Spring and summer are the busiest seasons of the year for Real Estate. If you are looking to purchase your first home this season, chances are you are already overwhelmed by the sheer volume of information out there. With so many factors to consider (such as how much you will qualify for, the different types of mortgage terms and interest rates, as well as how different payment frequencies affect your ability to pay off your mortgage), it can be easy to get bogged down with information you may not fully understand. Here are some great tips on how to approach the process and what to avoid along the way:
Do: Get pre-approved
The first thing you should know is that getting pre-qualified and pre-approved are two different processes. A qualification gives you a general idea of what you can afford based on your income and debts, while a pre-approval involves an in-depth review of your credit history and current financial situation. Because of this, a pre-approval is more likely to give you more accurate information about what you can afford. In some cases, pre-approvals can even secure a certain interest rate for you for up to 120 days. Knowing what you can realistically afford is a great way to enter the process with confidence and peace of mind.
Do: Speak with a Mortgage Broker
You can spend hours doing research online but there is no guarantee that the information you find is current and applies to your financial situation. Mortgage Brokers are trained to stay on top of the latest information within the mortgage industry and can help you determine which type of financing is best suited to your individual needs and goals as a home buyer. They can also help you crunch the numbers and show you different scenarios when it comes to amortization and payment schedules.
Do: Make a list of your must-haves
After setting a price range for your future home based on the information obtained from your pre-approval, it is a great idea to make a list of your must-haves versus your wants. Maybe a beautiful, modern kitchen and spacious walk-in closet would be nice, but location and a large backyard are more important to you. In the event that you need to compromise on the features of your future home, knowing what you can and can’t live without is a good way to effectively communicate what you are looking for when you sit down with your REALTOR® for the first time.
Don’t: Let your emotions take charge
Purchasing your first home can be an overwhelming and emotional process, and it is extremely easy to fall in love with a home that is out of your price range. Avoid being ‘house poor’ by setting a realistic budget and sticking to it. If you end up in a bidding war, consider the current housing market and whether that home is likely to increase or decrease in value over time. Treating your home like an investment is a great way to stay focused on getting the best value for your money.
Don’t: Forget about moving expenses and closing costs
Closing costs are the single most overlooked aspect when budgeting for a mortgage, and they include things such as legal fees, home appraisals, property tax, insurance, home inspections, etc. As a general rule, be prepared to pay between 1.5% and 3% of your total mortgage in closing costs. When it comes to moving expenses, consider whether you will be hiring a professional moving company and if you will need to purchase new appliances and furniture for your new home.