7 Smart Homebuyer Tips
Buying a home is one of the most important decisions you’ll make in your entire life. As such, it’s vital to try to do everything as correctly as possible.
Homebuyers (especially first timers) don’t have an innate sense of how to plow through the home buying process. Mistakes are natural, but it’s important to minimize those mistakes to ensure that you get the best deal possible. Here are a few tips for homebuyers that will help the process go more smoothly.
1. Hire a Mortgage Broker
If you want a seasoned professional on your side guiding you through all the obstacles of the home buying process, hire a mortgage broker. These experts can connect you with a lender and help you find the loan that works best for your situation.
Trying to navigate the mortgage process alone can be a nightmare, and lenders usually aren’t out to try to find you the best deal; they just want to make money.
2. Make a Down Payment of 20%
Although it’s not necessary, a down payment of 20% gets you started off on the right foot.
While you technically can make a down payment lower than 20%, it just means that you’re going to have to borrow a lot more and your interest rates will be a lot higher. It is much riskier for lenders to dole 95% of the principal versus 80% of the principal.
3. Save Room for Closing Costs
As the phrase suggests, closing costs cost money. Most home buying tips won’t clue you in on this one, and many buyers tend to forget. Closing costs can include all of the following:
- Fire insurance
- Property insurance
- Title insurance
- Legal fees
- Home inspection and appraisal costs
- Property and land transfer taxes
- Interest adjustment
Closing costs are just as important as any other payment you make during the home buying process.
4. Know the Mortgage Differences
In general, there are two different types of mortgages: fixed-rate and variable-rate.
A fixed-rate mortgage locks you into an interest rate for the duration of the amortization period while a variable-rate shifts depending on market conditions. Don’t be surprised if you have a fixed-rate mortgage and your payments don’t go down when market rates go down. On the flip side, don’t be surprised if you have a variable-rate mortgage and your payments go up when the market rate goes up.
5. Pre-Approval is Your Friend
If you get pre-approved for a mortgage, you’re already more likely to get mortgage when it comes down to brass tax. Pre-approval also reveals the price range in which you’ll fall. If you get pre-approved for a $400,000 mortgage, then you know where to look.
6. Don’t Be Blinded by Interest Rates
One of the best first time homebuyer tips is to not place too much importance on interest rates. While they are important, interest rates share value with amortization periods, the total cost of the house, the amount of down payment you can shell out, and a variety of other factors. A low interest rate might sound appealing but if the other loan terms aren’t in alignment, then you may be feeling the heat.
7. Investigate Your Down Payment Options
If you don’t have enough for a 20% down payment, then you have other options at your disposal. First-time buyers can pull out up to $25,000 from their RRSPs. While you’ll have to pay that back within 15 years, you’ll certainly save on interest over the life of the mortgage. Many provinces and municipalities also have their own programs that allow you to borrow or be granted money for a down payment.
The above tips are important, because if you aren’t ready, then you may make a mistake. Be sure to get all your ducks in a row before going through the process of buying a home.
What you should do now
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