The 9 Most Common Mistakes
People Make When Buying A Home

A report written exclusively for OrilliaHomes.ca

Purchasing a home is not just a financial transaction. Choosing where you are going to live is a decision that will affect almost every aspect of your life, and your family’s life, for years to come.

Buyers are making this decision much more carefully these days, but even one mistake can cause big problems. This report summarizes some of the information in the many articles on this site, it's a good checklist that tells you how to avoid the mistakes made by many people.

1 Not being pre-approved for a mortgage before you look for a home

Quite simply, know your limits. Nothing is more frustrating than finding the home of your dreams, putting in an offer that is accepted, then losing it because the bank won’t lend you enough money.

Any bank or mortgage lender will do the pre-approval for you, at no cost, but you need to have the basic information ready to give them.

First, determine your total household income from last year. Then add up what you are spending for all debts. You must be able to prove everything, so get a "proof of employment" letter, (you'll need several years continuous employment, not just one), a recent income tax return, and anything else you can get that will verify income before you go to a lender. If you're getting some of your down payment as a "gift" from another family member, you'll need documented proof of that too.

It is also a good idea to check your own credit rating first. Even if you've been good, your report may have surprises or inaccurate information that could scuttle a home purchase at the last minute. It’s easy to do and there's no cost. If you live in the Orillia area, you can call the Credit Reporting Bureau at 327-5742 and ask for a report.

If you have less that 25% of the price as a down payment, your loan will have to be insured, usually by CMHC, and there are restrictions and costs that change constantly. In any case, you will need at least 5% down payment. Your monthly mortgage and tax payments should not exceed 30% of your household income, your total payments for all debts cannot exceed 40% of income. These figures will vary slightly, so it’s best to find out from a lender before you look.

It's important that you don't just be pre-qualified, where a lender tells you what you should be able to afford, you should be pre-approved. Get a commitment - in writing - of the amount and the rate that the lender will give you. Sometimes people who are pre-qualified go to their bank with an accepted agreement only to be turned down during the approval process. There are a lot of hoops you have to jump through to get a mortgage, it's best to do the jumping at the beginning, not when you're squeezed for time.

2 Not shopping around for a mortgage

You may have a good relationship with your bank but that does not guarantee you a good mortgage with favourable terms.

Mortgage lending is a competitive business. Look around for the best rate, then bargain for extras like free appraisal or delayed payments, at the very least, find a 'package' that suits your needs.

Don’t limit your shopping to banks either, you should also consider a Mortgage Broker. Many people think you go to a broker only if the banks won't deal with you, and that you have to pay for their services, but that's not true anymore. A good Mortgage Broker is connected to many lenders by computer, they will shop around for the best deal for you, and that could be with a major bank or with any number of private lenders, who are generally more flexible than the banks. Usually there is no fee to the borrower, the lenders will pay for the business. This is especially important if you are self-employed, as many of us are now days. Even for so-called 'class A' borrowers, a few points on your mortgage can have a big effect on your monthly payments or mean the difference between getting the home you want or one you will just settle for.

Lenders want your business, use your power - shop around and get the best deal out there.

3 Not making sure your Realtor® works for you

Traditionally, is was assumed the Realtor® worked for the Vendor, but not any more.

When looking for a home, many people simply call up the listing agent for information, and eventually have him or her write an offer. That usually works fine but, the problem is, the listing agent - by law - works for the Vendor, not you. In this scenario, the Vendor is the listing agent's client, you are the listing agent's customer The listing agent must deal with customers honestly, and tell them all material facts about the property but in the end, the listing agent's job is to get the best terms for his or her client, the Vendor.

Look at it this way, the listing agent can give you, the customer, information, honest and true, but they can not give you advice. The difference could be critical.

In the past few years the real estate industry - spurred on, it must be said, by lawyers - has recognized that Buyers deserve better representation. Buyer Agency is now considered normal practice.

What it boils down to is this; when you have an agent help you buy a home, you want to be a client whenever possible. When it comes to writing an offer, negotiating the price and the terms of a purchase, it just makes sense to be able to get advice from someone who has your best interests at heart.

The way to get it is this: do what the Vendor did - sign a contract. It's called a Buyer Agency Agreement and, just like the listing agreement that the Vendor signed, it makes you, the Buyer, the agent's client. It does NOT mean that you pay the brokerage fee, that money comes out of the transaction like it always did, but it does mean that the agent works for you and must - by law - be loyal to you above all else.

So like any good employer, interview several agents, then give one the job of helping you find a home. Now this agent may have a listing of his or her own that you want to buy. That's called dual agency and it's OK, just be aware of where you stand.

At the very least, you should now have an agent who will be loyal to you, will get to know you and do whatever it takes to find you the right home at the right price.

4 Not making a thorough enough inspection

 Some people spend more time checking out the purchase of a stereo or a car than they do inspecting their future home.

You usually know whether or not you like a home the minute you walk in, but don't be dazzled by decor. Wise homeowners make sure their homes sparkle for a showing. This is good, it shows pride and determination to sell, but you are not buying the decorations. Besides making sure the rooms are the right size for your furniture, look at the layout - does it "flow" right for your family's lifestyle? Is the dining room handy to the kitchen? Is the laundry room located where it's convenient for you? Does it even have a laundry room?

It's a good idea during your inspection to "stand back" from the home - across the street even. Some flaws like a sagging roof or buckling walls are more obvious from a distance.

Inside the home, check the structure. In the basement, look for cracks in the foundation, or signs of moisture, which may or may not be a big problem if you can find the cause. Always check the attic, most people never do. Look for signs of water damage, for holes in the roof or the insulation. Look for proper ventilation and signs of rodent or bat infestation. You also need to check things like water pressure, power supply, wiring, and the heating system. In rural areas, the well and septic system are crucial but you can't usually see them. You'll need independent documentation and certificates from the health authorities, which the Vendor should be able to supply.

I strongly recommend that any offer to purchase should be conditional on you obtaining a satisfactory report from a qualified Home Inspector. For a few hundred dollars a Home Inspection will show you what potential problems there are, which ones are serious and which are not. The older the home, the more important it is to have a professional Home Inspection.

5 Not checking comparable sales

After you have found your home, and before you put in an offer, find out what other people have paid recently for similar homes in the area, this is the best indication of its value.

You've probably inspected a number of homes on the market at this point, so you know what people are asking for similar properties, but do you know what similar properties are selling for?

Ask your Realtor® for a CMA, competitive market analysis. This is especially important if you are moving to a new area and are unfamiliar with prices and market conditions. Certain areas, or even parts of streets can have their own "micro-markets" that you need to be aware of.

Pricing a home is more of an art than a science. During a "buyers market" you can expect to pay less than the last person did, during a "sellers market", you might have to go up to get what you want. This is where the advice of an experienced Realtor®, you know, that one you interviewed and signed the contract with in step 3, really comes in handy.

In the end, the final decision is up to you, but you want and need all the information and advice you can get before you take the final plunge.

6 Not checking the vendor disclosure statement

The vendor, and the listing Realtor®, must disclose all material facts about the property that would affect your decision to buy.

It is mandatory in this area for the listing agent to ask vendors to fill out a disclosure statement, but prospective buyers often don't ask to see it.

The disclosure statement deals with such material things as condition of the roof or other hidden defects. It also discloses what the vendor knows about easements, title problems or building code violations. It isn’t perfect, but this statement can reduce problems at closing. Ask to see it before you finalize an agreement. If it doesn’t exist, ask why.

Ideally, the statement should be attached to, and form part of, your offer to purchase. That way, both sides acknowledge that they've read it and accept it (or not).

7 Not knowing the neighbourhood

 Your enjoyment, and the value of your home depend very much on the neighbourhood and its environment.

If you ask the Vendors about the neighbours, they'll say they are nice people. It's just human nature. Even if the neighbours raise Pit Bull Terriers, have all night sing-alongs around a bon fire or practice skeet shooting at 3 a.m., they'll be "nice people". Even with perfect neighbours, there is a lot you should know about your future home's surroundings that you can only learn by being there. You can't find out everything, but a little research goes a long way.

Your Realtor can help with insight into schools, shopping, traffic patterns etc. but if at all possible, why not take a few hours and just walk around your future neighbourhood? Test the drive to and from work, talk to some people, go there at different times of the day. This might seem like a bit much, but it does happen that people buy a place only to find that they love their home, but hate where it is.

Also consider where your prospective home fits in the price range of the neighbourhood. The most expensive home in a neighbourhood will probably be the hardest to sell down the line. However, a somewhat run-down home in a pricey area will probably appreciate significantly in value with a bit of renovation.

8 Failing to consider on-going maintenance

You don't just pay for the mortgage, taxes and utilities.

How often have you seen the phrase "maintenance-free exterior" in a listing? Don't believe it - there is no such thing. Even if the home looks good now it will need repairs down the road, sometimes unexpectedly, so you'd better have some reserves in your budget.

This is where a Home Inspector can be invaluable. A good inspection will take several hours, and the Inspector will go over what things will need to be repaired in the foreseeable future, and give you a rough idea of the cost. If you're handy, you can save a lot of money by doing it yourself, but you have to decide if that's what you want to do with your time.

When considering a home, try to think how it will look two or three years from now. Make a list of what will need to be done. Finally - don't leave needed repairs undone for too long, you know the saying about a stitch in time, they just get more expensive the longer you wait.

9 Not knowing closing costs

There are many "hidden costs" you will have to pay when your transaction closes.

These include Land Transfer Tax which, for example, would be $725 on a $100,000 home, CMHC insurance costs, lawyer’s costs (around $500-$700), and ‘adjustments’, such as realty taxes already paid by the vendor that you will have to reimburse. Add to this the cost of actually moving, cleaning, painting and any new appliances or furniture you may need and the bill could be a bit of a shock if you’re not prepared.

But of course, you're smarter than that, that's why you're here, reading this article. If you haven't read the other article called Closing Costs, you should do so in order to get more details.

In the meantime, a good rule of thumb is to budget about 2% of the purchase price towards closing costs. Sometimes you don't need quite that much but if you need bridge financing or there's other extenuating circumstances, the cost could be higher.

Despite what you may think at this point, when all is said and done - home ownership is still a rewarding experience and a wise financial investment. Purchasing a home is much easier when there are no surprise to spoil the fun.

If you have any questions, or you're ready to start that home search, please contact me, I'll be happy to help.