Avoid These Top Six Mistakes First Time Home Buyers Make
Buying a home is likely one of the biggest purchases you will ever make in your life. And when you’re spending most of your savings in one shot, you definitely want to avoid any major or costly errors. There are a lot of steps, a lot of paperwork, and a lot of details to take care of when buying a home. Our years of experience helping first time home buyers navigate the process have taught us what to do and what NOT to do! Here are the top six mistakes first time home buyers make so you can avoid them.
1. Not Getting Pre-Approved for a Mortgage
It’s always fun to peruse local real estate listing and imagine all the places you could live. But when it’s time to start house shopping for real, you should always begin by getting pre-approved for a mortgage. This important step gives you a clear picture of how much home you can afford and lets sellers know you’re a serious buyer.
If you don’t have a pre-approval you may end up disappointed when you discover you can’t afford your dream home. Or you could lose a home you love to another buyer while trying to get your financing in order.
2. Not Having a Large Enough Down Payment
If you’re a first-time home buyer, you know the down payment is one of the biggest challenges to purchasing a home. Saving up such a large chunk of money can take time and require serious budgeting. Try these great tips to help you save for a down payment.
In Ontario, you are required to put down at least 5% of the purchase price if the home you’re buying costs $500,000 or less. For homes between $500,000 and $999,999 the minimum down payment is 5% of the first $500,000, plus 10% of the remaining value of the purchase price. And for homes that cost $1 million or more you must put down a minimum of 20% of the purchase price.
While you may be able to get away with a 5% down payment, the more you put down, the less you will have to borrow. This means a smaller mortgage and smaller monthly payments. It’s also important to note that you will have to purchase mortgage insurance if your down payment is less than 20% of the purchase price.
3. Missing Out on First-Time Home Buyer Incentives
To qualify as a first-time home buyer in Ontario you can’t have ever previously owned a home anywhere in the world. This also includes a home you received as a gift or inheritance. If you do qualify as a first-time home buyer, you could be eligible for a shared equity mortgage from the Government.
Through the First-Time Home Buyer Incentive, you can receive 5% of the purchase price of an existing home or 5% – 10% of the purchase price of a newly built home as an interest free loan. But you will have to repay the incentive after 25 years, or if you sell the property. You can also repay it at any time without a prepayment penalty.
You may also be eligible for a refund on the provincial land transfer tax. The refund offers a maximum of $4,000 for homes with a value over $368,000. To qualify for the full refund, you must be a first-time home buyer and a Canadian citizen or permanent resident who is over 18. And you must live in the home as your principal residence within nine months of registering it in your name.
The Home Buyers’ Plan allows first-time home buyers to take up to $35,000 tax-free out of an eligible RRSP, to put towards the down payment of a primary residence. The funds must be repaid within 15 years. To qualify, you must be a first-time home buyer and resident of Canada who intends to use the home as your principal residence within a year of buying or building it.
4. Not Being Prepared for Closing Costs
While the down payment is by far the biggest expense when buying a home, there are other costs that you will be responsible for. Closing costs, inspections, and moving expenses can all add up to a surprising amount. Many first-time home buyers aren’t prepared for these additional expenses and can be left scrambling to find extra money at closing time.
Some of the additional costs that will come at closing time include:
- Legal fees ($1,000-$2,000),
- Land Transfer Tax (1% – 2.5% of the purchase price),
- Title search, and
- Mortgage insurance.
5. Skipping the Home Inspection
It may be tempting to forgo a home inspection in order to save a little money or secure a house before other interested parties. But this could be a very costly mistake – especially for first time homebuyers who don’t have years of experience with home repairs. A home inspection by a qualified professional will help rule out any major deficiencies in the home. If you skip the inspection you won’t have any recourse if you find out the roof is leaking or the foundation is cracked.
6. Trying to Do it Alone
Working with the right team can make all the difference between a successful experience and stressful one. With the help of a Realtor®, mortgage broker, lawyer, and trustworthy inspectors, you can rest easy knowing that all the details are being handled by a professional. For first-time home buyers in Ottawa, our team has the local knowledge and experience to help you successfully navigate your first home purchase.