First Time Homebuyer - Six Traps to Avoid
Buying your first home is likely the biggest investment you've ever made, and of course you're excited to be taking your fist step towards home ownership. But navigating the property market can be tricky for the uninitiated. Avoid these all-too-common mistakes and you won't end up paying over the odds for a house that will only suit you in the short term.
Trap #1: Not Knowing How Much House You Can Afford
This is the number one mistake of novice home buyers eager to attend their first viewing. Really, you shouldn't start looking until you know what you can afford. By law, banks are not allowed to lend you more than you can reasonably afford to pay and the magic number is 43; meaning, you cannot take on a mortgage that raises your household borrowing, including your existing debts, to more than 43 percent of your income. So, ask your lender for a preapproval. Preapproval, as opposed to prequalification, is a process whereby the bank analyzes your income, expenses and debt load and comes up with an actual credit decision. Not only will you quickly know how much you can afford to buy, but sellers love buyers with the green light on their loan as it speeds up the sale.
Trap #2: Not Researching the Local Market
The emphasis is on the word "local." Data is abundant on the internet, but price trends and market statistics are often presented at a national or regional level. This is great for giving you a general view of where the market is headed but property is a local commodity; so local, in fact, that one street may experience different price movement to another street in the same neighborhood. So, search the multiple listing service online or through an agent for comparable properties in your specific area. Take a walk around the neighborhood and see what you can get for your money. Be practical; some people get hooked on the emotional link to a particular neighborhood or community when in fact it doesn't give them the transport links or amenities they need.
Trap #3: Letting Your Heart Rule Your Head
According to the National Association of Realtors "Profile of Home Buyers and Sellers" report, you'll probably live in your new home for around nine years - so make sure it will still suit your needs in the future. A tenth floor apartment with great view may impress you now, but it won't be so great when you're having to pull a buggy up several flights of stairs. If you're buying as a couple, make sure you're both on the same page. Many deals fall through because one partner as a very different ten-year plan to the other partner.
Trap #4: Being Dazzled By the Decor
Sellers have access to a wealth of home-staging information that teaches them how to sell a lifestyle as well as a home, but granite countertops and state-of-the-art appliances don't make up for a small square footage or an awkward floor plan. Focus on the efficiency of the layout and the size of the rooms, and add the bling when you move in.
Trap #5: Skipping the Contingencies
Many structural issues like a faulty roof or dodgy plumbing might not be apparent to the naked eye, so you need to make your offer contingent upon a satisfactory home inspection. Novice buyers often get caught up in bidding wars or multiple offers, particularly in a hot seller's market, and can feel pressurized to skip these contingencies, but it's not something you want to give up. A professional home inspector will give you the heads up about a property's flaws and will explain which problems are easy to fix and which are problematic. A contingency lets you can back out of the deal of adjust your price accordingly.
Trap #6: Going It Alone
Navigating the mortgage market, researching local properties, finding the right home and negotiating the right price is pretty tough for a first-time homebuyer - and indecision costs. An exclusive buyer's agent -- the real estate professional who acts solely for the buyer in a home sale transaction -- is a valuable asset. She can help you find an affordable mortgage, crunch the numbers and provide all the due diligence you need to make an informed buying decision. Not only can the right agent save you money, but the process should be less stressful and take up less of your precious time, too.
* Specific loan program availability and requirements may vary. Please get in touch with your mortgage advisor for more information.