Questions To Ask Before Buying A House In This Hot Real Estate Market
For a long time, the housing market in most of the countries has been very competitive. People who want to buy a new house outnumber those who want to sell. Many buyers and sellers are confronted with many bids and houses selling at apparently astronomical rates. As a result, many would-be homeowners are asking if now is a good time to buy a property. Continue reading to learn about things to ask yourself before entering the real estate market.
1. What Are My Total Costs?
Unless you’re paying cash, the sticker price of a house is not the actual amount you pay. And even if you are paying cash, there are usually ongoing costs you should consider to make sure your home fits in your budget. And one more note: you won’t usually know the final cost upfront because of the many unknowns that go into this process. But you can get a ballpark.
Typically, a house’s “total” cost includes:
- The property itself. This is the big fat number you’ll see listed on Zillow or Redfin. But be sure to consider the cost of both your down payment and your monthly payments.
Shaun Martin says “Cash reserves are king because it means that if you lose your job or hit a financial hurdle, you can still afford to pay the mortgage.” He recommends keeping three to six months of expenses on hand on top of what you pay for the property
- An appraisal. One of the first expenses associated with buying a house, an appraisal amounts to an expert evaluation of the property’s value. Expect to pay several hundred dollars on this.
- An inspection. The home inspection evaluates the condition of your future home. More thorough than an appraisal, its goal is to identify anything that’s not in good working order (and therefore might cost you a lot of money in the near future).
- Mortgage interest. When you borrow money to buy your house (i.e., take on a mortgage), you pay for the privilege in the form of mortgage interest. Over the lifetime of your loan, your interest rate can have a significant difference on the total amount you pay for your home.
- Mortgage insurance. Certain types of mortgages require smaller down payments, and that sometimes means you may have to pay mortgage insurance every month.
- Homeowners insurance. If you have a mortgage, your lender will likely require you to get a home insurance policy. And even if you don’t, you’ll likely want a policy to protect your possessions and assets.
- Taxes. You’ll pay property taxes every year, though often on a monthly basis, rolled in with your mortgage payment. They cover things like local schools, road maintenance, and other essential services in your area. Make sure they’re in line with the taxes on other properties in the neighborhood. The current homeowner is probably your best source of tax information.
2. Am I Willing to Live Here For At Least Five Years?
Are you prepared to reside in the house for at least five years? If you can handle five years here, you get extra credit. Having a house that matches your needs and is in a desirable location can make owning a home much more appealing when the inevitable home repairs occur or house prices fall.
Under normal conditions (we are not in a typical property market right now), it takes a few years to recoup the costs of buying and selling a home. So, the longer your time horizon, the better your chances of profiting if and when you decide to sell your house.
3. Will My Cost of Housing Be Less Than 28% Of My Gross Income?
Most people will be house poor if they spend more than 28 percent of their gross income on housing. There are a few exceptions. Buying a duplex or multi-unit property, for example, or having a roommate might help make homeownership more reasonable. Furthermore, in many cases, the self-employed seem far worse on a mortgage application than they do in real life.
Your mortgage broker will most likely be able to secure you a loan at 43 percent of your gross income, but it won’t leave you with much money to enjoy life or even do things like eat after taxes.
4. Can You Afford a 20% Down Payment?
I’m not suggesting you have to put down 20%, but being able to do so indicates that you are likely in a position to afford to buy a property. Aside from that, in today’s market, the greater your down payment, the more competitive your offer (assuming many of you are buying a home with multiple offers).
5. Can You Handle the Value of Your Home Going Down?
My first property was acquired in 2007, just before the worst of the financial crisis. For at least five years, my house was probably underwater (worth less than I paid). Even though it wasn’t enjoyable, I enjoyed where I lived and was able to weather the storm. On a brighter note, owing to decreasing interest rates, my mortgage is now less than half of what it was when I bought the house.
To be honest, I wasn’t thrilled to see my home’s value drop, but there wasn’t much I could do about it at the moment. Fortunately, I kept the house, which is now worth more than double what I paid for it.
6. Do You Need to Buy a House Now?
Depending on your circumstances, this may be an excellent moment. For others, purchasing now may be a bad idea. In many real estate markets, the supply of available residences for sale greatly outnumbers the demand. You may be purchasing at a somewhat expensive price, but I would expect mortgage rates to be higher in 5 years than they are now.
While I understand that being waiting is difficult, don’t rush out and enter a bidding battle for a house you aren’t sure you want. However, if your ideal house becomes available and you can afford it, don’t pass it up just because you can’t acquire it at a dream price.
7. How Much Work Will the House Need?
The expense of upgrading your house has climbed in lockstep with housing prices. Supply chain issues make obtaining items difficult, and all of the best contractors are in high demand. Just be wary of taking on a house that will require more work than you can handle or that your finances will allow. Rates for home improvements on HGTV are likely to be far lower than those found in the real world.
As a fiduciary financial advisor, I think that purchasing a home is a sound long-term investment. In my perspective, there are other ways to make money, therefore not owning a property does not exclude you from acquiring wealth over time.
Questions to Ask About the People You’ll Work With
During the home-buying process, real estate agents and mortgage brokers are two of your most crucial allies. In order to guarantee that your choices are suitable with your tastes, ask these two questions.
1. Are You Familiar with the Area?
It cannot be overstated how important it is to engage with a real estate agent who truly understands the market in which you want to buy. They may not be able to advise you on how to respond to certain scenarios if they lack on-the-ground knowledge.
A local real estate agent can do a better job of pairing you with houses that fit your needs, whether that’s close to good schools or in your preferred neighborhood. They are also better judges of what the market in your region is doing, so they can devise a strategy to get you into the house of your dreams.
2. Is My Mortgage Broker Responsive?
The typical mortgage closes in 46 days. During that period, your mortgage broker will be your primary point of contact with your lender, answering questions and ensuring that all of your papers are completed and filed correctly. If this individual is not responsive, your home-buying experience will be far more difficult.
Questions to Ask about the House’s Risks
Once you’ve reduced your search to a few choices, it’s time to start asking questions regarding the properties’ risk exposures. This allows you to assess each home’s risk of pricey problems.
1. Is the Home on a Floodplain? Should I Be Worried About Natural Disasters?
Every state has its own flood disclosure regulations that specify what sellers must inform purchasers about their home’s flooding history. Regardless of your state’s legislation, it’s a good idea to check up your property on FEMA’s searchable floodplain map, which provides an address-by-address analysis of properties’ vulnerability to 100-year flood events.
(Please keep in mind that most homeowner’s insurance plans do not cover flood damage.) A separate flood insurance policy is required for that protection.)
Floods are the most prevalent natural calamity, but they aren’t the only meteorological event worth looking into. You should also inquire about the area’s vulnerability to hurricanes, earthquakes, wildfires, tornadoes, and blizzards.
2. Does This Property Have a History of Claims?
Insurers are all about risk management, so if they know a home has a shady history, they may deem it unsafe. Unfortunately, the history of insurance claims on a property might affect the price of your home insurance or even your ability to obtain a policy.
While this may seem like a huge disappointment, consider it a forewarning: if a property has already undergone water damage, there is a greater chance that it may encounter mold problems in the future.
3. Are There Any Health or Safety Hazards That an Inspection May Miss?
This is a crucial question to ask before purchasing a home. The presence of some compounds can endanger your and your family’s health and may even imply that your ideal home isn’t worth the risk.
Common dangers to be aware of include:
Lead paint ( common in homes built before 1978 ).
While some of them may be covered in your home inspection, not all of them are, so it’s crucial to inquire. Most of these threats need the assistance of a professional, which may be costly and time consuming.
4. Have There Ever Been Any Problems with the House?
This is a good catch-all question to ensure you’re ready for anything that:
You haven’t specifically inquired about it.
The vendors may not be required by law to disclose
An inspector may not look for something.
If there has ever been any damage, find out who handled the repairs and acquire their contact information if at all feasible. Homeownership requires maintenance; the better prepared you are, the less stress you will experience.
Questions to Ask about the House’s Condition
No house is perfect. When you’re thinking of buying one, these questions can give you a sense of the particular imperfections the property has.
1. Has the House Been Remodeled or Renovated?
Updates to a home can bring comfort and value, but they can also cause problems – especially if the owner was attempting to save money on the addition or renovation (and, let’s face it, aren’t we all trying to save some money?).
If the home you’re thinking about buying has had expansions or extensive renovations, ask the seller who conducted the work and acquire their contact information. Even if you only need to know what color the walls were painted, you’ll be delighted to have it.
2. How Old Is the Roof?
Roofs require regular maintenance, but the length of time a roof lasts is mostly determined by the materials used and the amount of wear and tear it has endured. Before purchasing a home, ask this question to determine how soon you’ll need to spend in a new roof.
3. How Old Are the Major Appliances and Systems?
If you’ve ever moved into a new house only to have the water heater break down within a week, you understand the significance of verifying the age of equipment. You should also inquire about the age of the condenser, furnace, and plumbing, as well as whether they have been serviced on a regular basis.
As an added bonus, inquire whether the seller has any appliance warranties hidden away. These papers might assist you in determining what type of manufacturer protection your major appliances may still retain.
4. Can I See the Original Plans for the House?
According to Steelman, not everyone would show you their original house blueprints, but if you can acquire them, they can be important. “Ask whether they have the original architect’s name and information,” she suggests – or the details of their firm if they are no longer alive.