What are the most common questions of first-time homebuyers? Here are some of the ones that trouble many the most:
1. Am I Emotionally Prepared?
Some people don't ever want to own their own home. And that's fine. But the fact you're reading an article about home ownership suggests you're probably not one of them.
Many home owners say they just "knew" when they were ready, in much the same way they "knew" when they wanted to go through other of life's rites of passage, like getting married, starting a family, buying their first new car and so on. Of course, being ready emotionally doesn't mean you're ready in other respects, so read on.
2. Am I Financially Prepared?
Are you financially prepared? No! Well, probably not. Buying your first home's a bit like having your first baby: If you wait until you can comfortably afford parenthood, you may well die childless. When it comes to money, the chances are you're going to be at least a bit stretched (and scared) when you sign your first home purchase agreement. Indeed, unless you're independently wealthy, you should be worried if you're not a bit scared, because that would suggest you don't understand what you're getting yourself into.
There's a balance here between risk and reward. And you can tilt that balance in your favor. You can improve your chances of being offered great mortgage rates by working on your credit score, paying down your other debts as far as possible and saving as big a down payment as you can manage. A low mortgage rate will keep your monthly payments low and improve your chances of enjoying the homeownership experience. For other considerations, see 7 Things Homebuyers Should Look at Other Than Mortgage Rates.
3. Is the Market at its Most Favorable?
It's amazing how many first-time purchasers worry about short-term market trends. Of course, some who bought in 2006/07, immediately before home prices slumped, came to regret it. But virtually nobody saw that crisis coming, and no amount of smart strategizing would have avoided it.
You buy a home for the long term, and over the long term doing so has historically been a good move for the vast majority. Even those who suffered by buying at the worst time are by now mostly sitting on appreciating assets, and you might reckon that relatively few now regret their purchases. So think long term.
4. Have I Chosen the Right Home?
This is the one that often causes the most sleepless nights after you've signed your home purchase agreement. In the small hours of the morning, many have tossed and turned, their fevered imaginations throwing up frightening questions: Are there plans to build an airport at the bottom of the back yard? Is there a crack den next door? Are the neighbors unbearably noisy? Are there hidden structural defects that will reduce the home to a pile of rubble within a week of your moving in?
Worrying a bit over this period is natural, but you can reduce your anxiety by:
- Reading the home purchase agreement from beginning to end, making sure you can walk away with your earnest money (see below for more on that) if bad surprises emerge prior to closing
- Using a reputable real estate broker, whose local knowledge and home-buying expertise is often invaluable
- Visiting the home during various times of the day and night to see if the character of the neighborhood changes
- Chatting to neighbors about what it's like living in your new street
- Paying a professional home inspector to check for structural and other defects
5. How Do I Choose the Right Mortgage?
Chances are, the right mortgage will choose you. Much will depend on the down payment you've saved and the length of time you plan to stay in your home.
Check out the LendingTree archives for information on mortgages in general, low-down payment FHA loans, zero-down payment VA loans (for veterans) and adjustable rate mortgages (ARMs). Still confused? Use the LendingTree "ask a question" service and get a free, no-obligation reply from an expert.
6. Do I Have Enough Cash to Get Me Through to Closing?
In addition to optional and personal expenses, such as home inspection fees and maybe the cost of traveling to find the right home, there will usually be three major demands on your savings:
- Earnest money – This is the deposit you pay when you first sign the home purchase agreement to prove your good faith. It should normally be returned if the deal doesn't go ahead, or put toward your down payment if it does.
- Down payment – Unless you're getting a special government-sponsored mortgage (mostly VA and USDA loans), you'll need to make a down payment, which is usually at least 3.5 percent of the purchase price. If you can scrape together more, you'll likely get a better mortgage deal.
- Closing costs – These average somewhere between 3 percent and 4 percent of the purchase price, and cover a whole host of fees and charges associated with the purchase and mortgage.
7. Can I Afford to Be a Homeowner?
The financial strain doesn't end with closing on your purchase. Obviously, you'll have to make monthly mortgage payments. But you'll also have to stay current on hazard insurance, property taxes and maybe homeowners' association fees.
On top of that, it's in your best interests to maintain the home in reasonable condition and to make repairs when necessary. These costs may be small, at least for the first few years after you buy a new home or an existing one in great condition. And, with luck, by the time a big expense arises, your property will have appreciated in value sufficiently for you to be able to borrow cheaply to cover the costs, using a home equity loan or similar. Still, you need to recognize that there's no landlord to turn to when the hot water turns cold or there's a leak in your roof.
8. Am I Mad?
Expect at some point to ask yourself one of the most popular questions of first-time homebuyers: whether you're mad to be putting yourself through all this stress, worry and hassle. That's the time to remind yourself of how much you want to be a homeowner – and that pretty much everyone who now owns their home has gone through the same ordeal. Then ask those who are owners whether it was worth it. Very few will tell you it wasn't.