Wednesday, March 13, 2013

Getting Ready To Buy Your First Home

Buying a home is a huge commitment, and it's crucial that you have your finances in order before going ahead with a purchase. Today we're going to talk about how to be prepared and steps you can take to make the best buying decisions.

Do You Have Any Debt?

Owning a home will wreak havoc on your budget. With the initial purchase, you'll have closing costs including realtor fees, taxes, moving fees, and more. Once you've moved in you'll of course have your mortgage payment (probably a sizeable chunk of your income) but you'll also have property taxes, insurance, utilities, and unforeseen maintenance and repair costs.

If you're still paying off your student loans or have revolving credit card debt, it won't take much for a perfect storm to hit and wipe you out financially.

If you're working hard to save up for a down payment but still have debt, seriously consider saving a little bit more and paying it all off first.

Do You Have An Emergency Fund?

Stepping into your home opens you up to some potentially devastating repair bills. Finding out your roof has a leak the month after you move in could cost you $10,000 or more that you hadn't prepared for. Purchasing a home without having an emergency fund to deal with real emergencies like this is extremely risky and should be avoided at all cost.

How Long Are You Planning To Live There?

Contrary to popular belief, a home doesn't only go up in value. If you're assuming you'll be able to sell at any time for a profit, please think again. If you have a stable job and like where you're living and aren't going to outgrow the home in the next few years, you're probably good.

If you move around for work, are planning on having kids that would necessitate a move, or any other circumstance you can foresee, renting might be the better option.

Timing The Market

You might be thinking that you can buy your home when the market is down to ensure you'll profit when you sell. Get in line. The truth is that while we can forecast a likely downturn or upturn, there's really no way to predict WHEN it will happen.

In Toronto and Vancouver, for example, people have been complaining about skyrocketing prices for the last few years, and predicting a market correction for just as long. It hasn't happened but, like clockwork, analysts keep issuing predictions that this year is the year!

Buy when you can afford it and you're otherwise ready. As long as your selling horizon is over 5 years, you should be OK.

Make Money When You Buy

There's a piece of real estate wisdom that says you make your money when you buy a house, not when you sell. To do this you have to find a diamond in the rough. Buying the professionally staged home that's the most expensive on the street is not the way to do this, even if it IS your dream home.

Buy a home a block over that's in need of some cosmetic upgrades. You're going to want to make changes anyway, you might as well start with something less than perfect.

It's also important to negotiate. Depending on your market and your agent you may be able to save thousands of dollars on the purchase price.

Finding The Best Interest Rates

Because of the huge amount of money you'll be borrowing, combined with the time-frame involved, even the smallest difference in interest rate will mean thousands of dollars over the life of your mortgage.

Shop online at to get started. Once you find the lowest posted rate, you should also consider pre-payment options such as how much you can contribute in lump-sum payments and how much you can raise your monthly payments if you later decide to accelerate your mortgage payoff. You should also consider the penalty for breaking the mortgage, as these also differ between lenders.

Go For The Easy Wins

Now that you're sure you're buying, you want to pay off your home as fast as possible with the least amount of interest. The easiest way to do this is by choosing bi-weekly payments. Using bi-weekly payments instead of monthly will effectively force you to make 13 payments per year instead of 12. You'll hardly notice the difference but this alone will shave years off of your mortgage.

Sure you have your ducks in a row? Then have fun house hunting!