Buying a house can be a daunting task particularly if you’re a first time homebuyer. There are hundreds of things you will have to consider, lots of options to choose from and countless questions to ask. You may think that it’s an overwhelming project but it doesn’t have to be! Heck if I could figure it out as a single parent with 2 children, then I bet you can too.
The path to home ownership is a process. And like any process, it’s all about setting realistic goals, being prepared and getting organized.
Millions of homeowners have been through this before and there will be millions more in the future, so there’s really no reason you can’t do it too.
To help you on your way, I have compiled a list of 42 questions to ask yourself (or others) before you are handed the keys to your new home. They are in no particular order and they may not all be relevant for your home buying needs but they are food for thought.
(I wish I had this when I bought my house. I was clueless then but I’m considerably less clueless now.)
Enjoy and if there is anything else that you think needs to be added, let me know in the comments.
So off we go………
1. How much are you currently paying in rent?
If you can comfortably pay your rent and all your monthly bills on time each month, then the amount you are paying for rent should give you a ballpark number for what you can comfortably pay each month for a mortgage.
2. How long to you foreseeably plan on living in the house?
If you plan on living in your new home for only a couple of years, then buying may not be worth it. There are a lot of up front costs that you won’t be able to recover unless you plan on living in the house for several years. 4 to 5 years minimum would be a good gauge.
It’s a really good idea to get a copy of your credit report from all three credit reporting agencies before apply for a mortgage. This will give you an opportunity to correct or dispute any credit hiccups you may find.
4. How much do you have in savings?
You will need more than just the down payment for a house. You will also need to pay for inspections, moving costs, any non-seller paid repairs, utility deposits, essentially anything not being paid for by the lender. Ideally you should have an additional 3 months worth of savings to cover any unexpected issues that might come up.
5. Do you know the difference between pre-qualified and pre-approved?
Virtually anyone can get pre-qualified for a loan. All it takes is a phone call, answer a couple of questions and your done. However, in order to actually get a mortgage you need to be pre-approved. This means that the lender reviews all your documents, like tax returns, paycheck stubs and bank statements among other things. Being pre-approved means you know exactly how much you can get a loan for and it also means that you are in a much better negotiating position when it comes to making an offer.
6. Do you have a budget for new appliances?
If the house your purchasing does not include refrigerator, washer, dryer etc., and you don’t already own one, then you will need to factor in the cost of purchasing them.
7. Do you know what earnest money is?
This is the amount of ‘good faith money’ that you will need to pay upon the receipt of an executed contract. This money will generally be held by the title company and applied towards your down payment at closing. The amount of earnest money you pay is a negotiable item. Earnest money is not the same as down payment, it just represents a portion of your total down payment.
Large outlays of savings, any kind of new financing (like buying a car, getting store credit, financing furniture) can all adversely affect your ability to buy even if you have already been pre-approved. The morning of closing your lender will run your credit again and if anything comes up that was not there before, they can reject the loan. The best solution is just do nothing! Pay your bills on time every month, deposit your paychecks as you normally would, nothing new, nothing expensive and nothing financed. Both your REALTOR and your lender are going to be very strict on that.
9. Did you know that you can shop around for a lender to compare costs and it will only hit your credit score once?
When you initially work with a lender they will provide you with a Good Faith Estimate (GFE). This GFE will detail an estimate of all lender costs, monthly mortgage payment, interest rate etc. You can then take this information and shop around with other lenders to gather other quotes. Your credit will only reflect one inquiry covering all of the other lender requirements.
10. What type of loan can you get?
There are basically 3 different types of lenders. Conventional (banks), FHA or VA. You also have the options of seller financing or, if you can, pay cash or borrow from family. Be sure to review your financing options with your lender. Each of them have their own set of requirements and subsequently repayment terms.
Home ownership can be expense or it can be cheaper than you are already paying. However there are a lot of expenses that can occur that you can’t always anticipate. Things like, monthly mortgage payments, home repairs and maintenance, monthly utility costs, travel expenses to and from work, purchasing furniture and appliances, moving expenses, HOA dues, yearly permits and inspections for water wells and septic systems (if you buy outside the city limits), all of these can greatly affect your monthly budget. So be sure to, at the very least, have an estimate of expenses.
12. Have you begun looking at homes online?
If you have, make sure you are looking on a local real estate brokerages site. Most national sites contain inaccurate information like showing houses for sale that are not actually for sale or not showing all houses that are for sale in your area, so you could be missing out on a lot of properties. Local brokerage sites, like ours, will have every property that is currently listed for sale in our area and all the information is accurate.
13. Have you talked with a REALTOR?
Speaking one on one with a REALTOR will greatly help you in the home buying process. They know the area, they know the contracts, they know what you can and cannot ask for, they know the timeline and more importantly they know how to reassure a buyer and keep everything on track.
You can view as many houses as you would like. Beware though, you can get house jaded after viewing too many. Make sure you take detailed notes about each house you see so that you can distinguish one from another at a later time.
15. Did you know that you don’t have to pay a buyers agent to work with you?
You can hire a buyer’s agent to work with you throughout the whole process without having to pay any money up front. Generally the buyer’s agent is paid from the listing agents commission proceeds at closing.
16. Did you know that everything in a real estate transaction is negotiable?
And I mean everything. You can negotiate from the purchase price all the way to whether you want the birdhouse in the tree to stay with the property or not. Repairs, cleaning, all timelines, closing costs, everything! However, once negotiated and agreed to in writing, you are bound to it unless both parties agree to renegotiate or that an option to terminate is provided for you in the contract.
17. Does your REALTOR have your lenders contact information?
It’s important that your real estate agent and your lender can communicate with each other. Neither party will ever discuss any personal information about you but instead they will be able to keep the process moving in a timely manner while protecting your interests. This will greatly reduce any surprises at the closing table.
18. Are you patient or are you working on a tight timeline?
If you have time to keep looking at homes until you find the perfect one then you’re in great shape, however if you are on a tight timeline, then you may need to set aside some time to view many properties at once. That’s all the more reason why you should be pre-approved for a loan.
You might need to consider the financial costs involved if you purchase a house but you are also still paying rent on a lease that you can’t get out of until the lease term is up.
20. Would you rather live in the country or within the city limits?
Either choice comes with a different set of challenges. Country living may mean a longer commute time, dealing with a water well or having your own septic system among other things. City living may mean higher property taxes, city restrictions or close neighbors among other things. Both of which provide different lifestyles and a different set of expenses.
21. Do you want an old house or a new builder home?
An older house, may be cheaper to buy but it may also need a lot of work so that will have to be factored into your budget. A new builder home may have a construction period that you will have to wait for. A resale home, generally any house less than 30 years old, may not need as much work as an older home.
22. What size house do you want?
Start by considering how many bedrooms and bathrooms you need. You will need to know the minimum number at least. This will help you when begin your home search.
23. Do you want a yard or is the thought of maintaining one something you’re not interested in?
A yard will require maintenance. It can be a lot or very little depending on the size and whether there are trees, plants, flowerbeds, fences etc.
If so, you might want some space for outdoor living like a deck or patio or even a pool.
25. How do you travel to work and what would be your maximum travel time?
If you drive, walk, cycle or use public transportation then the proximity to your job will need to be considered. Using tools like google maps or walk-ability score, you can calculate how many miles away from your workplace you can comfortable commute everyday.
26. Have you checked the schools in the area that you are interested in?
Whether you currently have children or not, or if you are planning on having children, the local schools will matter. They may not matter for your particular situation at the moment but for resale value, potential buyers may have school districts high on their priority list.
27. Do you want to live in a neighborhood with an active Homeowners Association?
Homeowner Associations (HOA) can be great in helping to maintain property values. However they come with certain maintenance requirements and restrictions.
28. Do you have a copy of the HOA deed restrictions and bylaws?
It’s important to review all the HOA documents. These are essentially the neighborhood laws and restrictions that you will be required to abide by as a homeowner in that neighborhood. If you choose to buy a home in a neighborhood that has a homeowners association then it would be wise to know the requirements of homeownership are in advance.
You might need a fenced in yard or doggy door. Or maybe you will need a pet permit because of the number of pets you have. If you walk your dog in the evening then you might want to consider how well lit the area is and whether there is a park nearby or not.
30. Will you need space for a home office?
If you work from home, you may need to consider a separate space to designate as a home office. This space can be tax deductible. Talk to you financial advisor about this option.
31. How many parking spaces will you need?
Consider parking spaces. If several occupants of the home drive then you will need to factor in parking spaces for each vehicle. Some places will not let you park on the road.
32. Are you planning on bringing a non-buyer with you when you view the houses?
It would be a wise idea to recruit a friend or family member to view the houses with you. Someone that knows what you want but will have no emotional connection to the purchase. That person can keep you on track for what you really want while also knowing what your tastes and lifestyle are.
33. Are you planning on attending the home inspection?
It would be well worth your time to attend the home inspection. Home inspectors are very gracious in allowing the home buyer follow them around while they explain how everything works, how to maintain it and what problems need to be addressed. Attending it, will give you a better feel of how the house functions.
Before you are totally bound by the contract and while you are still in the option period (a time when you can still get out of the contract with no penalties) you need to do all of your inspections. General real estate inspection: It doesn’t matter if you’re paying cash, financing or you inherited the house, this is definitely a ‘must do’ inspection. Heating and Air-conditioning (HVAC): This is more specialized but in this climate it is well worth doing. Pest Inspection: This can be an option in many cases but some lenders require it. I’ll go into more detail about inspections in a later post but for now just know that spending $300 today can save you thousands of dollars down the road.
35. Do you know the yearly taxes for the house you are interested in?
Generally taxes are included in your monthly mortgage payment but it would be wise to find out what the yearly tax bill would be when comparing similar properties in different areas.
36. Have you inquired about the average monthly utility bill for the house?
It’s always a good idea to get an estimate of the monthly utility bill from the previous owners. However, it’s important to keep in mind that lifestyle and the number of occupants can greatly affect utility usage.
37. Do you know what the annual homeowners insurance costs are?
Although insurance premiums are generally attached to the mortgage, knowing your annual insurance costs can give you an opportunity to shop around for a lower rate which you may be able to negotiate with your lender so you can reduce your monthly payments.
38. Have you verified Internet and cable/satellite service?
Your Internet requirements may not be the same as the seller’s requirements. It would be wise to verify that the services meet your needs before moving in.
It’s important that you know where your property boundary lines are located. This can help prevent any neighbor problems that might occur. Also, property taxes factor in how much property you own.
40. Have you thought about driving by the properties you like after dark?
Driving after dark will give you an idea what street lights are present, how many vehicles are parked close by and how lit up the houses are, among other things
41. Did you know that you don’t have to be physically present for closing?
It’s not necessary for you to be present at the closing. The entire closing can be conducted with the help of a notary, or better yet a lender, bank or attorney close to you. Documents will need to be notarized, so ID will be needed but it does not have to be done in the town or city you are buying in. It can all be done from a distance.
42. Are you ready to be a homeowner?
This is it. You can no longer call the landlord when the kitchen sink leaks or when a window breaks or when a storm hits the house. It is now your responsibility to take care of it and what a great responsibility to have. You are investing in your future. Every month you make that mortgage payment, some of it will come back to you in equity. Be proud, you have accomplished the American dream.
If the answer is yes, then both you and your REALTOR did an amazing job and you have made a friend for life. If the answer is No……… Well I’ll say nothing here, I’ll save that discussion for another post.
For additional information on the home buying process, check out “The 6 steps to homeownership”