Questions to Ask Before Buying a Home

 Even if this is not your first time purchasing a home, you still need to stop and think before you buy. Make sure to think about your future financial and housing needs. Data from the National Association of Realtors reports that a homeowner stays in their home an average of eight years before moving on. Here are questions to think about before purchasing your first or next home.

1. What can I comfortably afford?

If you are working with a lender, they will pre-approve you for a specific loan amount. The amount will be determined by your credit score, income, assets, and debts. Remember to try and keep your total housing payment (including tax and insurance) under 28% of your gross monthly income.

2. Which loans do I qualify for?

There are many options out there when it comes to home loans and your lender will be able to sort out which loan is right for you. A conventional fixed-rate mortgage will have the same payment amount over the life of the loan, whereas an adjustable-rate mortgage (ARM) will have a variable rate that may go up or down after the initial fixed-rate period has ended. So with a 5/5 ARM , you will have a fixed rate for the first five years, then after that, your monthly payment will change.

3. How much will you need for your down payment?

Lenders love to see at least 20% of the purchase price as a downpayment so you do not have to pay PMI. Some loans such as a VA loan will allow low or no-down-payment but you will need to check with a lender to see if you qualify for a VA loan. Remember that the higher your down payment, the lower your monthly payments will be.

4. What’s PMI? Do I have to pay it?

PMI stands for private mortgage insurance and is required when your down payment is less than 20% of the home’s sale price. As stated earlier, VA loans and some other specialty options may not require a down payment.

5. What interest rate do I qualify for? How can I lower it?

Your interest rate impacts how much your monthly payments will be. The higher the interest rate, the higher your payment. Your credit score will also play a factor in determining your interest rate. A better credit score, the lower the interest rate.

6. What will my monthly payment be?

A lender can run numbers and let you give you a ballpark of what your monthly payment will be. Your payment depends on the purchase price, down payment amount and interest rate. There are also monthly mortgage payment calculators online that you can use to help you figure out your monthly payment.

7. What are closing costs?

Upfront closing costs consist of origination fees and discount points, appraisal, document preparation, title insurance and home inspection. As mentioned before, your lender can give you an estimate of your closing costs and an itemized list. There are also closing cost calculators out there which can help you with determining an estimated closing cost.

8. Is my interest rate guaranteed? When does that happen?

Interest rates are always going up or down and this can happen from the time you submit a loan application to the time you close. So if you do not want your rate to change, you can lock a rate in for a specific time period (usually 30 days).

9. Will the monthly payment include taxes and homeowners insurance?

As mentioned earlier, the majority of loans do include taxes and homeowners insurance in the monthly payment, but you can opt to pay these annually and leave them out of your loan. If you do have them added to your monthly payment, the money collected is held in escrow and your lender will pay the taxes and homeowners insurance at the end of the year.

10. How long will the closing process take?

When making an offer on a home, make sure to leave yourself enough time to get all your financing in order. This can take from 30 to 60 days to obtain a mortgage. A lender can usually help you determine how long it will take, especially when you get a pre approval letter from them.

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Pending Home Sales at the End of 2022

 December 2022 ended the year with an increase in pending home sales. This was the first increase seen in the housing market since May. Those in the industry believe that the mortgage rates were what enticed the buyers.

The pending sales index also went up 2.5% from November to December. The pending sales index is determined by signed contracts to buy a home which is different from existing home sales. The pending sales index is released by the National Association of Realtors (NAR). This is good news, but it is still down 33.8% from the same time in 2021.

“This recent low point in home sales activity is likely over,” said Lawrence Yun, NAR chief economist. “Mortgage rates are the dominant factor driving home sales, and recent declines in rates are clearly helping to stabilize the market.”

The Northeast was down 6.5% from November and the Midwest was down 0.3%. All other regions saw an increase with the West being the highest at 6.4%.

“The new normal for mortgage rates will likely be in the 5.5% to 6.5% range,” Yun predicted. “Job gains will steadily become important in driving local home-sales markets. The South, in particular, is set to outperform the rest of the country, thanks primarily to better job market conditions in this part of the country.”

Buyers are out there and are actively searching for a home. “Mortgage applications have been trending higher alongside lower rates, pending home sales are up, and builder confidence increased in January,” Kushi said. “Interested buyers are out there. From a financial perspective, the decision to buy a home comes down to a payment-to-paycheck calculation, and lower rates may help to reduce the mortgage payment while higher incomes can increase one’s monthly paycheck.”

There is still the challenge of affordability. “Though mortgage rates fell as low as 6.27% in December, down 0.8 percentage points from November’s high, home prices remained elevated, up 8.4% compared to the previous year,” she said.

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Steps to Take When Buying A House

 The best way to start your house search is to work with a local sales agent who can help you navigate the home buying process. Here is a list of the steps you and your realtor should take when going through the homebuying process.

1. Make sure you’re ready

You not only need to be financially read, but also emotionally ready when it comes to purchasing a home.  It is said that buying a house is one of the most stressful things to do when it comes to life events.  With that being said, you are going to be at your home for a good amount of time so there are questions to ask yourself.  What are your goals for the next few years?  Are you going to be purchasing a home with a partner, if so, are you all in agreement on how much you want to spend?  Is there a chance that you might need to relocate for work?  Are you thinking about starting a family?  These are big life questions that can help you determine if this is the right time to purchase a home.

2. Get your finances in order

Again this is one of the biggest financial decisions you will make in your lifetime.   Before you take the plunge, make sure you are 100% financially stable.   A great resource is a home affordability calculator.  With this tool, you can help determine your budget by listing your income, debts, location and down payment amount.  You can compare how much your mortgage would be versus how much income you bring in.  This will help you keep your housing hunting to a home you can realistically afford.   Along with this, check your credit score too.  A high credit score will allow you to get a lower interest rate.

3. Make a plan for the down payment

After you figure out what you can afford, then you want to determine your down payment. The norm is to put down 20% but nowadays many potential home buyers are opting to put down less.  The downfall to this is you will have to pay private mortgage insurance (PMI) when you put less than 20% down.   Note that certain loans require a minimum downpayment.  There are many programs out there that can assist with a downpayment.

4. Create a wish list

List some things you would love to have in your new home (a wish list). Things to think about when creating a list are, detached or attached unit, ideal location and move-in ready or fixer-upper.  If you have a big family and pets, your best choice would be a single-family home with a yard.  You will want to choose a neighborhood that best fits your lifestyle.  If you love the outdoors, you should look for a neighborhood with tons of greenspace and walking trails.  If you are good with your hands, then a fixer-upper could be right for you.

5. Find the right mortgage

There are several different types of mortgages.  A conventional loan offers a low minimum down payment but is strict with qualifications.  An FHA loan is backed by the Federal Housing Administration and is usually easier to qualify for but you will more than likely have to have mortgage insurance.  A VA loan is backed by the Department of Veterans Affairs and is only for active or former service members. A jumbo loan is used when the home that is being purchased is more than standard lending limits.  A renovation loan will allow you to combine the costs of your home improvements with the home loan.  Depending on your situation and your credit score there is a loan that is right for you.

6. Find the right Realtor

Once you have your mortgage pre-approval and you know what you are looking for, it is time to find an agent who can help you with your search.  You will want to interview several agents to find one that fits you.  Professionals in the industry say that it is a good idea to at least interview three different agents.   Word of mouth is a way to find an agent.

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