For the first time home buyer, beginning the process is uncharted territory. There are so many questions and steps involved, new homeowners can easily get overwhelmed. To help you prepare for the process, here are some of the most important questions to ask when buying a home.
What’s My Budget?
This may be the first big, important question you ask. After all, you can’t exactly do effective house shopping without knowing how much you can afford. To get an estimate of your home buying budget, you can crunch the numbers yourself by calculating how much you’ve got saved for a down payment as well as how much money you can afford to spend per month on a mortgage.
You can also talk to a mortgage lender and get preapproved for financing. Mortgage preapproval is when the lender reviews your income, debt, credit score, employment, and other aspects of your overall financial picture, to determine how much money they are willing to lend you. They then provide you with an official document stating how much you are approved to borrow. This preapproval letter can come in handy when you start seriously shopping for a home, as it shows the seller you mean business.
What’s The Best Mortgage for My Needs?
There are lots of different types of home loans in today’s mortgage marketplace. Not every borrower will qualify for every type of loan, and not every loan is suited for every type of borrower. To figure out the best type of mortgage for your budget and homeownership goals, it’s probably best to speak with a mortgage lender or mortgage broker. Determining which loan will work best for you will depend on a variety of factors including…
Your downpayment amount (and source)
The size of the loan
Your credit score
If you’re active-duty military or a veteran
If you are buying a home in a rural area
If you’re buying a fixer-upper
…and much more!
Working with a licensed mortgage professional can help you find the best fit for your mortgage needs, but if you decide to go it alone, be sure to spend some time researching the different loan types and their respective benefits and drawbacks.
What’s My Longterm Goal?
If you’re buying your first home, you most likely don’t see yourself staying in the home for the rest of your life. Or maybe you do. Either way, there’s no set time limit for staying in your own home, but it is something you should think about, especially if you have a certain type of mortgage.
For example, if you have a 3 year ARM (adjustable rate mortgage), that means your interest rate will most likely change after the first three years. If you plan to move up to a new home before the three-year mark, no problem. But if you see yourself staying in the home 5, 10, or 20 years…then that 3 year ARM won’t make much sense.
Likewise, if your ultimate goal is to build equity quickly so you can sell the home within 10 years and make a profit, a 30 year mortgage may not be the best choice. Instead, you may want to consider a shorter-term loan like a 15 or 20 year loan. These loans will have larger monthly payments, but they allow you to pay off more of the principal, faster. Then, when it comes time to sell, you’ve (hopefully) built up significantly more equity than you would if you had chosen a 30 year loan.
Where Do I Want to Buy?
Of course, we all know the old saying, “location, location, location,” but how much of that cliche is really about finding the right location for you? The market value of real estate is greatly influenced by the location of property, that we know. But just because a home is in a prime location according to the market’s standards, doesn’t necessarily mean it’s in a good location for you.
Maybe you want to be close to the downtown area so you don’t have a long commute to work or school? If so, then buying a home in a popular new suburban development outside the city limits won’t make sense. Maybe you want to raise chickens in your backyard? If so, buying an upscale condo in the heart of your city’s historic district is out. Maybe you’re buying a home not to live in, but to rent out as investment property? Chances are you’re not going to have a lot of luck finding tenants if you buy a remote cabin in the woods. It’s all about your homeownership goals and lifestyle.
How Much Work Do I Want To Put Into a Home?
Some people are drawn to fixer-uppers. The idea of buying something at a bargain price and putting in a bit of sweat equity is their dream come true. On the other hand, some people cringe at the sight of outdated paint colors. They want something in move-in-ready condition so all they have to worry about is how to arrange the furniture. Maybe you’re the first type, the second, or somewhere in between. It’s important to think realistically when it comes to considering how much work you really want to put into a home. Not to mention, how much work you can actually afford to put into a home. Unless you’re the super handy type, with all the proper certifications for plumbing, electric, or other household construction work, you’re probably going to need to enlist the help of professionals–and the ones that do great work typically don’t work cheap.
As you begin to look at listings, assume that every major feature you want to update or change would add another $10,000 $20,000 to the price. Think that’s a little steep? You might be surprised just how expensive it really is to fix up a fixer-upper. According to HomeAdvisor, the national average cost of a bathroom remodel is $10,663 for 2020. And the average cost of a kitchen remodel is $25,301. Keep in mind, these figures represent averages from a wide range of prices, anywhere from a couple thousand dollars to almost $40,000.
The bottom line is, what may work out really well for some buyers may not make sense for everyone. Figure out what you can afford, what sort of mortgage you need, where you want to live, and the amount of work you’re willing to put in. Buying a home is a huge commitment and a very personal choice. Make sure you’re doing what’s best for you and your future as a homeowner.
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