Midwest Minute - January 08, 2012

Four Steps to First Time Home Ownership

Step one – is this the right time?  You just received notice at year end that the landlord is increasing your rent again.  Your significant other survived the scrutiny of your family at Christmas.  Heck, he even lets you drive his truck.  Your best friend thinks he’s a keeper. You feel ready to take the relationship to the next level of commitment.  Buying a home will be the largest financial decision that you will likely make to this point in life and it can be surprising stressful.  So let’s talk about flattening out the bumps a bit, and ensuring it is as a good experience as we can make it.

Step two – consider all the costs, both one time and ongoing.  You will need a down payment, probably equal to 5% or more of the purchase price.  There are closing costs to finalize a transaction like lawyer’s fees, mortgage registration and title transfer, inspection fees, house insurance premiums, utility hookups, appliances, paint, draperies, beer and pizza for the movers; so for now plan another 2%.  Your existing monthly payments on consumer debt - car, furniture, student loans, etc will be considered against your income and credit history along with new costs for mortgage repayment (principal, interest, mortgage insurance), utilities, and property taxes.  If you are in a condominium, monthly fees for maintenance of the common space and other shared responsibilities.

So before getting serious about searching, choose a mortgage lender and work your way through a detailed pre-approval process.  I am not talking about an online quiz either.  Make a formal application and see what price range you can comfortably afford.  Ask questions about interest rates, penalties for early buy-out, portability should you decide to trade houses before the first term is up, etc.  At least one third of first time applicants are surprised to find that they are currently not in a position to actually get a mortgage.  They may not qualify because their debt service ratio is too high, haven’t enough funds saved yet, or are seen as a poor credit risk by the financial institution because of past behaviour with unpaid credit cards or limited terms of employment, etc.

Step three – engage a good Realtor.  He or she will act as a professional guide throughout the search and buying process.  Honestly, this is not the time to rely on your third cousin once removed who is just getting into the business.  You want someone who knows what they are doing, will give good advice even if you don’t necessarily want to hear it, and can help you avoid making painful mistakes.  The best part?  If you purchase a MLS property, you won’t have to pay directly for their services, the brokerage representing the seller will.

Step four – think it through logically.  It’s a campaign. The best advice I received before buying my first home was to think ahead to the day when you will want to sell it.  Is the location desirable?  Does the structure have “good bones?”  Am I paying fair market value?  Does it fit our needs, not just our wants?  And whether you are buying an older home, a new one, or building, try to allow extra time at possession.  You may need it to paint some rooms before putting furniture in or to clean behind an exiting owner who doesn’t have the same standard of housekeeping that you do.  It’s not how quickly you start that counts, it’s how well you finish!

Vern McClelland is an associate broker with RE/MAX of Lloydminster and a partner with The Midwest Group.  If you have questions or comments on this article or other real estate matters, he can be reached at 780.808.2700, or through the website www.wesellmidwest.ca

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