Common mistakes most first-time homebuyers make and how to avoid them

Dreaming of owning your own home? Bernice Dunsby, RBC’s director of Home Financing provides some pitfalls that are common to first time homebuyers, and advice about how to avoid them.

1. Thinking you won’t qualify for a mortgage
Not sure if you qualify for a mortgage?  A good credit rating can improve your ability to get loans and mortgages.  Even if your credit history is less than perfect, there are solutions. A credit rating can be improved to qualify for a mortgage, by always making at least the minimum payments on your credit cards, loans or utilities e.g. hydro, cable and phones on time. So even if you are not ready to buy a home just yet, there are steps you can take now to make sure you do qualify in future. Checking your credit history is easy. Simply ask for a copy of your credit rating at either www.equifax.ca or www.tuc.ca
2. Not knowing all the down payment choices
You’ll be glad to know there are different mortgage options available depending on how much of a down payment you can afford:
• Conventional mortgage or home equity line of credit requires a 20% down payment
> Low down payment mortgage (minimum 5% down). Low down payment mortgages require mortgage default insurance. The premium cost can either be paid up front or added to the amount you borrow.
•  Under the federal government’s Home Buyer’s Plan, first-time homebuyers are eligible to use up to $25,000 in RRSP savings per person ($50,000 for couples) for a down payment on a home. The withdrawal is not taxable as long as you repay it within a 15-year period. To qualify, the RRSP funds you plan to use must have been in your RRSP for at least 90 days.

3. Not considering a mortgage pre-approval
Once you’re ready to buy, many first time homebuyers under- or over-estimate how much they can afford to pay for a home. Online calculators such as “How much home can I afford? are a great tool but knowing the exact amount you will be approved for gives you the confidence to begin looking at homes within your price range. Real estate agents will serve you better because they know you’re a serious buyer. A mortgage pre-approval will let you easily make an offer to purchase as soon as you find the right home. Best of all, your pre-approved mortgage rate will be guaranteed for up to 90 days. If rates go up during the period, you’re protected. If they go down, you will automatically get the lowest rate for the term selected.

Read about the other 5 common mistakes most first-time homebuyers make and how to avoid them here:  http://mortgage.rbc.com/pdfs/fthb-e.pdf