Buying a Home? Ask Yourself These 5 Questions First

Mortgage interest rates are starting to rise, though it’s difficult to know how high they’ll go before they take a dip or level out. So if you’re thinking about buying a new home, now is a good time to take action. Spring is the season which means more houses are coming onto the market and will continue into early summer. At the same time, it can be a competitive season for new homebuyers. Often, sellers are able to secure multiple offers and homebuyers are forced to negotiate.

Before you walk into your next open house, get prepared with a bit of homework by asking yourself these top 5 questions.

Related: How to win the bidding war for new homebuyers in 2022

5 Questions to Ask Yourself Before You Buy a Home

1. How long do I want to live here?

Planning for the future can be difficult and things can change quickly. Still, having a general plan can help. For example, knowing how long you plan to live in a new home can help you decide between a fixed-rate vs. an adjustable-rate mortgage. Also, it can help you decide how much money you want to use for a down payment.

Quick tip: If you’re planning to stay in the area for less than 3-4 years, it might be better to wait before buying a new home. Why? Closing costs and real estate commissions will cost you upfront, and three years might not make the cost worth it.

2. How much do I want to use for a down payment?

For the lowest mortgage rate and the most competitive home loan, plan on putting down 20%. You’ll avoid PMI (private mortgage insurance) and secure better terms on your overall mortgage.

That said, there are several home loan options, especially for first-time homebuyers. For example, FHA loans require 3.5% down, and a conventional 97 only requires a 3% down payment. VA loans and USDA loans offer mortgages with zero down. However, many government-backed home loans require mortgage insurance premiums for the life of the loan, which increases your monthly payment.

If you know how much you’re prepared to use for a down payment, you’ll be better prepared when it’s time to make an offer. 

Connecting with a local mortgage advisor can help, too. You’ll be able to talk through your options in advance and know what to expect.

Related: How to get pre-approved and fast track your loan process

3. What’s my credit score?

Your credit score is one of the biggest factors that affect your mortgage rate. So, if you’re deciding whether to save more money for a down payment or pay down your credit cards–it can help your credit report to pay down your credit cards.

Mortgage lenders typically offer the lowest mortgage rate to borrowers with a credit score above 740. However, there are a number of great home loans available for homebuyers with credit scores of 680-740, and other loans that only require a credit score of 580.

Download a free copy of your credit report here to find out your credit score.

Look for any errors or misinformation, as most can be fixed within 30 days. Next, pay down your credit cards to improve your debt-to-income ratio. Even better, check out this blog we posted recently on how to boost your credit score in 60 days.

4. Am I prepared for home maintenance and property taxes?

Buying a new home is often exciting. Until the furnace quits or the water heater breaks. Home maintenance, necessary improvements and unexpected repairs are more common than we like to think.

Furthermore, homeowner’s insurance and property taxes will be required on top of your home loan. Many mortgages have the option to include your property taxes and HO insurance into your monthly payment. This option might help you set a clear budget while making sure you don’t fall short on property taxes or insurance.

5. Am I willing to wait to buy a house?

Buying a home can be stressful and overwhelming. It’s a good idea to take some time and shop around. Go to several open houses and be honest with your realtor about what you’re looking for in a home. Spend time researching recent homes sold in your area and current home prices. The more homework you do, the better prepared you’ll be when you find the right home. You’ll be able to make an offer with confidence.

Finally, ask yourself if you’re ready to wait. House hunting can be discouraging at times, especially if there aren’t a lot of homes on the market or the “perfect home” just sold to someone else. Almost every homeowner has gone through a similar adventure at some point, and it’s worth taking your time.

Buying a new home could be one of the biggest financial decisions you’ll ever make.

Taking Action

If you’re thinking of buying a new home, getting pre-approved for your mortgage is a great first step. A mortgage pre-approval guarantees your loan will fund up to a certain amount. With a mortgage pre-approval you can shop with confidence. Connect with a local mortgage advisor to get started. We can guide you through the process and help you decide which path meets your financial goals. We’d love to help.