Mistakes to Avoid Before Starting Your Home Search
by Ed Machart
on Friday, March 5th, 2021 at 11:09am.
Canadian interest rates are low, and Saskatoon home buyers are rushing to lock in the lowest possible interest rates. However, low interest rates are not the only thing to consider and be aware of when looking into and applying for a mortgage. Below I will explore some of the biggest mistakes some house hunters make before they even offer on a home.
Spending Too Much on a Home
Lenders are legally prevented from approving mortgages for more than 35% of your household income, but most financial advisors recommend mortgages no more than 28% of your income. However, just because you may be approved for a larger mortgage does not mean you should purchase a home for that maximum amount.
Do your homework. You know your family's spending habits—is the mortgage payment you're about to commit to feasible? And don't just think short-term. Consider what happens if interest rates increase, housing prices drop, and it comes time to remortgage your new home. Will you be able to refinance and afford the higher payments in the future?
Many families find themselves in an all-too-common predicament of being what is known as "house poor." And if this should happen to you and your family after prices drop, you may not be able to sell the property for the amount you owe.
Not Shopping for the Best Rates & Loan Types
Many house hunters look at multiple homes before deciding on the "right" one, but how many lenders did you consider to compare products and rates? Lenders are not the same. They all have different fee structures, rates, products, and promotions, and comparison shopping can save you thousands of dollars over the life of your loan.
Of course, you will want to get the best interest rate possible, but you also want to get the right product. Do your homework, make sure you understand the differences in what's being offered—consider adjustable-rate mortgages, fixed rates, payback terms, and penalties.
Ignoring the Hidden Costs of Homeownership
Suppose you've been saving for a down payment, thinking that is the only out-of-pocket expense when purchasing a home. I'm sorry to tell you, but this is not the case. There is quite a list of closing costs that you will need to consider and ultimately save for when purchasing a home. A home inspection, appraisal, title fees, lawyer fees, and loan fees are just a few of the additional expenses you can anticipate leading up to the close.
Not Building a Real Estate Team
Buying a home requires a team of professionals to look out for your best interests. You will need a mortgage lender, real estate agent, property lawyer, home inspector appraisers, and maybe even financial advisors, depending on the type of property you are looking to buy.
Making Intentional Changes to Your Credit
It's a smart idea to talk to a lender and financial advisor before you decide to pay off your old bills or car loans. You may think that paying off current debts will help your credit score, but that is not always the case. You may be better off taking that money and putting it toward the down payment on your home instead.
Not Getting Pre-Approved for Financing
In this market especially, you will need to prove to sellers that you are a qualified buyer. Some may not even consider your offer if it is conditional on financing or if you can't provide a pre-approval letter.
Buyers who go into the house-hunting process without the aid of a team of real estate professionals often make mistakes that can be costly. Educate yourself before you buy a house, work with an experienced local REALTOR®, and set yourself up for success by avoiding these mistakes!