Even the best-prepared buyers can fall prey to financial mistakes. Whether it’s failing to see the big picture, missing surprise costs or letting emotional buying cloud your judgment, it’s important to stay focused on the facts. Here are some common mistakes to avoid.
In the excitement of home ownership, it’s tempting for new homebuyers to skip steps in building a clear financial picture. Get financially prepared for home ownership by meeting with a financial advisor and building a plan that matches your resources, needs, expenses and limitations. If you find a house you love before you’ve prepared, you may make an emotional decision and end up with mortgage payments that stretch you thin. Preparing financially helps you sort out whether the home you want, the money you have access to and the lifestyle you live are all feasible. Steps like pre-qualification and pre-approval also improve your chances of succeeding in a competitive market.
You can use online mortgage-planning tools, market reports, financial planners, credit checks, and self-planning techniques to build a budget. The tools help form a clear picture of how much house you can afford. Before you get deep into financial details, make a list of your must-haves for a home: including bedrooms, amenities, locations and necessary features. Include a list of extra things that aren’t necessary but nice to have; these may include features like an extra guest bedroom, a nearby park, or an easy commute.
Later on, once you’ve established a clear financial sense of how much home you can afford, revisit your must-haves list. If you don’t have the money you need to buy the home you want, you can take steps to save for a down payment, set up a debt payment plan or consider other incentives to help afford a home. Get to know the local markets you’re buying in to understand what trends could affect homebuying in your area. Each province, town and city has varying housing trends which affect the price and value of the home you’re considering.
You might find that your mortgage pre-approval allows for a bigger loan than you expected, especially if you’re someone with a steady income, a good credit score and a balanced checkbook. In this case, it can feel right to buy the most expensive home you can afford. It’s better to treat this number like a credit card limit. Just because the total amount is available, doesn’t mean you should maximize the offered loan. Consider your financial situation and what you plan to do over the next 5, 10, or 20 years. If you agree to a pre-approval that’s based on your current income, you might not have the choice to jump into a freelance career, the extra cash flow to fund your business, or have the money you’ll want to put into your child’s financial future. Use your financial advisor and online home affordability tools to build a roadmap that makes sense for you before you start shopping for that place with an indoor pool.
It’s great to trust the experts, but they’re there to help you make the best decisions. Communicating well helps your agents, brokers and experts to guide you effectively, and allows you to compare rates, homes, neighbourhoods and financial options.
From the pre-approval process and comparing interest rates, to questions about the maintenance needed for your new home or the importance of a certain school district, take time to ask about what’s important to you.
If you’re meeting with a broker or agent, check whether you’ll be working with them throughout the process, or whether someone else will become your go-to contact once the paperwork is signed. Feeling comfortable with the people you’re working with will give you the stability you need to make informed, clear-headed decisions. Don’t hesitate to ask anything that comes to mind. A great agent will support your search and value your questions, even using them to help narrow down your options.
It’s important to consider and ask about the costs that you don’t see up front. Plan for surprise costs and leave room for unexpected expenses. It’s wise to put aside at least 2-5% of your total home cost towards closing costs. Use a homebuying checklist to walk through the process and consider the financial implications of each step.
When you’re excited about a new home, you’re likely focused on this stage of life and imagining your current lifestyle in the potential new home. If you have young children, you’re likely focused on schools, or if you love to garden you might be excited about an adjacent plot of land. Buying a home means assessing your big picture life plans, including over the next few decades.
Houseful provides personalized guidance for your real estate journey. If you’re a first-time homebuyer, our dedicated team of experts offer support from initial planning through to moving day. Use our advanced filters to search for homes based on school rankings, neighbourhoods, and financial guidelines. Work with top-rated, local real estate agents and gain access to financial insights and advice from RBC Home Advisors.
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Find more information on how to buy a home, how to sell your home, and mortgage and finance tips, see our Home Journey How-To’s or sign up at houseful.ca.
This article offers general information only and is not intended as legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. While the information presented is believed to be factual and current, its accuracy is not guaranteed and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the author(s) as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by Royal Bank of Canada or its affiliates.
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