You’ve been saving for awhile, weighing your options, looking around casually. Now you’ve finally decided to do it—you’re ready to buy a house. The process of buying a new home can be incredibly exciting, yet stressful, all at once. Where do you start?
It is essential you do your homework before you begin. Learn from the experiences of others, do some research. Of course, with so many details involved, slip-ups are inevitable. But be careful: learning from your mistakes may prove costly. Use the following list of pitfalls as a guide to help you avoid the most common mistakes.
Pre-Approved vs Pre-Qualified
It’s hard to really understand where you’re sitting when there are so many statuses that you can have when you’re looking for a mortgage. Here are the differences between a mortgage pre-approval and a mortgage pre-qualification.
What is a mortgage pre-approval?
A pre-approval for a mortgage is when a lender agrees to fund your mortgage based on your current financial situation. You and the lender agree to an interest rate, and so long as you stick to the terms of the contract, you are pre-qualified for your mortgage.
A pre-approval, however, is not a guarantee. All terms of contract and other (if any) requirements set by the lender must be met before you are fully approved for your mortgage loan.
Once your position is evaluated and your pre-approval granted, you are given a rate lock of up to 3 months.
What is a rate lock?
A rate hold or a rate lock is when a lending institution guarantees an interest rate for a specified period of time (usually 30-120 days), given that you continue to satisfy your contract’s terms and conditions for that period.
What is a mortgage pre-qualification?
The first step in the mortgage process is your mortgage pre-qualification. This is the name of the step where your broker or mortgage specialists evaluates your income, assets and any debt to estimate your mortgage affordability (how much you can afford to borrow). Your affordability is calculated using two very important debt ratios; namely the TDS and the GDS (the total debt service ratio as well as the gross debt service ratio).
1. Allowing “first impressions” to overly influence yourdecision:
The first impression of a home has been cited as the single most influential factor guiding many purchasers’ choice to buy. Make a conscious decision beforehand to examine a home as objectively as you can. Don’t let the current owners’ style or lifestyle sway your judgment. Beneath the bad décor or messy rooms, these homes may actually suit your needs and offer you a structurally sound base with which to work. Likewise, don’t jump at a home simply because the walls are painted your favouritecolour! Make sure you thoroughly the investigate the structure beneath the paint before you come to any serious decisions.
2. Failing to have the home inspected before youbuy:
Buying a home is a major financial decision that is often made after having spent very little time on the property itself. When writing the offer to purchase a home it is strongly recommended that a home inspection condition is in the contract. This is performed by a competent and licensed home inspection company offering you added reassurance that the choice you’re making is a sound one, or alerting you to underlying problems that could cost you significant money in both the short and long-run. Your Realtor can suggest reputable home inspection companies for you to consider.
3. Not knowing and understanding your rights and obligations as listed in the Offer toPurchase:
Make it a priority to know your rights and obligations inside and out. A lack of understanding about your obligations may, at the very least, cause friction between yourself and the people with whom you are about to enter the contract. Wrong assumptions, poorly written/ incomprehensible/ missing clauses, or a lack of awareness of how the clauses apply to the purchase, could also contribute to increased costs. These problems may even lead to a void contract. So, take the time to go through the contract with a fine-tooth comb, making use of the resources and knowledge offered by your Realtor and lawyer. With their assistance, ensure you thoroughly understand every component of the contract, and are able to fulfill your contractual obligations.
4. Making an offer based on the asking price, not the marketvalue:
Ask your Realtor for a current Comparative Market Analysis. This will provide you with the information necessary to gauge the market value of a home, and will help you avoid over-paying. What have other similar homes sold for in the area and how long were they on the market? What is the difference between their asking and selling prices? Is the home you’re looking at underpriced, overpriced, or fair market value? The seller receives a Comparative Market Analysis before deciding upon an asking price, so make sure you have all the same information at your fingertips.
5. Failing to familiarize yourself with the neighbourhood beforebuying:
Check out the neighbourhood you’re considering, and ask around. What amenities does the area have to offer? Are there schools, churches, parks, or grocery stores within reach? Consider visiting schools in the area if you have children. How will you be affected by a new commute to work? Are there infrastructure projects in development? All of these factors will influence the way you experience your new home, so ensure you’re well-acquainted with the surrounding area beforepurchasing.
6. Not looking for home insurance until you are about tomove:
If you wait until the last minute, you’ll be rushed to find an insurance policy that’s the ideal fit for you. Make sure you give yourself enough time to shop around in order to get the best deal.
7. Not recognizing different styles and strategies ofnegotiation:
Many buyers think that the way to negotiate their way to a fair price is by offering low. However, in reality this strategy may actually result in the seller becoming more inflexible, polarizing negotiations. Employ the knowledge and skills of an experienced realtor. She/he will know what strategies of negotiation will prove most effective for your particularsituation.