Home hunters expect to spend a significant chunk of change to secure their ideal property. What they often don’t know is that it’s not always smooth sailing once they have that down payment in the bank. The truth is, there are things nobody tells you about the financial side of buying your first home. Fortunately, during the years we’ve spent working with first-time buyers, we’ve learned all about these surprises —and now we want to share them with you.
Here are five financial truths you should be aware of before buying your first home…
1) Pre-approval matters
Many first-time buyers don’t bother getting pre-approved for a mortgage, which can be a big mistake. While it’s not a requirement for obtaining financing, pre-approval is a crucial step in the process. In addition to helping you set your home-hunting budget, it shows sellers you’re serious about making a purchase—and that you have the means to close.
To get that pre-approval letter, apply with your lender. They’ll go through and assess your finances, then let you know how much you’re likely to receive if and when you’re fully approved.
2) You don’t have to borrow from your bank
All too often, home hunters assume that their bank is the best place to acquire a mortgage. Many first-time buyers don’t even consider other lenders. While borrowing from your bank may be the right decision, it isn’t always.
We believe that the key to making an informed choice is knowing your options. Mortgage brokers are ideal for many buyers, since they’ll do the legwork of comparing the rates and conditions offered by different providers. That said, some people prefer to work with smaller lenders or financial institutions they already have a relationship with.
3) Your lender doesn’t set your budget
First-time buyers tend to see the dollar amount that their lender pre-approves them for as their home-hunting budget. While this figure can act as a great starting point, using it as your ceiling may not be the best strategy.
The truth is, the sum you’re pre-approved for may not align perfectly with what you can comfortably afford. Conventional wisdom suggests spending no more than 32 per cent of your household income on housing expenses—which is worth keeping in mind. You should also be cautious about offering too much for a home since your lender will have the property appraised when they’re deciding how much to approve you for.
4) Your monthly costs may be higher than you think
Think your mortgage payments are all you have to budget for after closing? Think again. Purchasing a home means taking on new expenses. Some will be expected (like ongoing bills), while others will pop up occasionally (such as a broken furnace that needs to be repaired). The important thing is to be ready.
To get a sense of how much your monthly utilities will cost, you can ask sellers to take a look at some of their past bills. When it comes to covering repairs and maintenance, homeowners often put aside one per cent of their purchase price per year. This method isn’t perfect (especially given how market fluctuations can impact housing prices), but it’s a decent starting benchmark.
5) You should avoid big changes
Here’s something many first-time buyers don’t know. During the mortgage approval process, you should be very careful with your finances. Believe it or not, big purchases and new lines of credit can put your financing in jeopardy.
Our advice? Leading up to closing day, try to avoid any big changes that could affect your financial situation. Don’t change jobs, don’t apply for another credit card, and don’t splurge on that new car you’ve been considering—at least not yet!
There are few things in life as exciting as buying your first home. That said, there are all kinds of logistics that have to be worked out during the process—and many of them are financial. The good news is, that knowing what to expect can help you prepare for the smoothest, most efficient process possible!
Ready to buy your first home? Reach out to learn how we can put our expertise to work for you—and help you secure your dream property!