For most of us, our home represents our largest financial investment with the bulk of our wealth tied up in its equity. For many buyers today, the search for a home is a frustrating one, characterized by bidding wars and disappointment in rejected offers. If, however, your offer is a winning one and you successfully purchase the home you were looking for, make sure that you have considered these 5 tips:
PLAN TO BUY FOR THE LONG HAUL
Plan to buy a house you want to live in for at least five years. When you are shopping for a home, look for one that offers the features and space you will need now and in the near future. During the five years that you live in your new home, it will grow in equity which will help you offset moving costs, real estate commissions, lawyer fees and land transfer taxes when you do decide to move. Moving is a costly endeavour, but it is much less of a burden, when your home value has increased significantly and you can tap into that wealth.
STICK TO YOUR BUDGET
Before you even begin looking for a home, carefully decide your budget. Consult with a financial planner, mortgage broker or your bank before you even begin looking at homes to get a clear picture of what you can and cannot afford. Nothing stings more than touring homes with a price tag that is much higher than your price range. In today’s competitive market, it is also important to keep in mind that even though a home is listed in your price range, there is a very good chance that it will sell for tens of thousands of dollars higher than its list price, and possibly even hundreds of thousands of dollars more. Buyers are often willing to go over budget to get what they want, whether that be space, neighbourhood, school district or a combination of all of these factors; however, it can be risky to spend more than you have been advised to. Know what you are willing to compromise on and do your best to stay within the threshold of your budget. It will not benefit you in the long run to be house poor.
BUILD UP A RESERVE FUND
Before you sign on the dotted line and become a homeowner, start a reserve fund. This account should be separate from your down payment. In the best case scenario, this fund will cover six months of your expenses should you not be able to work due to family circumstances, illness or you lose your employment. This will not only provide a cushion for you and your family during times of hardship, it may also provide much needed funds in the case of emergency home repairs, such as a leaking roof, or a broken furnace or air conditioning system. A reserve fund will provide peace of mind and a solid foundation on which to build your future as a homeowner.
SHOP AROUND FOR A GOOD MORTGAGE RATE
With rates on the rise, it has never been more important to educate yourself on the rates BEFORE you buy. You may have to invest time on the phone making one phone call after another to inquire about rates, but if it saves you in the long run then it was worth it. The difference of $50 or $60 a payment represents thousands of dollars during the course of a mortgage term. That money is better off in your pocket than the bank’s. You may be able to get a better rate from a mortgage broker, but the only way to guarantee that you will save money on interest is to do the work of negotiating before you find yourself in a heated bidding war. Most lenders will lock their rates in for 60-90 days, sometimes longer if you have a good credit score and a solid relationship with the lender. Before you begin looking at homes, do your best to lock in the lowest rate that you can find.
AVOID BUYER’S FRENZY. WALK AWAY IF NECESSARY.
In today’s heated Seller’s market, it is easy to get swept up in the frenzy of a bidding war. Picture the scene, you are seeing houses with your sales representative and you finally find your dream home. It has everything you are looking for: more than enough space for your family, it is beautifully designed, decorated and it is in your target neighbourhood. The problem is the Sellers are reviewing Offers that evening and there are already 6 registered. You offer the highest price you are comfortable with, but your mortgage broker advises you that there is still a little more room to spend, but you may have to live more frugally to make it work. This is the moment that you need to stop and think long and hard about your financial goals. Are you caught up in the excitement? Or are you honestly willing to tighten your belt to get the house of your dreams? Sometimes, the answer is yes, but for many people, the best option is to walk away and wait for a property with a price tag that will be more affordable for the long haul. It is important to manage your expectations and hold on to your list of must-haves, but do your best not to reach beyond your threshold of affordability. At the same time, try not to settle for a property that won’t meet your needs for at least five years.
If you are in the market to buy a home, keep these tips in mind before you begin house hunting.
