Buying a home is probably the biggest financial decision most people will make in their lifetime. And it's not just about the money. It's also an emotional decision, one that can be fraught with worry and anxiety. Many questions run through your mind such as: Am I doing the right thing? Have I really saved enough to afford this? What if something goes wrong? What if I regret my purchase down the road and have to sell at a loss? But by asking yourself these questions up front, you'll be able to think through your options and know what you're getting into before you sign on the dotted line.
So here are some of those key questions all first-time buyers should ask themselves before they buy:
Q: Where can I start my search for a new home?
A: You should start your search by figuring out what you want and need in a new home. Will you be looking for houses with pools or those without? Do you have kids that will make noise while the neighbors are trying to rest, or do you work from home and can you be loud? How big do you need your kitchen to be? What about storage space, or a garage?
Once you figure out what's most important for you, start looking around and take in all of the sights. Get in contact with a real estate agent, describe what you're looking for, and go from there!
Q: Should I buy now or wait until later when prices are lower and I may have more money for a downpayment?
A: When the market is hot, you'll often hear agents saying to "buy now or be priced out forever." But in reality, there's no hard and fast rule to help first-time buyers decide when is the best time to buy. In fact, some argue that it makes sense to wait until you find the right home at the right price – when that happens, you'll be glad you waited.
Others contend that first-time buyers should always buy when they think they can afford a downpayment and monthly payment because home prices will only go up.
Still others believe that buying as soon as you can, even if it means taking on more home than you can really afford, is the key to getting into homeownership.
A first-time buyer should weigh all options and consider how much they plan to invest in their home, whether or not they plan on moving again within the next five years (which could be a deciding factor in choosing between buying or renting), how much home they can comfortably afford to pay for each month, and what the chances are that they'll have to sell within five years.
Q: What are my monthly costs?
A: The biggest piece of advice when buying a house is this: Make sure you can truly afford it. And that means knowing, in advance, exactly what your monthly payments will be. The house payment itself is only part of the equation – there are also taxes and insurance to take into consideration as well as any other costs associated with owning a car, utilities or even tolls if you commute. A first-time buyer can get an estimate of what their payments will be by consulting a mortgage calculator.
Q: How much house can I really afford?
A: A lot of people make the mistake of buying more home than they can comfortably afford. It's an easy trap to fall into – after all, if you have a bigger house, wouldn't it be nice to invite friends and family over for dinner or host holiday parties?
The problem is your comfort level is also a factor. Will you really want to live in your new house 20-30 years from now? If the answer is yes, then by all means, buy as much home as you can comfortably afford. But if it's a maybe, or worse yet, you may have doubts about whether or not it's something you really want, then it's probably a good idea to buy less home than you think you can afford.
Q: What are some risks involved with buying a house?
A: The biggest risk is that you will have to move again within five years and take a loss on your house. Houses don't always go up in value and even if you sell it the way you want, a house can take years to sell – especially if it's been on the market too long.
Other risks include not being able to afford your mortgage payments because of an unexpected job loss, higher taxes or interest rates going up as well as illness, divorce or just getting tired of the house after living in it for a while. Be sure to know exactly how much you would lose if any of these risks were to come into play. Most financial advisors use 3-5% as an acceptable loss when buying a home, but be sure to check with your state and local mortgage lender regarding market fluctuations.
Q: How long will it take me to get approved for a mortgage?
A: That really depends on the day and the lender. But in general, you can expect to have a good idea about whether or not you'll be approved in one hour, one day, or up to 10 days after submitting an application. The length of time it takes to get approval will depend on your credit score, downpayment, and the type of loan you choose (fixed or adjustable rate). Consult with several lenders before choosing who will give you a quote on which loans you qualify for. Many mortgage brokers will conduct free consultations to advise you of what rate and monthly payment you can expect.
Q: I don't have a lot of money saved up – how will this hurt my ability to get approved for a mortgage?
A: If you don't have an emergency fund, don't worry! A lot of lenders understand that your money is going to be tied up in your house for the next few years. So, you might have to get a loan with a lower rate or pay higher fees. If you can afford it (and if you haven't been spending more than necessary), keep making small payments into your fund every month. If the lender doesn't allow you to have this, it might be best to wait until something opens up that will give you a lower rate and higher amount of money!
Q: What kind of loans are there?
A: There are a number of loans that you can consider. Shop and around and determine which one will be right for you:
- Fixed Rate Loans: These are the most basic ones and they don't change from their original rate. Interest is typically determined by adding a set percentage to the prime rate, which is what banks charge other banks for short term loans. The main thing to know about fixed-rate mortgages is that your monthly payment remains the same for 30 years or longer.
- Adjustable Rate Loans: These loans are also known as a variable rate mortgage, and they're usually much more complicated. The interest rate is tied to market fluctuations. For example, if the prime rate goes up, so does your interest rate. If it goes down, you may see a slightly lower payment for an interim period before your interest rate adjusts downward as well. The benefit of a variable-rate loan is that it generally has a much lower initial rate than one with a fixed interest. However, they're riskier for the buyer and shouldn't be taken lightly.
Q: Should I work with a real estate agent or look at private sales?
A: Working with a real estate agent can be really beneficial. They know the area and are able to find you the right property to buy. You get free financing. They also do all of the paperwork for you and they have probably seen this process before and know what they're doing so you don't have to worry about things with them in charge.
When you do a private sale, you have more control over the process. You're not relying on anyone else to find a home for you, you can do your own research and shop around to see what's available and make the best decision possible based on everything that's in front of you. Keep in mind, though, that if something goes wrong or you overlook a step, you're completely on your own!
Q: What should I factor into my choice of neighborhood?
A: There is a lot to consider when you're deciding where you should move. Some of these will include:
- What will be my commute to work?
- What's the crime rate like in the area?
- Are there high-ranking schools for my children?
- What type of home will I get for my money in this neighborhood?
- How close are the stores and restaurants, and what are they like?
- Is there a lot of construction going on nearby that will impact my property value?
As you can tell by the list of questions, there is no one size fits all solution to buying your first home. You have to take into consideration all of your needs and wants before making a decision about where to live.
Q: How do home inspections work? Are they mandatory before purchasing a home?
A: The home inspection is one of the most important parts of buying a home. The inspector will be able to flag problems, mold, foundation issues and other things that are wrong with your new home.
The cost of the inspection is typically rolled into your mortgage money or paid for by the seller as part of their responsibility. Don't settle on anything less than a full inspection, because if you don't check before you buy, there's no fixing the problems down the road.
Home inspections are not mandatory when it comes to buying a home. However, they are highly recommended by banks and real estate agents alike!
Q: How does an appraisal work? Do I get one with every purchase?
A: An appraisal is a professional valuation of your property to determine how much it's worth. Lenders use this to determine the maximum amount they are willing to lend you. They will usually only do an in-depth appraisal if you're getting something like a mortgage with loan insurance. Otherwise, it should be fairly quick and painless!
Q: What are closing costs, and how much will they be?
A: Closing costs include a number of different things. The estimates you get prior to the sale should take them into account. Here is a list of some common closing costs that may affect your mortgage:
- Fees for the seller's realtor (usually 5% to 6%)
- Fees for the title company or attorney
- Assessors fee
- Surveyor fee
- Home inspection fees
- Prepaid interest points (points are paid to the lender for lowering your interest rate)
- Deed preparation cost
- Notary and registration fees
- Property taxes
- Transfer taxes
Q: How long will I have to wait after closing to get into my new home?
A: This is going to depend on what kind of property you've purchased and the location. If you're buying a home that's not new, it could take anywhere from two weeks to a month for everything to be completed!
It also depends on the seller's conditions. Some people are upfront about the fact that they need a long close in order to give themselves time to pack up and find a new home on their end. Others prefer a short close and want to move out and hand over the keys as soon as they can.
If you're about to embark on the journey of buying your first home, this is a good place to start! There's a lot to take into consideration when you begin the process of buying a home for the first time, and it can be easy to overlook some of these considerations. Hopefully, this compilation of frequently asked questions has given you an idea of what to expect during the home-buying process and has helped to alleviate any concerns you may have. It can be a daunting task, purchasing your first home, but hopefully, you can go into the experience prepared and knowledgeable on what you can expect!
Each and every day Modern Realty Guam Team strive to create confident buyers and sellers, and to offer world class service anchored by our experience and our unrelenting pursuit of excellence. Our fresh and responsive approach to real estate enables our clients to enjoy a higher level of customer service through talented agents, team-based systems, and cutting edge technology.
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