6 Questions to Ask Before Buying a Home
Homeownership isn’t for everyone. You may be at a point in your life where it simply doesn’t make sense to invest in a piece of real estate. Certainly, there are many credible reasons to resist the lure of homebuying. However, for many people looking to make a life change during or after the COVID-19 pandemic, buying a home is a natural next step.
Purchasing a home isn’t the same thing as signing a lease. When you rent, you’re most likely committing for a year. When you buy, you have to commit for at least a few years if you don’t want to lose money.
If you’re thinking about buying a home, ask yourself these key questions:
- Are you ready to move out of your current home?
- Do you know what you want in a home?
- Can you actually afford homeownership?
- How is your credit?
- How will your offer compete with other buyers?
- Can you cover closing costs?
Are You Ready to Move Out of Your Current Home?
First, you should ask yourself if you’re prepared to move on from your current home. Considering your current options in today’s competitive homebuying market is essential in determining whether you’ll be ready for the home search race. Weigh the differences between buying and renting to assess what’s right for you today.
Buying a home used to be a requirement of the American dream. Rent was considered a waste of money and real estate lauded as the safest investment. But recent studies by economists and statisticians have shown that neither of these statements is always true. It turns out the decision between renting or buying your next home is completely dependent on your situation.
The general guideline is that if you don’t stay in your home for at least three years, you’re likely to lose money. Ask yourself if you’re ready to stay for more than three years.
Do You Know What You Want in a Home?
Determine your must-haves in a home well before you begin searching and consider all parties involved. Are there any deal-breakers to consider? Would you be willing to undergo a renovation after purchasing a home to get what you want if you can't find it?
While you’ll want to factor in anyone who will be also living in the home, keep the actual search between you and anyone else involved in contributing to the purchase of the home, like your significant other.
Can You Actually Afford Homeownership?
Purchasing a home is an expensive undertaking and you’ll need to map out your entire budget well before you consider moving toward buying a home. If you’ve got the down payment, the closing costs, property taxes, homeowners insurance and the money, time and energy to maintain the house, you should definitely buy your next home.
As your down payment will determine your monthly mortgage payments, you’ll want to compile more than you think to pay down the initial purchase price. A hefty down payment can make your offer more attractive to a seller.
With so few options available for many buyers and an extremely competitive market, you may need to consider working with a seasoned real estate agent. Agents know the market and they know what a home is worth based on their own expertise. Plus, agents know how to be the best liaison between you and the seller and their agent. Agents also offer a third-party opinion when compiling your offer and can help you navigate ways to enhance your offer.
How Is Your Credit?
Credit history and your current score could determine how you stack up among other buyers, and you’ll want to ensure that you’re getting the best mortgage package to fulfill your home purchase – so prepare your credit before your search begins.
Fix any errors, even the small ones like accounts you’d previously thought were closed, as they’ll impact your total score. Assessing your credit will be critical before you start meeting with mortgage lenders to determine the terms of a loan you qualify for.
Be sure to shop around for mortgage lenders as many may offer similar rates with differing processing fees. Mortgage brokers and lenders can be a huge help in mapping out unexpected costs and determining what your closing costs could look like.
How Will Your Offer Compete With Other Buyers?
There are many ways to ensure that your offer will compete well against others, but consider all of your options first. For example, if you’re able to purchase a home with cash then you should do so – at least, when the market is competitive among buyers. A Cash offer is a seller's dream offer as it allows the homebuying process to move far quicker than a traditional financed deal.
It doesn’t hurt to reach out to a seller in a letter expressing your interest in their home and showcasing your passion in maintaining their home.
Can You Cover Closing Costs?
Ask yourself if you are prepared to move quickly at closing. So many buyers don’t factor in closing costs into their overall buying budget, and it is important to set aside more than you might expect at the end of your homebuying journey to ensure you’re able to cover the costs of attorney fees, appraisals, taxes, title insurance and more. Keep in mind: closing costs are commonly between 3% and 5% of the total purchase price of a home.
Purchasing a home in today’s market is an impactful decision and it may be the largest purchase you may ever take on. Before you start to make the necessary moves in your buying journey, ask yourself the important questions and make sure you’re ready.