You’re ready to buy a home, but you have lots of questions. That makes sense, because purchasing a home is one of the biggest financial decisions you can make. It costs money today, tomorrow, and (potentially) for the rest of your life. We’re here to help with answers to the 10 most common home buying questions.
You can’t control the market. But you can control your flexibility to market conditions. If the market is too hot, it might be best to wait until things cool off.
You can compare your personal buy vs. rent equation by finding one of many useful calculators on the internet (we like this one from Nerdwallet). Depending on your location and timeline, renting might be a superior financial move. Why? Because the first years of homeownership are very expensive. First, you pay closing costs, which is money you never recoup. And second, your first years of mortgage payments are mostly interest, little principal. Renting is often a smarter move in the short term. Buying only becomes more responsible in the long run.
Spring and summer are considered the best times to buy a house. That’s when it’s easiest to move, and thus when more sellers are looking for the right buyer.
Your credit score has a large impact on your future mortgage interest rate. And that rate dictates your mortgage payment for decades (barring any refinancing). You can get access to a free annual credit report at AnnualCreditReport.com. If your credit score isn’t great, consider improving it before securing a mortgage.
The affordability equation is complicated. But a few basic inputs are:
These inputs help calculate how much home you can afford, and this home affordability calculator from Chase will help get you started.
Location is everything in real estate, so it’s a good idea to explore your local market. Knowing the towns, the neighborhoods, or even the streets on which you would (or wouldn’t) want to live beforehand can help you efficiently screen for good candidate houses. Real estate websites like Zillow and Trulia can help give you an idea how home prices can differ from area to area.
Similarly, you can screen for house style. Start by making a list of your wants, your needs, and your non-negotiables. How many bedrooms and bathrooms do you want? How big should the kitchen be? Compare the house you need today against the house you want tomorrow. As we’ve covered, you’ll ideally stay in one house for years, if not decades. Consider your future needs before you make your purchase.
A trusted realtor and an experienced real estate lawyer are indispensable for most home transactions. Seek out expert referrals from close friends and family who have bought houses recently.
While aesthetics are important, the significant value of a home is in the “bones.” That is, the foundation, the walls, the plumbing, the roof, etc. While it can be tempting to “make or break” your decision based on how a house looks, remind yourself to look at the bones. If you’re unsure what you’re looking for, an experienced inspector or structural engineer can be invaluable. Or, maybe your dad can offer a good second option.
Some people will intentionally purchase “too much home” in order to claim an income tax deduction on the subsequent mortgage interest. This is a bad idea. First, you must itemize your deductions to capture this tax break. If you’re one of the 90% of Americans who don’t itemize, you’ll claim the standard deduction and won’t get any benefit from paying more mortgage interest. Second, deductions only save cents on the dollar. For example, if John pays $8000 in mortgage interest and is marginally taxed in the 32% bracket, he will receive $2560 (32% of $8000) as a tax refund. But he’s still paying $5440 in mortgage interest! It’s just a deduction. It’s not free.
Hopefully today’s answers have you feeling a little more confident about buying a home. If you’re ready for more, here’s a step-by-step list of home-buying considerations:
The path to home ownership starts with having all the answers you need. If you have questions about buying a home or any of the financial steps you may need to take to get there, we’re always happy to have a conversation. Good luck!
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