When committing to your first home, it is important to learn about the big mistakes that you need to avoid at all costs. Purchasing your first home especially during a pandemic requires more effort in long-term planning, including preparing for the unknown.
Buying a house today could have a major influence on your earnings as much as 20 years down the road. As a prudent prospective homeowner, you owe it to yourself to investigate the crucial factors that could impact both your short- and long-term financial well-being.
Real Estate Expectations
Real estate experts expect home prices to go up in 2021, but not as fast as they did in 2020.
Prices of existing homes are projected to increase 5.9% in 2021, compared with a 10% jump in 2020, according to an average of the latest forecasts from Fannie Mae, Freddie Mac, the National Association of Realtors and the Mortgage Bankers Association.
Prices vary by season, so when you choose to buy can impact what you’ll pay. Homes are generally most expensive in June and July and cheapest in January and February according to a research examination of market trends across 50 of the most populous metros in the US. The analysis gathered data from Realtor.com from 2015 through 2019.
To help you with your purchase decision, here are some considerations.
1. Assess Your Affordability
What you can afford should be based on your lifestyle, not the lure of record-low interest rates or the bank’s approval. An active savings strategy should also be factored in and not be compromised for the sake of owning a home. Never compromise on stretching you limits no matter what the bank or the mortgage advisor says. Often time the bank will use a formula to give a percentage on how much you can spend on housing – stay in control of what you can actually afford.
2. Work on your Budget
Establish a budget that is used to determine a down payment, while accounting for your expenses and leaving some liquidity. To make this strategy work, come up with a risk assessment and find the right balance between increasing your equity and decreasing your cost of borrowing against liquidity.
It is essential to maintain sizeable savings particularly during these times to cover all your living expenses in case something goes out of control.
3. Look out for Hidden Costs
Aside from the down payment, lease premiums, and interest and principal, there's a lot to pay.
Closing costs include legal and administrative fees, ranging from 1.5 to 4 per cent of the purchase price, land transfer tax (depending on the province) and other potential costs such as title insurance.
Upfront costs include property inspections, condominium fees and mortgage default insurance, where required.
Additional expenses, once a homeowner, include utility bills, property tax and insurance, not to mention those unexpected maintenance and repair costs.
4. Look at Your Cash Flow
Run budget forecasts to ensure you have enough cash flow or other resources to cover the expenses beyond the mortgage and property tax payments, including insurance, utilities, repairs, yard maintenance and the lumpy expenses such as periodically replacing the roof, appliances and flooring. This will relieve the pressure of having to come up with money to keep the lights on in your new home.
5. Resale Value
A number of house owners move frequently, so the resale value of the house along with real estate agent fees you'll pay to sell it, should be taken into account. To better understand this situation, read and do some research on residential real estate investment and you will be amazed on the facts you were missing out.
6. Consider your Credit Score
When looking for a house, a buyer should concentrate on improving their credit score to the highest possible standard. Working on improving one’s credit in advance of a home purchase can save thousands in interest charges. A lower credit score means you’re at a higher risk with a higher interest rate.
Prepare and plan for potential risks.