Buying a first home is incredibly exciting, but there are many issues that you must research before you move forward. The biggest decision you will initially have to make is whether you will be viewing homes for private sale or homes up for auction. This will make a significant difference in how you approach your search for your new home.
Things to know
Starting with auction purchases, it is important to know the following about this method of home buying;
- Auctions are listed with a date and time for the event
- You do have the right to inspect an auction listing prior to the event
- An auction listing contract can be negotiated before the auction begins
- Auctions move quickly and do not afford time to consider counter-offers
- Once purchased at auction, there is no cooling-off period
- Pricing at an auction is not set but rather is done by swift bidding
Check out our article about: Winning Strategies For Pre-Auction Offers
While purchase via an auction can be very exciting, it is important to remain clear-headed and know your limits. It is easy to get swept up in the excitement of owning a home that you adore, hence bidding outside of your true financial capabilities. In addition, if you do choose to have the home inspected, or negotiate the specifics of the purchase contract, prior to the actual purchase, and you do not buy a home, these monies will be lost to you.
Factors when buying through an advertised private sale
If you decide to purchase through an advertised private sale, also known as a private treaty sale, these factors will be different from an auction sale;
- The purchase price will be a set amount
- You will have the opportunity to make an offer at the purchase price or less if you so desire
- The price can, and often does, go through a negotiation process
- Negotiations can be time-consuming and stressful for the purchase price and other amenities available in the home that could either stay with the home or go with the owner (ie: washer/dryer, refrigerator, furniture, window treatments etc.)
- Inspections will be anticipated and should be completed
- Contracts can include an escape clause if inspections reveal major issues with the home such as structural issues or pests (termites, ants, rodents etc.)
- Private treaty contracts offer a 5 day cooling-off period with a minimal penalty for backing out of the purchase
But, even more importantly, before moving forward with any strategy, it is imperative that you take a full and accurate financial inventory of your true income state.
Factors to prevent more financial responsibility
The following factors and questions need to be considered and answered honestly to prevent taking on more financial responsibility than you are capable of handling:
- Your expected income for the next 12 months (excluding overtime and/or bonuses)
- Your current level of debt, including student loans, credit cards, car loans and various insurance
- The financial range of your purchase price
- An affordable range for your mortgage payment
- The cost of property and community taxes (including public school taxes)
- An estimate on the cost of homeowner’s insurance
- The amount of deposit you can afford; traditionally 20%
- If you do not have a 20% deposit, the cost of lender’s mortgage insurance
- An estimate of new homeowner costs for the interior and exterior of the home
- Research various mortgage lenders to find one that fits your needs
- Be sure that you have enough financial stability to qualify for a loan
Regardless of going to auction or choosing a private treaty sale, you will need the answers to all of these financial questions.
Read our article about: 8 Strategies for winning at Auctions.
Next, be willing to adjust your plans in accordance with what is financially feasible for you. If you find that you cannot own a home as a single person, or that you cannot afford the size home you want in a particular neighbourhood, consider the following;
- Purchase a home with a solid business/homeowner partner
- Consider buying something smaller in a good neighbourhood, rather than something big in a less desirable neighbourhood
- Ask a family member to invest in the property with you
Ways to get swept in the emotion of buying.
Lastly, the biggest mistake a first time home buyer can make is to get swept up in the emotion of buying. There are several ways to keep this from happening.
- First, get professional advice from someone who is knowledgeable in the area where you want to purchase the property. There are many different types of real estate agents who specialise in selling particular types of properties. Find an agent that specialises in the neighbourhood you are interested in and the type of housing you have decided to purchase.
- Second, beware of financial scams. If you are considering a grant or a form of non-traditional mortgage, be sure to read the contract carefully and then have it reviewed by a solicitor
- Forgoing inspections to save money is always a mistake. It is important to have a structural inspection for the basic foundation of the home, electrical and plumbing.
- Do not purchase out of fear of never finding what you really want. If the home requires too many compromises in your wishlist, walk away.
Purchasing your first home is meant to be an exciting event which can only be enhanced by gaining as much financial and real-estate knowledge as you possibly can. Therefore, take the time to review your finances, get expert advice, make a wishlist and remain calm and clear-headed throughout the process. These factors will be the perfect recipe for a successful, happy and long-lasting positive investment in your future.
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