Questions You Should Ask as a First Time Homebuyer
Purchasing a home has never been straightforward. If you’re a first-time buyer, you’re likely already overwhelmed by the organizational demands. Moreover, there is a seemingly never-ending list of variables to consider and questions to be answered – all with the end goal of landing you your dream home.
You should be able to answer all the questions below before making your final decision. If you can cover all these bases, you stand the best shot at keeping stress and costs low while safeguarding yourself.
Let’s dive in:
How much is my housing budget?
Believe it or not, you don’t have to accept the first figure your lender approves you for. While tempting, you may end up with an unbearable long-term mortgage looming over your head.
To avoid this nightmare, don’t take on a mortgage with payments that are more than 25% of your monthly take-home pay. This includes property tax, insurance, and association fees.
What type of mortgage is best for me?
To begin with, you’ll need to pick between a fixed rate or an adjustable-rate mortgage. If you accept a fixed-rate loan, your interest rate is locked and will not change throughout your mortgage’s duration. When it comes to adjustable-rate mortgages, interest rates vary according to the bank’s financial state. While fixed-rate loans offer stability, they’re often set at a higher rate than those of adjustable-rate mortgages. Still, adjustable-rate mortgage interest can result in the borrower paying more in the long-term.
You’ll also want to consider whether a 15 or 30-year loan suits your needs best. The fundamental difference is that a 15-year loan comes with lower interest rates but higher monthly payments due to a short payback period – it’s the opposite case for 30-year loans.
What will I need to secure a loan?
Among other things, mortgage lenders will consider employment history, credit score, your debt-to-income ratio, and how much you plan to put down on your home when determining whether you qualify for a loan.
How much should I save for my down payment?
The resounding answer to this crucial question is that if you have the money, 100% of it should go towards your down payment. Since this money will not be subject to the usual interest rates of loans – you stand to save more by paying more straight-up.
Note: A good rule of thumb is to aim for a down payment that’s 20% of your mortgage’s value. Most mortgage lenders expect at least 3 to 20% for a downpayment.
How much are closing costs?
Expect to pay 3 – 6% of your home’s value in closing costs. For example, if you plan on purchasing a $350,000 house, closing costs will be $6,000 – $15,000.
Tip: Keep your closing costs separate from your other home-budget finances to avoid any temptation of using it for down payments or other such fees.
How much will my property taxes be?
The cost of property taxes can come as a shock to first-time homebuyers. Do your research on property tax ahead of time so you can know what to expect. Consider asking your realtor this question as they’ll have the experience to give you an accurate figure.
Will I need to account for moving expenses?
The logistics of moving can be a headache for first-time, second-time, and all-time homebuyers. However, if you’re moving across state lines – or even within – you can expect to pay a pretty penny in moving expenses. Of course, you can always get friends and families to help with their vehicles, but sometimes it won’t be enough. Moreover, you’ll still have to pay for gas and other traveling expenses. A popular option for first-time buyers is professional movers who take care of all the moving hassle for you for a fee.
Is my chosen location prone to natural disasters?
Homeowner’s insurance is essential. That means you’ll also need to add insurance payments to your homeowner-budget. Research the likelihood of mudslides, earthquakes, windstorms, flooding, and other such natural disasters in your desired area to determine if you’ll be paying high or low insurance rates.
Is the area where I’m buying safe?
Also factored into insurance rate premiums is how prevalent crime is in a given area. In fact, living in an area with high crime rates can bring up the rate of many insurance policies, such as car insurance.
What is the condition of the house?
While a house may look good at a glance, its structure could be hiding some compromising issues. Here are some things you’ll want to find out or keep an eye on:
Age – when was the property built.
Repairs & renovations – when was the last time the home was revamped, and does it require more maintenance than is usual.
Drainage – do all of the home’s drainage systems and waterways work correctly or do they put the home at risk of flooding?
The answer to this question is to make sure you get a thorough professional home inspection before purchasing.
What’s included when I buy?
Listings are designed to make homes look irresistible. Often they’ll include everything you could ever need from microwaves, mattresses, and beautiful lighting fixtures. It’s best not to assume these furnishings and features will automatically become yours upon purchasing the property. Some states have different laws about the things that should be included in a home purchase, so do your research beforehand.
Why is the house being sold?
According to the National Association of Realtors (NAR,) 37% of sellers cite their reason for selling their house as “it’s too small.” 15% want to move closer to friends and family and 14% are moving due to job relocation. However, many sellers also make the choice to sell due to neighbourhood degradation or schools become less favourable.
While finding out why the seller is selling can undoubtedly influence your final decision, it can also be used to your advantage in price negotiations.
How long has the house been on the market?
This one is another question to keep in mind as a shrewd negotiator. The longer a house sits on the market, the more buyers wonder if something is wrong with it. But how long is too long?
The truth is, every market is different. But, since your realtor knows the market you’re scouring, it’s best to ask them first!
However, there are some market trends you can expect to see, such as houses selling faster in Spring than in Winter. According to Realtor.com, most homes remained on the market for an average of 56 days in August 2020. If a home is on the market for any longer than this figure, consider asking why.
If you’re a first time buyer, the likelihood is that there’s millions of thoughts swirling around your mind at the moment. To keep things simple, we’ve devised this list of must-ask questions for you to answer. Take some time to ensure your answers suit your needs and make you happy. Once you’ve achieved that, you can rest assured that you’ve got things under control.