Spring is just around the corner and what does that mean in the world of banking? It means that all personal bankers – like me – are busy processing mortgage applications and approving mortgage loans. Spring time is the time of the year when people pack up their belongings into boxes and move into their new homes.
Buying your first home is a very big step and it is also a very big financial commitment. Many people take a spending hiatus for a few years after they purchase their first home because they are just not prepared for the financial commitment that comes with buying a home. Purchasing your first home can be a great investment, but don’t kid yourself; it’s also a very big financial commitment and an even bigger financial constraint.
I know that I have always been the poster child for continuing to rent an apartment, but that is just for my current lifestyle. I don’t think that homeownership is a bad idea; if it works for you and if you and your spouse can afford to make the investment then homeownership may just be exactly what you need. As a matter of fact my job as a financial planner was to help people successfully buy their first home.
Use these tips to save money when buying your first home:
1. Check your credit before you go to the bank. Your mortgage interest rate is based on several different factors including your personal income, your credit history, the amount of your personal savings, and your credit score. The better (aka the higher) your credit score, the better your mortgage interest rate will be. It’s a good idea to check your credit score at least six months before you apply for a mortgage loan because that’s how long it takes to start making changes in your financial behaviour towards improving your credit score.
2. Shop around to find the best rate. After you have found your dream home and you have made an offer to purchase it’s time to visit your local bank branch and apply for a mortgage loan. Before you divulge all of your personal information and let your bank pull a credit check it’s a good idea to shop around to find the best interest rate. If several banks check your credit it can actually harm your credit score. When you are talking with your personal banker don’t be afraid to ask for a lower mortgage rate, there is always some room to negotiate.
3. Save on your down payment. A common mistake made by first time homeowners is using all of their personal savings for the down payment on their first home. Of course the bigger the down payment, the more you can save on interest charges over the course of your mortgage loan. However if you use all of your personal savings for the down payment on your first home you won’t have an emergency savings fund. It’s never a good idea to leave yourself without an emergency savings fund because we just never know what the future holds.
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Kristina Tahnyak
Tahnya is a Certified Financial Planner and former Investment Advisor turned marketing and communications professional She holds a degree from Concordia University, is debt free and currently works in the field of digital marketing.
Emergency savings funds are overrated, especially if you have other assets to cover yourself in the event something comes up.
Best,
James
James, what are the other assests? Are they easily liquid? If not, that’s the whole point.
Tip #3 is where I’m at right now. We won’t be able to put down 20% in our home buying timeline, so what is the next best thing? Put down the most we can, or put down the least we can and use the rest for emergency savings, investments, home maintenance fund, etc.
James, they can be overrated if you have other investments or assets that are easily accessible, but they are most definitely not overrated if you have no other liquid assets.
Ryan, My wife and I were in your same spot 2 years ago and we went with the least amount down route. I figured that we’d have to pay PMI anways, so we might as well bulk up our emergency fund in case something major happened within the first year of home ownership. Plus, there are always unexpected expenditures in the first year.
I did not really negotiate our interest rate when we bought and I wish that we would’ve. It may only amount to $10 a month, but that definitely adds up over time.
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