I was sitting in the bank, waiting for the broker behind a stereotypically huge mahogany desk to decide my fate. My husband and I had just applied for preapproval for our first mortgage, and were novices. We knew next to nothing about the housing market, the home loan industry, or even our own tastes and preferences.
Along the way, we learned five crucial lessons that other first home buyers should avoid along their path to home ownership. Now, I’m passing my wisdom on to you.
#1 – Not Knowing Your Budget
As I sat in the broker’s office, I tried to do some simple math in my head. I knew how much my job brought in each month; I knew how much my husband made; I knew we didn’t have any vehicle or credit card debt, but we did have some major student loans. Combined, it gave me a vague idea of what we could afford. So when the bank’s mortgage broker opened his mouth to announce how much we’d qualified for, I had to pick my jaw up off the floor.
“$450,000,” he announced triumphantly. I did a double-take. The mortgage payments on that type of home loan would have eaten up 80% of our monthly budget, far more than the 29-33% most banks like to see.
Of course, that was back in 2006, before the housing crisis changed just about everything in the industry. But I still remind my friends looking to buy their first home of my story, to illustrate that the banks don’t have your best interest at heart, and that only you can determine what size loan – and monthly payments – works best for your situation.
#2 – Being Too Picky
“House Hunters” used to be my favourite TV show. I loved watching first home buyers go through the always-emotional, rarely-simple process of finding their first place. But a few years ago, I went cold turkey on the show. Why? Because the same first home buyers I once found so compelling were driving me bonkers.
“It doesn’t have granite countertops!” one 24-year-old would complain.
“I was really hoping for an in-ground pool out back,” another novice would opine.
“2,500 square feet really isn’t big enough for us,” a third would lament, oblivious to the fact that the “us” to whom she was referring was herself, her husband, and a teacup Schnauzer.
It’s tempting to turn your hunt for your first home into a search for your dream home. After all, we still tend to see property ownership as a major part of the American Dream. But when you’re buying your first place, you have to be realistic. If your budget isn’t big enough for the 4-bedroom, 3-bath home on an acre lot in the best suburb with all the trimmings you’ve dreamed about, the properties that actually do fall in your price range will never be acceptable to you.
#3 – Don’t Compromise on What Counts
When my husband and I finally started searching for our first home, there were three things it needed to have:
- Three bedrooms
- At least two full bathrooms
- It had to be in a neighbourhood
Other than that, we were flexible. Then we fell in love with the most beautiful four bedroom, two and a half bath home. It was perfect… except that, at least when it came to our “must haves,” it wasn’t perfect. Why? Because it was located out in the country, a full mile from the nearest neighbor.
My husband and I almost bought that house, until my mother reminded me just how important living in a neighbourhood was to us (and the family we planned to have). Although you don’t want to be overly picky on things you can change about the home – like a double-sink in the master bath or ugly carpeting – you shouldn’t compromise on things you can’t change, like location, lot size, and general footprint of the home.
#4 – Forgetting the Additional Expenses
Buying your first house is really costly. Aside from the closing costs, down payment, and moving expenses themselves, home ownership also comes with additional costs many first time buyers tend to forget. For example, in the first three months of owning our first place, we had to buy:
- Curtains, blinds, or shades for just about every window in the house; we got tired of bright sunlight filtering in to our wide open windows at 7am every morning, not to mention the lack of privacy that came in the absence of window treatments.
- A lawnmower. Paying $20 a pop for a lawn care company to do it for us was out of the question.
- A refrigerator. While some houses come with appliances, others don’t – and while you may be able to make do without a microwave or a dishwasher, a fridge is kind of a necessity.
- New furniture. Most people tend to move into a bigger property than they were previously living in, meaning they want to buy furniture to decorate the empty rooms.
- Decorating. Since we did not buy a new home, we were left to contend with the old occupants’ (outdated) tastes. This meant, over time, repainting and refinishing just about every surface in the house.
In all, we spent about $3,000 on all these additional expenses. This means you can’t put every last dime you have into your down payment, otherwise you’ll be left with naked windows, an embarrassing yard, and spoiled milk in the cupboard.
#5 – Work with the Pros
While there are a lot of costs associated with being a first home buyer, working with the right people isn’t one of them. Ideally, your team should consist of two professionals: a real estate agent and a mortgage broker. The former will help find a property with all your needs – and most of your wants – within your budget; the latter will help you figure out what that budget is, and introduce you to mortgage products to help you finance it. Neither a buyer’s agent nor a mortgage broker charge customers for their services. A buyer’s agent is paid a commission (usually 3% of the home’s sale price) by the seller, while the mortgage broker is paid by the company whose home loan you ultimately select.
By Betsy Fallwell