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Saturday, January 21, 2012
First Time Home Buyers Mistakes
A house is one of the biggest investments most Canadians ever make, so it’s important to plan ahead, to think about what you need in a home and what you can afford.
Getting pre-approved for a mortgage is a fundamental way to budget for a home and signal that you’re a serious buyer. However keep in mind that the amount for which you are approved is the maximum amount the lender feels you can afford based on your income and expenses. This figure doesn’t account for other expenses you may face: such as renovations or emergency home repair, as well as regular household costs such as food, utilities, etc.
So Budget accordingly:
Here are some other mistakes first-time buyers make, and how to avoid them:
Not knowing your credit score
A credit rating is a record of your credit history and current financial situation. A good credit rating can improve your ability to get loans, so if your score is low, you may want to work on improving it before you apply for a mortgage.
Not budgeting for the costs of home ownership
Being a homeowner brings new expenses, including property taxes, higher insurance costs, regular upkeep and an emergency fund for repairs. Don’t forget to factor in the cost of any renovations your new home may need.
Not researching down payment choices
Lenders typically require CMHC mortgage loan insurance if you make a down payment of less than 20 per cent, and premiums for that insurance can be as high as 3.75 per cent of the value of the loan. Under the Federal Government Home Buyers’ Plan, first-time buyers can use up to $25,000 in RRSP savings ($50,000 for a couple) for a down payment. A larger down payment will save thousands of dollars in interest over the life of your mortgage.
Focusing too much on interest rates
First-time home buyers rush in to the market when interest rates are low. While rates are important, other things have a greater bearing on the overall cost of home ownership, including the cost of the house, the type of mortgage, the amortization period and pre-payment options.
Not choosing your own payment schedule
Paying off your mortgage sooner saves you interest costs, while a longer amortization period reduces your regular payment and frees up cash flow. You can save thousands of dollars in interest by choosing a shorter amortization period, paying fortnightly instead of monthly, or increasing the amount of payments by even a small amount.
Forgetting about closing costs
In Alberta we dont have many of the closing costs needed in other provinces. When calculating closing costs, assume you will need an approximately $2500.00 cover such things as the home inspection, legal fees, property insurance, utility hook-ups and moving costs.
At MyHomeAgent - we specialize in helping First Time Home Buyers. Call or email us today
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