Whether you're sick of renting or have finally saved enough money for a down payment, the moment you decide to become first-time home buyer is both exciting and terrifying.
There are some big questions you'll need to start asking yourself, even before you hire a real estate agent. Some are obvious, while others are oft-overlooked, soul-searching inquiries that you really should ask yourself before you make the biggest financial commitment of your life.
Ready to take the plunge?
1. Have I recently experienced a loss?
If you’ve recently gone through a breakup, lost your job, or suffered any other kind of negative life event, you might feel like the answer is to start over. A reset can indeed do you a world of good, but taking on a mortgage might not be the fresh, new beginning you’re looking for.
“The most challenging time in someone's life to buy a home is during a time of loss—and that can be many kinds of loss,” says Tyler Whitman, real estate agent with TripleMint in New York. “If it's truly a high-stress moment, adding a move on top of that only makes things worse."
Even if you think you're in a good place, emotionally speaking, Whitman warns that stress might cause you to subconsciously make your housing decisions out of fear. It's better to wait until you’re past a situation and can know you’re making the best choice for your personal situation.
2. If I get a new job, will I have to move?
The job market has changed drastically since the days when your parents bought a home, and you should know before you buy how that will affect you.
“Previous generations planned to get one job, keep it forever, and retire. Buying into a house because they were looking for a permanent living situation made a lot more sense,” says Chandler Crouch, broker for Chandler Crouch Realtors in Fort Worth, TX. “Now, job-hopping is prevalent.”
Changing jobs won’t be a big deal if you can keep—or raise—your salary, and your new gig is in your current city. But if there aren’t a ton of jobs in your industry in your area, you may find yourself having to relocate a year after you bought your home.
“It honestly isn't a good idea to buy a house unless you plan on staying there for at least five years,” Crouch says. If you sell earlier, you may end up taking a loss on the deal.
3. Am I ready to write (a lot) of checks beyond the down payment?
Here's the good news: Mortgage requirements have been loosening since the credit crunch, and you may very well be able to buy with less than 20% down. But the bad news is that won’t be the end of your upfront costs. Hire a mortgage broker, and you could pay a 1% to 2% fee on the amount of the loan. A home inspection will cost you a few hundred. Your closing costs could add up to 7% of the total cost of the home. And then there’s the Murphy’s Law of it all: If something can go wrong, it probably will.
“If the air conditioner breaks a month after you close, or the dishwasher gives out, that's now up to you,” Whitman says.
If you don’t have the funds to cover your closing costs and a separate emergency account for the inevitable “just moved in” headaches, it might be better to wait until you do.
And don't forget about the additional costs of things like homeowners insurance and taxes. (Although you'll likely be eligible for some pretty sweet tax deductions for being a homeowner, you'll still have to pay property taxes—and that can mean a bit of sticker shock for long-term renters.)
4. Am I OK with owing the bank lots of money for a long time?
One of the biggest benefits of homeownership, of course, is the equity. Instead of handing all your hard-earned cash over to a landlord, you're putting it back into your home—which you (hopefully) will sell for a profit down the line. But that equity doesn't happen immediately. In fact, for many buyers, it takes a long time.
Unless you pay for your house in cash, you'll be on the hook for not only your monthly mortgage payment but the interest on the loan as well. Stretching out your payments over more years—as with a 30-year fixed-rate mortgage—can help reduce (and stabilize) your interest charges. But it can be hard to pay down your principal when you're constantly trying to cover other costs.
“Anyone considering buying needs to look at an amortization schedule to see exactly how much out of their monthly payment will be going toward paying off the house,” Crouch advises.
5. Is buying truly cheaper in the long run?
This one depends quite a bit on where you live.
So do the math. Understand that when you're buying, you'll be taking on a big down payment and all those additional costs. On the other hand, you'll want to take a look at your local rental market. If your rents are increasing steadily year over year, you might be shelling out more on temporary housing than you would on your own home each month. And you may find yourself with your savings too depleted to buy.
“On average, landlords raise rent 7% per year," Crouch says. "This is a compounding increase in expense.”
6. Am I secretly trying to talk myself into it?
It may seem like you should just buy already, but try asking yourself: Do you really, truly want to?
Even if it might make sense on paper, Crouch still recommends asking yourself three questions before you finally decide:
Am I trying to sell myself on the idea of buying a home?
Am I trying too hard to justify it financially?
Do my reasons to buy outnumber my reasons not to buy?
After all, buying a home is arguably the biggest financial (and, sometimes, emotional) commitment you'll ever make. You need to be sure it's right for you—no matter what anybody else says.
Article by Angela Colley for Realtor.com
