When you decide to buy a house for the first time, you have an infinite number of questions. Will you find the house of your dreams? Will you be able to afford your mortgage? Is this a good idea? However, too few future homeowners ask any of the questions buzzing around in their heads, with the result that they end up saddled with a property and a loan that hardly suits them.
If you feel like you are at risk of asking too many questions when you want to buy a house, fret not: There is no such thing. However, if you need some guidance on questions you should ask your bank, real estate agent and home seller, read on.
At the Bank
How do I get a loan approved?
You will need to provide information to your lender in order to secure approval. Generally, your lender will ask for the amounts of your income, your debt, your credit score and your down payment to determine what size of loan you can be approved for.
How much down payment do I need?
You have probably heard 20 percent of the home cost as the standard down payment requirement, but some loans require much, much less. You should talk to your lender about FHA (Federal Housing Administration), USDA (United States Department of Agriculture) and VA (Veterans Affairs) loans, which can require no down payment whatsoever.
What is the interest rate?
Because a mortgage is a loan, you will be paying interest — and it is crucial that you know what that interest rate is before you sign. In almost all circumstances, you want a fixed-rate loan, meaning your interest rate remains the same for the duration of your mortgage. Unless you have a bad credit score, a low down payment or some other issue, your mortgage interest rate should be close to the national average.
What is the possible expense?
A mortgage isn’t free. Lenders charge all sorts of fees to give you a loan, to include fees for appraisals, credit reports, title policies, inspections, escrow, recording and taxes. Your lender should furnish you with a Loan Estimate, which details the costs, before you commit to the loan.
Are there any prepayment penalties?
You need to make a mortgage payment every month, on time — but you can pay extra every month to reduce your principle sooner. However, some loans penalize this pre-payment, and you should know the penalties before you sign.
To Your Agent
How long have you been an agent?
Because there isn’t a college degree required for real estate careers, most agents learn on the job. Thus, the longer your agent has been in the industry, the better.
What is your buyer-to-seller ratio?
Most agents in residential real estate manage both buyers and sellers, but the different sides of the real estate transaction require different expertise and efforts. It’s best to have a buyer-only agent, but if your agent has only a few seller clients, you should be fine.
In what area of town do you primarily work?
Not all neighborhoods are equal. When you buy a home it is a similar process regardless of location, your agent should be able to guide you to homes in areas that suit your needs, especially your price point.
How long do you work with buyers?
You should try to avoid falling in love with the first home you see, but you don’t want your home buying experience to drag on for months or years. Your agent should be proficient at helping buyers secure their properties within a few weeks (or less, depending on market circumstances).
About the Home
Who were the previous owners?
Names don’t matter, but you do want to know what the previous owners were like. For example, if the property has been used as a rental, it could be suffering from serious neglect. Primary residences are best, especially when they have changed hands only a few times in recent years.
What’s the neighborhood like?
As mentioned before, not all neighborhoods are the same. After you tour a home you like, you should spend time exploring the neighborhood. You should look into the schools, local stores, community events and the general vibe to make sure these factors suit your needs.
What does the HOA do?
Some neighborhoods have homeowners associations, or HOAs. These governing bodies can have all sorts of authority over you and your neighbors, including how you landscape or maintain your property. You have to pay monthly or annual fees to your HOA, so you should know what it does before you buy property in that area.
What is the actual value of the property?
Usually, the price of a home is close to the home’s actual value — but this isn’t always the case. It pays to know the property’s actual value, which your agent can calculate using comparable properties in the area as well as the property’s valuable amenities. Typically, lenders won’t provide loans higher than the actual value, as determined by their appraiser, and you don’t want to over-invest in a property.
Are there any disclosures?
Home sellers are legally required to disclose known problems with the property, such as a leaky roof, a non-permitted addition, pest problems etc. Your offer contract should have a contingencies and disclosures clause, which allows you to back out of the sale if the disclosures are too significant.
Is there a home warranty?
If a home is older than 15 years, sellers should offer a home warranty with the sale. Home warranties protect major systems around the home from damage through wear and tear, and the older the property, the more likely it is to suffer this kind of damage.
How long as the home been on the market?
A home that has been on the market for a long period is covered in red flags. This usually means that there are major problems with the property or else the seller is uncooperative.
What is included in the sale?
All you see might not be all you get. Your agent should be able to tell you what comes with the property and what doesn’t. If you see something you really want, like patio furniture, you might be able to negotiate it into the sale.
How will my investment grow?
It’s important to remember that real estate is an investment that should increase your financial strength. Unlike cars, which depreciate, your property should be steadily growing your net worth. Thus, you should know how to ensure that your property retains and increases its value. Often, this means participating in maintenance, but it can mean making strategic updates.
If you have other questions for your lender, your real estate agent or home sellers, you shouldn’t be afraid to ask them. To buy a home is one of the most important purchases you will ever make, so you should understand and be comfortable throughout the process — which means gaining information and using it to make the decisions for you, your family and your money.