Sometimes it seems like buying a house or condo unit is as easy as walking into a store and buying a new shirt. All you have to do is walk into a presentation or sales centre, pick a unit, sign an Agreement of Purchase and Sale, and write your cheques. It actually is that easy, but there are a lot of moving parts involved and important factors you need to consider. If you’re a first-time buyer, you’ve never had this experience, that’s why we’re outlining five common mistakes that first-time buyers make.
1) Distracted by features and finishes
Yes, the model home or model suite is beautiful, but don’t let the new appliances and granite countertops cloud your vision. When you sign your Agreement, you’re likely giving the builder/developer the right to switch out any materials as they see fit and to even deliver the mirrored version of the floor plan you selected.
At the time of purchase, don’t get caught up in your future feature and finishes selection appointment. You need to focus on the floor plan that’s best for you and whether the building as a whole is a good fit with your lifestyle.
2) Overlook closing costs
Your downpayment is the largest chunk of money you’re going to need, but there are many nominal costs at the time of closing – so much so that when it’s all added up, it’s no longer nominal.
Here’s a quick breakdown of a few potential closing costs: interim occupancy that is paid monthly, a property tax payment, development charges, Tarion warranty fee, deposit administration (that’s right, they’ll charge you to deposit your cheques), your status certificate, HST on appliances, water, electricity and gas connection, your legal fees, and Land Transfer Tax (city and province).
Since you’re a first-timer, you’re likely buying a unit for around the mid $300,000s. If so, expect to pay well over $10,000 in closings costs, and that’s including the fact that you get a rebate for basically all of your Land Transfer Tax.
3) Forget to have the money in your chequing account for the deposits
It happens all the time. If your closing date is one or two years away and your deposit structure is stretched out, it’s easy to forget you need to transfer a large sum of money into your chequing account in order for the cheque not to bounce.
If that cheque bounces, the builder/developer will charge you a fee, your credit takes a hit, and your bank will also charge you for bouncing it. This happens more than you think and it can make a significant impact when you’re a first-timer that has put all your savings into your future home.
4) Overestimate what you can afford
If you’re serious about buying, get pre-approved. Most pre-approvals with major banks are valid for 60 to 90 days. That gives you a lot of time to house hunt having a full understanding of what you can afford. It’s an awful feeling to find your dream home and then discover you don’t qualify for a mortgage.
Another big mistake is buying an expensive home just because you qualify for it. Think about your lifestyle needs and wants and make sure the home you’re buying allows you to continue to live happily and comfortably.
5) Miscalculate carrying costs
Rent is a nice simple number that you owe at the beginning of every month. Sometimes hydro or your Internet is extra, sometimes it’s included. When you own a house or a condo, you need to pay hydro, Internet, property taxes, condo fees, AND your mortgage. Yes, your mortgage is the largest number out of this list, but the other fees are far from nominal.
We hope that after reading these five common mistakes you can avoid them and take a more strategic and well informed approach to buying your first home!