When I look back at the time I purchased my first home, I was far from an expert and I only knew the bare basics of mortgages and what I was getting into. Making the transition from renting an apartment, condo or house to buying your first home is a big leap, though a rewarding one, it comes with many decisions, a load of questions and a lot of trust in the experts of the real estate world.
Buying your first home is more than searching listings to find “the one”, and signing on the dotted line but, of course, you know that. Looking back now, these are 5 things I would tell my younger self to keep in mind throughout the buying process, as well as ones I plan to tell my kids when they buy their first home too.
The bank isn’t the only place to get a mortgage & your loyalty to them doesn’t mean much
Growing up, we learn the connection between the bank and money, and working and money, but we don’t learn much about other important financial topics like RRSPs, TFSAs, loans, or mortgages. So, naturally, when the time comes to get a mortgage most people go to their bank to get that big loan. However, it’s important to do your research, be in the know about current interest rates, and then to consult your friendly mortgage broker. They often have tips and tricks as to how you can save, how you can get a better interest rate and if they’re like me, as your financial partner, they’ll have a little advice for you on the best plan of action when it comes to saving up for your down payment, whether to look at paying your mortgage down as quickly as possible or if taking a monthly, weekly or accelerated bi-weekly schedule makes the most sense for you specifically and why. When you go to the bank, you talk to someone who specializes in bank mortgages, but they don’t have many options for you to take a look at. You’ll also likely find, that even though you’ve banked with them for your entire life, that’s not going to get you a better rate than another person who just walked through the doors for the first time.
There is nothing wrong with taking advantage of CMHC to get the benefit of more cash flow
CMHC (Canadian Mortgage Housing Corporation) offers mortgage insurance to those who qualify, and that have a smaller down payment than 20%. With high house prices or in a hot real estate market, not everyone can come up with the full 20% down, and if you take advantage of CMHC’s insurance, you can buy a home with a minimum of 5% down. Now, growing up, we often pick up a money mindset from our parents. In some cases, although it’s totally not warranted, people might feel like if they get house insurance that they can’t afford the mortgage but that’s not the case. It is a stigma, and totally backwards. If you get mortgage insurance, and you change your down payment from 20% (which would be about $100,000 down payment on a $500,000 house) to a 5% down payment (which would be about $25,000) now buying that first home looks a lot more realistic. Sure, you do pay a little more in the long run but over your life, if you compare the extra you pay in mortgage insurance with the amount you’ll pay extra if you keep renting, the difference might just make a whole lot more sense.
Getting pre-approved for a mortgage before house hunting saves stress and time
Next, let’s talk stress! Yes, buying your first home and dealing with the house hunt, negotiating prices and chattels (that’s the stove, the fridge, etc.), the paperwork, the offer…it all creates stress. Why? Likely because you’ve never done this before and it is one of if not is the biggest purchase you will make in your life. But, you know what helps eliminate that stress and could save you time? Getting pre-approved for the mortgage you want. Knowing that the house you are taking the time to look at is, in fact, realistic and in your price range, not only cuts down on time, because you’re not looking at homes you can’t afford but think you might be able to. Being pre-approved you have peace of mind knowing you can afford the place you’re looking at, and that your paperwork is already in order when you want to put that offer in. There’s nothing worse than falling in love with a home, and then being told no by the bank. Aside from finding out you’ve just wasted a lot of time looking at homes and have to start all over, looking at homes in a different price range.
There is a difference between realtors who like to sell home and those that like to help people buy homes.
This one is tricky. There are many realtors in Barrie and the surrounding area, but, there are realtors who sell a lot of homes and don’t buy many, or the opposite. They help many people buy homes and don’t sell many without having a buyer on the other end. What’s the difference, well, when you’re looking for a home, especially your first, you want a seasoned realtor who knows what to look for, they know the area, and they have your best interest in mind. They can see through the fancy tours, high-end photography, and will notice that there is a noisy train just behind the cedar fence or that they may suspect that one thing or another isn’t quite up to code. When a realtor is a selling realtor, they focus a lot on marketing and making a home look as appealing as possible to potential homeowners, but they rely on the homeowner telling them about the home, instead of doing their own research.
Just because you are pre-approved for a huge mortgage doesn’t mean you should buy something at your maximum
If you’re new to buying real estate and have been doing your homework, you’ve likely heard the term “house-poor”. What that means is that once you buy a house, you have bigger financial responsibilities beyond the mortgage. You have house insurance, upkeep, hydro, water, taxes, and other bills that you don’t have currently as a renter. So, even though you might be approved for a mortgage in the range of $400,000 – $600,000 it’s smart to look at houses that don’t max out that budget so you have the cash flow each month to cover the costs of those bills, while also being able to put food on the table, take rover to the vet, have an emergency fund and be to afford a few fun extras along the way without feeling the pinch.
Bonus tip: you are not a real estate or mortgage expert and that’s ok!
Don’t feel like you need to know everything there is to know before looking for a home or getting pre-approved for a mortgage. The more you ask questions, and listen to the answers, the more you learn. If you want to learn more about the process, or you want to get pre-approved so you can hit the spring market running give me a call at 705-315-0516.