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5 common mistakes first-time American homebuyers make

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Photo: Dan Moyle/Flickr

Buying a home is typically the single largest financial transaction of a person’s lifetime, and often comes after years of highly detailed prep work.

Yet, despite the many hours spent browsing listings, attending open houses and scrimping to save for a downpayment, many first-time buyers still fall prey to several common pitfalls along the path to homeownership.

We recently sat down with Bridget Harvey, a licensed associate real estate broker with the Harvey Team at Douglas Elliman, and Zack Tolmie, a home lending officer with Citibank to discuss some of the common mistakes first-time homebuyers make and how to avoid them.

1. Not taking advantage local experts

Americans use apps to buy everything from car insurance to tacos, but that doesn’t mean they should only rely on their smartphones when it comes to purchasing a new home. It’s understandable — apps are convenient, usually free, and devoid of human contact. And that’s precisely why homebuyers should skip the apps and opt for actual facetime with a living, breathing broker and banker.

“Often people just call an 800-number or go with their family banker in Texas when they’re ready to buy, but you need someone who understands the local marketplace to help with the process,” says Harvey.







Photo: Bridget Harvey

Ideally, buyers should look for someone who is not only personable, but professional, and who can offer knowledge, experience and local insight beyond the limited scope of an app.

Plus, navigating the murky waters of the internet can be tricky — not to mention misleading.

“Sometimes when consumers are browsing listings online, they think they are contacting that seller’s agent directly and will save some money. But really they are just giving their information away for free to someone who has purchased that information and likely has nothing to do with the property,” says Tolmie.

Many buyers use apps to avoid hiring a mortgage banker, but in essence, all they’re doing by using an app is putting an interface between the banker and themselves.

Tolmie adds that using online calculators is like selling your information to a cold caller who may not have your best interest at heart.

“And something you end up losing by going with an app is a professional’s local expertise, like not being able to meet at the agent’s favorite coffee shop or talk about local hot-spots or landmarks worth checking out,” says Harvey.

Also, the person lurking behind the app never gets to know anything substantial about the potential buyer beyond debt-to-income ratios and bank statements.

“There’s enormous value to having that social interaction with someone who knows what your down payment means to you,” says Tolmie.

2. Not understanding the numbers

Most popular home listing websites include some sort of “how much home can you afford” calculator, where users can enter their income and guess their creditworthiness. The website then spits out a potential price-range and estimated monthly mortgage payment.

Homebuyers frequently misread the information and end up buying more home than they can actually afford.

“An online mortgage calculator may tell you that you can technically afford to buy a house valued at $300,000, but in reality, based on your larger financial picture, including debts and goals, you really shouldn’t be buying anything over $250,000,” says Tolmie.

First-time homebuyers are often not aware of the “hidden” monthly costs that come with buying a home and extend beyond the mortgage payment, like lawn or pool care, home and appliance maintenance, and labor costs. According to the listing site Zillow, these “hidden” costs can easily add up to almost $10,000 annually.

3. Money trails

National home prices and rents have risen by 73 percent and 61 percent, respectively, over the last 18 years. Yet wages have only grown by 31 percent over the same period. So, it’s not surprising that one in three Millennials reportedly anticipate that family members will cover 30 percent or more of their downpayment.

But while such gifts are nice — and not to mention extremely generous — buyers don’t always account for the money properly.

“Because of the Patriot Act, the bank looks at two months of statements and if there is a large deposit from overseas, it has to be sourced and that can delay the process if the country of origin doesn’t handle statements the way the US does,” says Harvey.

Aside from gifts, buyers often liquidate their stocks to raise funds. But much like buying a home, timing is everything.

“Liquidate as soon as possible, a year to sixteen months out, and get that money into your account. You never know what’s going to happen to the stock prices and currency rates and conversion rates. You might not be able to afford tomorrow the same home you can buy today,” says Tolmie.

Plus, major world events like Brexit can significantly lower your buying power overnight.

4. Inadequate financial planning

Homebuying is a lengthy process, from the time it takes to save for a downpayment to the months of waiting for the sale to close. One mistake first-time buyers make is jumpstarting the process before they’re really ready.

Homebuyers should start working with a financial planner as soon as they’ve begun thinking about buying a home. The earlier, the better — especially if a buyer’s finances need a little help.

“Self-employed homebuyers especially should be having a conversation with their Certified Public Accountant (CPA) every year, and saying I’m not looking to buy right away but I may want to buy in the next couple of years and I want to make sure that my tax returns reflect adequate income to afford the kind of home I want,” says Tolmie.







Photo: Zack Tolmie

Looking at all the available options in terms of deductions with a CPA or mortgage banker is one of the most crucial and beneficial preparatory stage steps a buyer can take.

“Lockdown your finances and decide with your CPA what deductions to take and what to pass on if you plan on buying a home in the next few years. It’s a crucial step for anyone who is self-employed, but also worried about how much home they can afford based on their returns,” says Harvey.

Harvey suggests reverse engineering your taxes with a professional to ensure that it reflects adequate income to the bank for the home of your choice and you should be vigilant not to deduct more than that.

“It’s reflective of today’s economy. More of us are self-employed or commission-based, so you have to figure out how to navigate that kind of income and make it tell the story you need it to tell to buy your perfect home,” says Harvey.

5. Open houses

Many homebuyers only start attending open houses once they’ve begun the process. But, open houses can be a treasure trove of information and a great opportunity to connect with a local professional you may want to work with when you are ready to buy.

“Open houses are free to attend and buyers should attend a lot of them. They give a real-world view of what they can get for their money, and also help buyers nail down what they really want and don’t want in their ideal home,” says Harvey.

Open houses provide the perfect spot to network with local brokers and often bankers. Buyers can test the waters and ‘try out’ different professionals until they find their perfect fit. “It’s so important to like the people you are working with. You can end up having daily interactions with these people over the course of the two to three months it takes just to close on a home,” says Tolmie.

“It’s both finances and feels. You have to trust this person to know intimate details, not only about your finances but about your life, and to trust that they will use that knowledge to best serve your needs and wants,” adds Harvey.

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Covid-19 altering Canadians’ housing needs: RBC

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Amid a pandemic-driven shift in demand as well as a surge in new listings, the Canadian housing market remained strong in August, RBC Economics reports.

Citing preliminary data from local real estate boards, RBC said that markets in many areas of the country remained “red hot” in August.

“But the bigger story might be that Covid-19 is now prompting more people to sell,” the report said, noting that new listings surged in urban centres such as Toronto, Ottawa and Vancouver.

“We think this in part reflects the pandemic altering the housing needs of many current owners — who are opting to move, something they might not have considered just a few months ago,” it said.

RBC noted that the Toronto market saw new listings jump 57% year over year in August, powering a 40% increase in home sales.

Sales were up more than 20% from July’s near-record levels, it said.

“Clearly, [that] market has fired on all cylinders this summer, making up for the major disruption caused by Covid-19 in the spring,” RBC said.

The primary drivers of sales activity and higher prices were low-rise homes, including single-detached homes, RBC reported.

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RBC’s customer base makes it a favourite of cyber attacks – security experts

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Royal Bank of Canada is among the most targeted institutions by cyber attacks due to its broad customer base, according to an analysis by Palo Alto Networks.

From December 2019 up to present, cybercriminals have been establishing malicious pages disguised as websites by major companies to conduct phishing attempts and other similarly invasive attacks.

RBC ranked third in the most spoofed domains list, more than streaming giant Netflix and professional networking portal LinkedIn. PayPal and Apple ranked first and second, respectively.

“When you look at the broad customer base that RBC has, it makes sense, especially when you compare it to some of the other big names,” said Jen Miller-Osborn, deputy director of threat research at Palo Alto Networks. “These attackers are going after [domains] where they can make the most money, so they’re focusing on these organizations that have really broad customer bases because that really ups the number of potential victims.”

In an interview with BNN Bloomberg, Miller-Osborn outlined what consumers should be looking out for to filter our fraudulent emails.

“Typically, the ones that are going to be scam-related are trying to invoke some sort of emotional response,” Miller-Osborn said. “So they might say something like ‘Someone tried to change your password, click here to say whether or not that was you,’ or ‘Click here to confirm this charge on your statement,’ or ‘We’ve locked your account for strange activity.’ Essentially, things that will make people anxious and will make them want to click first, and not take a step back and pause to think, ‘Is that really the kind of email that my bank would usually send?’”

Other red flags include misspellings and basic grammar errors in the message, especially the sender line.

“Attackers try to closely mimic domain names, so you might see the number zero substituted for ‘o’, or a one substituted for the letter ‘l’. Little thing like an extra ‘s’ or ‘c’ in the name. These things, people tend to glance over very quickly and not notice.”

Miller-Osborn said that these measures should be done in concert with the most effective step in deflecting a spoofing attempt: Calling the bank and asking them if the email that they supposedly sent was legitimate.

 

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Queen confirms new home at Windsor Castle with Buckingham Palace for ‘selected events’

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The Queen will be returning to Windsor Castle in a matter of weeks, with Buckingham Palace only used for ‘select events’.

Her Majesty and her husband Duke of Edinburgh will first spend time privately at Sandringham when they leave Balmoral next week, Buckingham Palace confirmed.

She had been spending summer at her retreat in Aberdeenshire amid speculation that she would not return to the capital amid the coronavirus pandemic.

A spokesperson said: “The Queen and The Duke of Edinburgh will depart Balmoral Castle during the week commencing September 14 to spend time privately on the Sandringham Estate.

“Subject to the finalisation of the autumn programme, Her Majesty’s intention is to return to Windsor Castle in October and to resume the use of Buckingham Palace for selected audiences and engagements.

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