My college professor once said that you know when you become an adult, when you have a mortgage. His comment could not be further from the truth. Although for many, home ownership is an important milestone in life. Not knowing the right questions when buying a home is financially unwise.
There are many factors to consider when buying a home. After all, buying a home is likely to be the biggest purchase of your life.
Unfortunately, I wish I was thinking more about things when I first bought the houses.
After signing all the closing documents for my first home, I remember how the escrow agent shook my hand and said, “Congratulations. You are in debt. We all laughed together.
However, after I purchased six homes, three of which were rolled over by investment property, I would like to do things differently the first time around. So learn from my mistakes and don’t forget to ask these eight important questions when buying your first or next home.
Questions to ask when buying a home
1. How much can I afford?
This may seem like the most obvious question that every potential home buyer should ask. But, unfortunately, it is not uncommon for a person to buy a house without looking at their finances.
Thus, while they may have a huge and beautiful home, they may not have the money to meet other needs. This situation is often referred to as a “bad home”.
Pre-approval letter
Unless you have hundreds of thousands of dollars to spare, you will most likely be funding a home purchase. Therefore, one of the first steps a new home buyer should take is to speak with the mortgage lender and request a preliminary confirmation letter.
In the pre-approval letter, you will find out how much the lender is willing to grant you a loan. However, the amount shown in the letter should not indicate what you can buy.
Instead, it will inform you that you cannot buy. This is one of the first steps you should take to filter homes above what the bank is willing to lend.
Mortgage
Assuming that you will finance the purchase of a home, the mortgage payment is the monthly payment that you will pay to the bank.
The mortgage payment consists of two parts: principal and interest. And, depending on how much you contribute as a down payment, you may also need to pay for private mortgage insurance. As a result, you will spend most of your household paying interest rather than paying the principal.
Most online real estate sites like Zillow and Realtor offer a feature to calculate your monthly mortgage payment. All you need to provide along with the asking price is the planned down payment amount, the term (i.e. 20 years, 30 years) and the interest rate.
Typically, mortgage payments should not exceed 30% of your household income. So, for example, if your monthly net income is $ 1,500, then your mortgage payment must not exceed $ 450 ($ 1,500 x 0.30).
Depending on where you live, this amount may be small or sufficient. To make housing more affordable, you will need a way to increase your income or cut costs.
2. How much does property tax cost?
While the purchase price of a home can be attractive, it is important to consider property taxes as they vary from area to area.
For example, I used to live in the old part of the city. My property tax was about $ 2,000 a year. After a few years, my family and I moved to a new home about 15 minutes walk away. My new property tax was about $ 6,000 a year.
So don’t be caught off guard by doing your property due diligence. Expect a home in an upscale neighborhood with a good school district to have higher property taxes than homes in the opposite state.
Homeowners Association (HOA) Fees
Likewise, another expense to keep in mind is the Homeowners Association dues or fees. The HOA requires homeowners to pay these fees for certain amenities, such as clearing snow or sharing a public pool in some areas.
Thus, in addition to paying taxes on real estate, fees may be levied by the HOA. And while the city can raise your taxes, the HOA can also increase your tax.
3. How much does the closure cost?
In addition to making the down payment on the home, there are costs involved in completing the real estate transaction between the buyer and the seller. This closure includes clearance fees, title searches, title insurance, and appraisal fees.
Typically, the closing cost is between 2% and 5% of the purchase price of the home. Thus, for a home that is up for sale for $ 250,000, the cost of closing would be at least $ 5,000 ($ 250,000 x 0.02). As such, ask your local real estate agent to negotiate with the seller’s agent for sharing the cost of closing the deal in order to keep your costs down.
4. Why does the seller leave?
Usually people sell their homes to rebuild or downsize because they are empty nests. Another reason is that the employer moves to work in another city.
However, sellers can also be motivated to leave for unfavorable reasons. For example, if your neighbors are noisy schoolchildren, it can be difficult to feed your newborn to sleep. Other negative reasons could be fund problems or overdue property taxes.
Therefore, be sure to show diligence no matter how beautiful the house is. Then you can potentially avoid the headache that makes you regret buying.
Plus, if a home has been on the market for a while, it might make you wonder if recent home buyers have discovered something odd that you haven’t seen before. So be sure to ask!
5. How old is the house?
There is the charm of old houses. These are not the typical cookie-cutter houses found in newer suburbs.
Unfortunately, houses built decades ago do not necessarily meet modern standards. For example, there may be potentially dangerous threats in your home, such as lead paint or asbestos, that you would rather keep away from your family.
So, if you’re looking for an old-school home, be prepared to spend the extra money on improvements and major renovations.
6. What items are left in the house?
Buyers shouldn’t assume that everything they see goes with the home. Sellers display their homes to convince potential buyers to make an offer for their home.
For example, a homeowner might move large items to make them feel more spacious, or rent furniture to make the home more attractive.
So, when submitting a purchase offer, it is important to include whatever you want to keep. For example, do you like their curtains made by their grandmother? Add to your proposal that you want to keep the curtains.
And, if you’ve made an agreement to keep basic home appliances, ask sellers if they’re under warranty. This additional information will be helpful in case something breaks in the future.
So, remember, the worst thing they can do is say no or oppose you with another suggestion. Remember, it never hurts to ask.
6. How much do the utilities cost?
Utilities are another expense that home buyers should consider. If you lived in an apartment, the landlord may have included utilities in your rent. Therefore, it may come as a surprise when you see an invoice that you are not used to paying.
This question goes something like this: “How much can I afford?” Apart from paying your mortgage, your net income should also go towards paying utilities like water, gas, electricity, trash, etc.
In addition, a high utility bill can indicate ineffective insulation and windows, which can be costly to renovate. So, while you can pay your mortgage payment, pay property taxes every year, and have homeowner insurance, you still need a budget for your utilities.
7. Have any insurance claims been made?
If sellers have filed any insurance claims, you should check to see if the homeowners have repaired them.
For example, a salesperson could file a homeowner’s claims for insurance against hail or other natural disasters on his roof. However, they could also have just saved money and never started repairs.
Roof age
This question also begs another question: “How old is the roof?” If shingles have not been replaced in over 20 years, this is cause for concern.
Permitted work
If the homeowners have done any work, you should ask a professional home inspector to make sure the owners have done the work in accordance with the regulations. Some mortgage programs are very strict about their requirements. Thus, if something does not meet their standards, the lender may refuse to finance you.
In addition, if the city inspector finds illegal work or unsafe building, he may ask you to remove it, which will be another significant expense. So, as a precautionary measure, add in a contingency home checkup that will allow you to drop the deal if something isn’t satisfactory.
8. How’s the school district doing?
Every parent wants their children to receive a quality education. For this reason, some parents move with their families to certain areas where their children can attend a good school district and have extracurricular activities. So, if you are looking to buy a home to grow your family tree and value education, consider which schools are in the area.
Final thoughts
While you may not have found your dream home in this real estate market, there are a few things you can do in the meantime before buying a home. First, you can use this time to save up for a down payment and an emergency fund.
Plus, you can work to pay off your debt and improve your credit rating.
It is also another good idea to start practicing paying off your mortgage. Finally, you’ll get into the habit of saving some for other expenses and determining early on if you can afford the house.
This post was originally published on Wealth of Geeks.