Purchasing a house in Toronto—especially if you are a first-time buyer— can be a stressful task. On one hand, you’d need to spend (a lot of) money. On the other hand, there are so many details to pay attention to, to avoid future issues.
Here, we will share some of the most common mistakes made by home buyers, and some suggestions on how you can avoid them.
1. Not Having Your Finances In Place
Buying a house can be a (very) expensive expense. Yes, it is an investment, but it doesn’t mean you shouldn’t prepare a budget ahead and make sure you don’t spend more than you can afford.
Remember that you are not only going to spend on the down payment for the mortgage, but also consider potential closing costs, your monthly mortgage payment, and maintenance and utility costs, among others. Also, if you are purchasing a condo in Toronto, keep in mind that you’ll also need to pay on common expenses fees.
The are various tools online that can help you calculate things like property tax, land transfer tax, and mortgage. Use them to your advantage, and plan your budget ahead.
2. Not Thinking Long Term Enough
This is especially common in first-time home buyers. We are often too focused on buying our dream house at the moment, but the truth is, most first-time buyers will one day purchase a second home. So, considering the resale value of the house is a very important factor.
Will the house attract future buyers in 5 years—or ten—will you need to spend a lot on remodeling in order to sell the house?
3. Not Being Approved for a Mortgage Before Searching for Houses
Get a full approval from a lender before starting your search. Yes, there is a thing called pre-approval and various online sites and tools that can predict your approval rate. However, they are after all, are not final and just a prediction.
Consult with a bank or mortgage lender in Toronto, let them check your credit and verify things like your available downpayment, employment status and so on. This way, you’ll know for sure how much you can borrow—and spend on a house—which will tremendously help with your house searching.
4. Not Searching Enough
More often than not, a first-time buyer rely solely on real-estate sites and apps, as well as open houses they stumbled upon in their search for a house.
However, there are other options we can utilize, for instance, by engaging with a real estate agent. It’s also a common misconception to think that a real estate agent’s fees will be an extra burden. In fact, buyers typically won’t need to spend anything.
The real estate agent can provide unique opportunities like non-public listings, and you can also discuss your preferences and let them help with the search for your dream house.
It’s also important to find the right real estate agent for you, so meet at least a few different realtors before making your choice.
5. Skipping Home Inspection And Not Making the Most of It
This is a pretty wide subject. First, remember that when you bought a used house, the seller is only responsible with the current condition when you bought the house.
This is where a home inspection is very important. The seller might provide you with a home inspection report, but since the home inspection industry isn’t closely regulated, check whether the home inspector is from a trustworthy company. If not, you might want to hire your own to inspect the house.
Also, when one or two things are uncovered in a home inspection, keep in mind that it’s highly unlikely to bargain the price down due to these uncovered issues. This doesn’t really happen in Toronto and Ontario, especially if the house is located in a good area with more buyers already waiting. The home inspection will only help you decide whether or not to buy the house.
6. You Overthink Your Choices
The harsh truth is, it’s very unlikely to find a dream house that fits each one of your preferences: perfect location, furnished with perfect decor and furniture, perfect price, and so on.So, don’t wait to find one.
Also, remember that the decor usually won’t be included in the deal, so keep than in mind when observing an open house.
Instead, purchase a house where the necessary upgrades—to fit your preference— are possible and realistic, budget wise.
7. Too Small Down-payment and Too-low Interest Rate
Yes, buying a house in Toronto is expensive, with a single detached home will cost more than $1 million today, on average. So, it can be tempting to spend just a little money upfront to maintain your cash flow or wait for a bargain interest rate.
However, there are significant consequences in going with these options. Low down payment amount will mean higher monthly mortgage payment—so more interests, and paying below 20% in down payment will require you to pay for CMHC insurance, which will add a few thousand Dollars to your initial costs.
Similarly, too low interest rate will usually give more restrictions and default penalties.
So, it’s wiser to wait for the purchase until you can spend more money.
8. Not Making the Right Decision In a Hot Market
When the prices are increasing, for example when a new hot condo is put on sale, it’s easy to fell into the trap of decision numbness.
On one hand, if you don’t pay the extra $2,000 for the house today, the next property in line will have a similar price tomorrow. Each new property sale in a hot market will move everyone’s prices up.
On the other hand, this can encourage you to make rash decisions in fear of needing to pay even more if you don’t hurry.
Keep a cool headed approach in this situation, gather your information carefully and make the right recision.
9. Not Being Ready to Compromise
There are three main factors in purchasing a house: location, condition, and size.
More likely than not, you’d need to compromise for at least one of the three. So, again, weigh your options carefully, and make the necessary compromise when necessary.
10. Giving More Than $100,000 in Deposit
Remember that deposits in Ontario is only insured up to $100,000. Mention this when the seller or lender asks for more amount.
However, if it’s absolutely necessary that you’d need to spend more than $100,000 in deposit, let your lawyer handle the deposit, just to be safe. Alternatively, you can split the amount between the real estate brokerages (if you haven’t already, you should hire a real estate agent at this point), so half the amount goes to the seller’s brokerage, and another half to yours (each should be below $100,000).
It’s important to plan ahead before going real estate shopping, so you can avoid the common mistakes we’ve shared above. Some of the mistakes can have lasting effects for years in the future. So, as the old saying goes: better safe than sorry.