than to wait years to be able to save a twenty. It gets you into the market today so you can start building your equity.
Being Careless With Credit
Lenders pull credit reports at the time pf pre-approval as well as just before closing to ascertain that things check out and nothing has changed in your financial landscape. Any new findings of credit card accounts or new loans can wreak havoc on the closing and final loan approval. Unfortunately, most first-time buyers learn this lesson the hard way. The only way to avert this is to avoid opening new credit cards, making large purchases on existing credit accounts, taking out new loans, or closing existing accounts in the months between applying for a mortgage and the closing day. Be keen on paying your bills on time during this period, and if possible, try to pay down your existing balances to at least thirty percent of your available credit limit.
Buying For Right Now
First-time buyers get so caught-up in the excitement of buying their first condo that they often take impulsive decisions. Remember that buying property in Toronto is a huge financial undertaking and one that can set you back years if not well thought-out. When you start outlining your search criteria, imagine where you see yourself in the next five years. Ask yourself if you might have to travel or relocate in the next five years, or perhaps you will consider starting a family and need a bigger space then. Ask yourself how your life may be different a few years down the road, to ensure you are buying a property that you will not outgrow.
House Shopping Before Getting Pre-approved
Any real-estate agent or broker worth their salt will tell you to get a mortgage pre-approval before looking for properties. A pre-approval will better help you grasp how much mortgage will qualify for, which can help you set limits on how much you can spend on a property. To get a mortgage pre-approval, you will need to meet up with a mortgage lender and provide them with your financial standing. They might want to look into your monthly expenses, yearly income, RRSPs or other savings, what you can spare for a down payment, and any outstanding debts you are owed. Remember that a mortgage pre-approval is no guarantee that you will get the proposed amount when you apply for a mortgage. It just gives you a ballpark estimate to help you narrow down your search.
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