Are you considering buying your first home? Well, there are a lot of considerations to ponder when taking this first plunge. Being aware of some tricks of the trade will surely shed some new light on this important decision.
1) Mortgages. Pre-approval, in most cases, is not necessarily pre-approval. What the banks and lenders do is they look briefly at your income, credit rating and availble down payment and tell you how much you can borrow. Warning: when negotiating a purchase, always make it conditional on financing notwithstanding the pre-approval letter in hand. In my experience as a former real estate lawyer, banks and lenders tend to have other conditions that may be more difficult or impossible to meet. For example, I had a client in my office who had a firm offer to purchase based on the pre-approval from the bank. She had advised them that they earned $60,000 per year and had been at her current employer for three years. What the bank did not tell her, was that they had premised that she had earned $60,000 per year for the past three years. In fact, she had been only recently promoted from a position earning $45,000. They advised her that she did not have a long enough work record in her current position.
2) If the bank tells you that you could qualify for a mortgage of $200,000 with your down payment of $20,000, then you can look at homes of $220,000, right? In theory, yes. But think practically about what than entails. The bank is going to pre-qualify you on the absolute most you can afford. What are your other situations? Do you have children? Is your car reliable? Do you like to take vacations each year? All of these unanticipated expenses fall outside the bank's calculations, leaving you seriously short if you max out on the house. I recommend looking at homes of 75% of your maximum.
3) Buying a resale home can be a great way to save money but be aware of local by-laws and building codes with respect to electical, plumbing, heating and roofing. Although you might be able to buy the house with no problems, insurance companies are very good at refusing claims on old homes because of out-dated systems.
4) If you are considering buying brand new from a builder, check with your realtor about statutory warranties. Are builder required to be registered with a state or province sponsored warranty program? If so, are they? Ask other people about the builder too and any problems they have encountered. Don't be afraid to insist on changes to plans and specifications and bargain on the prices. Builders have been able to get away with a lot of shoddy quality and design so make sure you work with a reputable one.
5) Condominiums are a good choice for many first time home buyers. The thing to know about a condominium is that you are not buying land - you are buying space and a vote in a corporation that will manage the space. That corporation will manage the space based on monthly fees you pay. Because every condominium differs, be very sure to get an estoppel certificate or status certificate that sets out what your fee covers, what expected major expenditures are upcoming, any proposed increases, any liens or special assessment against your unit, any litigation against the corporation and that an adequate reserve fund exists. It is also a good idea to know what your unit consists of. For example, if your parking space and locker constitute separate units, you might pay additional monthly fees.
6) Invest some money in talking to a lawyer before you buy. Additional costs can add up quickly on the closing and a real estate lawyer can shed some lights on what you will expect to be faced with. Also, consult your realtor and see if their information is consistent with the lawyers. They are paid on commission, your lawyer is not, so if you get conflicting information, find a new realtor!
Hopefully, buying your home will be a pleasant experience and that these tidbits will ensure that!
