Gails Blog

In some areas the country the housing market is still sizzling because of low interest rates and a sense that “everyone else is buying a house, I have to have a house too”. Some buyers throw caution to the wind in a desperate attempt to wedge themselves into the ranks of “home-owner.”

No matter how anxious you are to own your own home, don’t rush into the transaction. In tight markets like the one we’ve experienced in many parts of the country recently, buyers feel pressured to make an immediate offer. But if you haven’t taken the time to become familiar with the local market, you won’t know if you’re getting good value for your money - and it’s a lot of money.

Look at plenty of homes before you make your first offer. And don’t get so caught up in your “wish list” that you dismiss homes that meet most of your criteria. Your real estate agent should be able to guide you when it comes to prioritizing your list so you don’t end up tossing out an option that has good potential.

Sometimes in the heat of the exchange, sellers or real estate professionals suggest that a buyer put in an offer to purchase which is free of conditions, including foregoing the “financing condition.” Don’t do it. No matter how much you want that property. No matter how sure you are that everything will be fine. Don’t do it.

While you may not remember it in the heat of the buying frenzy, pre-approvals come with the proviso that they are financing approvals in principal only; they can still be revoked by the lender if they are perceived to be a bad decision - if your circumstances change, or if the house appraisal is lower than the purchase price. And that’s why the “conditional on financing” clause is important.

Two other clauses every offer should contain are the “conditional on sale of existing home clause” and the “conditional on inspection” clause. The first eliminates the likelihood that you’ll end up desperate to find a buyer for your house because you’re having to carry two mortgages since your old house hasn’t sold yet. With some markets entering a slower period, houses may take longer to sell, and if you have to carry two mortgages for three or four months, you’ll be motivated to accept less than your house may be worth. The second means you won’t end up with a house that is likely to fall down around your ears because in your desperation to buy THAT house, you ignored the potential problems inspections are designed to ferret out.

Be careful not to overextend yourself when it comes to choosing a price range for the home you’re seeking. It’s easy for the home-buying process to suck you in. Just add another $20,000 to your price range and your neighbourhood options become so much wider. Another $20,000 and you’ll be looking at houses with finished basements, renovated kitchens, or landscaped yards. But if at the end of the day you’ve added so much to your price range that you’re house poor, you’ll end up forgoing annual vacations, entertainment and the other good things in life. Or you’ll start using your line of credit to make ends meet. Dumb! Stay balanced and focused on what you can afford.

Being realistic about how much you can really afford is particularly import during periods of low interest rates like we’ve experienced most recently. Tempted by manageable mortgage payments, buyers often push the envelope on house price. Later, when interest rates rise - what goes down must eventually go up - they find their cash flow strapped, sometimes to the point where they must sell their homes because they can no longer afford to keep up with the mortgage payments. (This is exactly what happened in the sub-prime fiasco in the U.S.)

And don’t forget about your closing costs. From the home inspection to property tax adjustment, from the appraisal fee to the deed transfer tax, every little thing costs. One rule of thumb is to estimate between 1.5 and 2.5% of the value of the home for closing costs to finish off the transaction.

Buying a home is a complex process. Don’t rush into it and don’t rush through it. You’ll likely have to live with your decision for a long, long time. Talk to some friends and family who have bought recently and try to get a feel for the process. Pay attention to the details. And ask lots of questions. The more you know, the better a home-buyer you’ll be.

This entry was posted on Friday, May 9th, 2008 at 12:50 pm and is filed under Home Buying, Smart Shopper. You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.