Are you prepared for owning a home? Common mistakes to avoid!

Official blog of Refresh Financial

How To Prepare Financially For Buying a Home and Common Mistakes to Avoid

home

Buying your first home is exciting and rewarding, but it can also be very stressful, especially if you have poor credit and bad money habits. You can, however, reduce the stress of buying a home by ensuring you’re financially prepared to do so. Here are four ways to ensure your finances are in order, before you start the process of buying your very first home:

1. Pay down your debts

Your credit score is going to be front and center during the homebuying process. Whether or not you are approved for a mortgage, and what your interest rate and terms of that mortgage are going to be, entirely depend on your credit score. So, before you start looking for your new home, make sure you’re doing everything you can to improve your credit score. Paying down your debts can be helpful for this, because it lowers your credit usage percentage and shows good repayment habits.

2. Clear up any issues on your credit report

Grab a copy of your credit reports from both Equifax and TransUnion and go over them carefully. Look for problems you can fix. Maybe you paid something off already and it’s not reflected on your report. Perhaps you owe something you don’t recall borrowing. There’s also the chance that someone has got hold of your identity or credit card numbers and run up charges in your name. Clear up as many problems as you possibly can so that your credit score is the best it can be when you go to buy your home.

3. Save your down payment

You need to start saving if you haven’t already. I would suggest making sure you’ve got your credit usage percentage down below 30% as your first priority, and then you need to save. Save every cent you possibly can. Buying a home in Canada has just gotten more complicated with the new stress test rules the Government has put into effect, but the more money you save for a down payment, the easier you’re going to be able to pass this stress test. You see, if the stress test caps the mortgage you can take out at $300,000 and your down payment is $20,000, you’ll only be able to afford a home that’s selling for $320,000. If, however, you have a $75,000 down payment, your budget for a home goes up to $375,000. The more you save, the better off you’re going to be. The best way to get to saving quick is to set up automatic transfers from your chequing account to your high-interest savings account. You might also consider getting a head start with a Refresh Financial credit building program. Click here for more information on that.

4. Determine your budget

You’re going to want to figure out what you can afford as far as house prices go. You’ll need to take the new stress test into consideration. You can use online calculators to figure out what the stress test will let you get away with. Click here for one of those. Beyond the stress test, though, you’re going to have to sort out your own monthly budget and decide how much you can afford to pay for a mortgage each month and still be comfortable. That means taking a critical eye at what you spend each month and deciding where you can and cannot cut back.

Once your credit score is somewhere in the average range or above, you’ve saved enough for a down payment and you know what your budget is, you’re ready to start looking at houses and buying a home. Taking these first few steps to prepare, before you go looking at houses, is going to save you a lot of headaches and eliminate any surprises. It will ensure the mortgage application process goes smoothly and makes for a pleasant and exciting home buying experience.

 

Common Credit Mistakes Made by First-Time Home Buyers

1. Not Reviewing Your Credit Situation First

Before you decide on a property or approach any lenders, you need to fully understand your credit score. Make sure your report is free from any errors and do everything in your power to increase your score before shopping for mortgages.

With bad credit, lenders will either deny your loan or charge you unfavorable interest rate which can cost you tens of thousands of dollars over time.

You can check your Canadian credit score for free without penalty right here.

2. Not Doing Enough Research

Mortgage mistakes happen when we aren’t making informed decisions. One mistake today could cost you thousands of dollars in the future and perpetuate a poor credit lifestyle. Before you get too close to signing the dotted line, ask yourself the following questions:

  • Am I taking advantage of first-time home buyer tax credits and other incentives?
  • Have I shopped and compared multiple mortgage rates?
  • Should I wait until I’m able to increase my credit score?
  • Should I have a realtor to help negotiate terms, price and review the contract?
  • Am I working with a sound budget?
  • Should I save up for a larger down payment?
  • Should I be looking at a condo?
  • Am I truly ready for homeownership?

There are many more questions you could ask yourself. If you aren’t confident in any of your answers, it's best to take some time and do more research.

3. Paying the Lowest Down Payment Possible

You’ve probably heard that 20% is all you need for a down-payment on a house. It's sound advice, as 20% will give you favorable terms and don't have to pay for mortgage default insurance. Ultimately, the lower down payment you pay (the minimum in Canada is 5%) the less favorable your term and monthly payments will be in the future.

That being said, if you only have 10% ready, it still might be a good call to pull the trigger, provided that you found your dream property at the right price. Since prices will continue to rise, you can't guarantee that you'll find a great deal in the future.

For more information on down payments, check out this great article!

4. Getting a Co-Signer Without Thinking it Through

If you're trying to qualify for a mortgage but are struggling with poor credit, a co-signer might be able to help you out. However, there are a few things you should consider before making this decision. If you ever lose your job or find yourself in a position where you can no longer afford your mortgage payments, your co-signer would be held financially responsible for meeting these obligations. These types of scenarios put a lot of stress and strain on the relationship, so before getting anyone else involved in your mortgage, be as honest and open as possible in regards to your financial situation.

5. You Aren’t Factoring In Future Costs

You won’t be able to call your landlord or rental office if your oven stops working, or you begin to see some water damage. If you're used to renting, this reality can be a huge oversight. Make sure your monthly budget doesn’t stop at just groceries and mortgage payments. Put money away each month so you are prepared for the day when you are forced to call in a plumber, roofer, or HVAC technician.

Related Article - There are several fees, repairs, renovations, property taxes, maintenance, that every homeowner will be subject to. Read about the different bills you can expect to pay in our article: If You’re Buying Your First Home, Make Sure You’re Budgeting for These Fees”.

There are ideal homes and mortgages out there for every first-time buyer. We just need to make sure we are looking in the right places and asking ourselves the right questions. Ultimately, the best thing you can do right now is research, save as much as possible for a down-payment and work at increasing your credit score. At Refresh, we offer a credit building program that does just that...

Leave a Reply

Your email address will not be published. Required fields are marked *

*

34 − = 25

    What Canadians are saying about Refresh

    I would like to thank Refresh Financial for helping me get out of a bad spot. I never thought it was possible and almost gave up on things and then I saw Refresh Financial and and gave it a try. At first I was unsure of things but to see my credit score now makes me a believer in this program.

    – Aaron A

    “It hasn’t even been a year yet, possibly only 6-7 months, and my TransUnion score has gone up over 100 points. That was only the tip of the iceberg as recently I was able to get a consolidation loan from my bank that allowed me to move forward and make things easier for me. Talk about second chances!”

    – Angelica M

    “I am now in a position where I am able to obtain credit (just bought a brand-new car and refinanced my mortgage for a fantastic rate) and it took little to no time at all. I would 100% recommend Refresh to anyone looking to rebuild credit with as little hassle as possible.”

    – Cathy M

    “I had not heard of a company doing such a thing before someone suggested it to me and it made sense. I am not very good at saving money and Refresh Financial helped me. I have dealt with them for years now and never had a problem. The customer service is excellent and fast.”

    – Chris C

    Refresh helped me regain credit following a nasty divorce, which left me with a very poor rating. They were able to remarkably help me go from a 480 to a 600 score, in just over a year. Thank you Refresh!”

    – Deb K

    I have watched my credit score jump since being with Refresh and I have already recommended it to friends and family. Thank you for helping me build my credit faster for my future and my children’s future :)”

    – Heather T

    At first I was skeptical because I wasn’t getting funds upfront and had to make payments when I really needed the money. I’ve been in the program a year now and have noticed my credit has improved drastically!”

    – Irene L

    I have been a client of Refresh Financial for approximately 3 years. Since being a client they have improved my credit immensely. Definitely recommend this company to anybody that needs help re-establishing credit.”

    – Jason I

    “I recommend this program to anyone having credit issues. At the end of the agreement, your money is refunded to you. There were times I found myself short on cash and Refresh, with permission, used a portion of my money to clear up my arrears.”

    – Margaret L

    “I would like to thank Refresh Financial for their professionalism, great customer service and for helping get back to a better financial situation. I have always been treated with the utmost respect.”

    – Martine B

    Refresh Financial is an amazing program to help people get back on their feet. I was rock bottom with nowhere to turn. My credit was beyond poor. I would recommend them to anyone. If I can do it surely anyone else can.”

    – Matthew S

    “Great company to deal with for rebuilding credit, very simple process to get started. Good service if you ever have questions.”

    – Mike L

    This business truly cares about its clients. The customer service is always quick to return calls or emails. Their online portal functions very well so as a customer you are always updated as you progress with your loan.

    – Phil J

    “Refresh Financial has made us more aware of how to take care of our financial situation and be more responsible, and making payments on time is rewarding in the end for credit. Thank You sincerely.”

    – Rocky M.

    “Refresh financial is great!!! They boosted my credit score, helped me save money and helped my husband and I buy our house;) I was not only a number to them, they stayed in touch and helped me out along the way. Answered all my questions and concerns.”

    – Sara B

    “Refresh Financial had been exceptionally good to me! I’ve just been out on medical leave and they have accommodated me with my payments without hesitation!! I was in a really bad spot with my credit and they have helped me to try and correct it!! Bravo!”

    – Shannon B

    This company has been nothing but fantastic. They have gone above and beyond to help me. This program has given me the relief and peace of mind I need. I would certainly go back to them and give them names of people who could use this.”

    – Shirley K

    The financial services products are excellent for new immigrants, low-income earners and small business owners. Loans, savings and credit building all in one solution is a perfect fit to help with financial goals and stability.”

    – Soraya H

    “After successfully going through a credit rebuilding loan, I was able to use my built-up equity to purchase a newer vehicle and I have since been approved through a financial institution for a loan.”

    – Tanya W

    “I made some poor credit choices when I turned 18 and have always had this lingering thought of how am I ever going to better my score. Since being with Refresh I have realized that I took the right step towards bettering my future.”

    – Taylor B

    I’m so excited I’ve joined refresh! I’ve already seen a huge increase on my credit after the first month! The staff are a delight and make this so easy to understand. I strongly recommend Refresh Financial even if you have good credit this will give you a boost and you’re saving money with the reverse loan!”

    – Wayne B