3 Questions EVERY Potential Homebuyer Should Ask

If you're mulling the idea of moving from renting to buying, stop and ask yourself these three questions first

Purchasing a home is typically the biggest expenditure most Americans make. Homebuyers save for a few years and spend the next 30 paying it off.

This kind of investment should never be taken lightly, and it’s an intimidating task for many young Americans — which is a key reason many in the younger generation are choosing to rent rather than buy.

Still, home ownership can be the right move. It often saves you money when compared to renting. And, there’s the stability and freedom you have to create living space to your own liking.

So, when you’re mulling over the buy-or-rent question, it’s important to keep three questions in mind:

#1: Are You Financially Ready to Buy a Home?

This is a quandary facing many young Americans. But it doesn’t mean you should never purchase a home; just that perhaps you should wait a while before you do so.

Here are some financial details that potential homebuyers should prepare before diving in.

  • The down payment: You can obtain an FHA mortgage with as little as 3.5% down or a conventional loan at 3%. You’ll face higher interest rates and lose more on interest payments in the long run, however. Ideally, you should put down between 10% and 20% to save on major costs. That’s usually tens of thousands most people don’t have lying around.
  • Credit report: If you have bad or shaky credit, getting approved for a house will be tricky. Generally, any credit score below 620 is unlikely to land a loan. Most want to see a credit score of 675 or above, and people with 750 or higher will be automatically approved with the best interest rates. If your credit is bad, you’ll want to spend a few years improving it before jumping into home ownership. By law, you are allowed to get one free copy of all three credit reports every 12 months from each of the national consumer credit reporting agencies, Equifax, Experian and TransUnion.
  • Personal debt: Carrying large amounts of credit card debt or personal loans will not only make it more difficult for you to get approved for a mortgage, but it will also affect your ability to make monthly payments. Most lenders won’t grant a loan if your debt-to-income ratio (including your mortgage payment) would exceed 45% of your income.

Anyone looking to purchase a home when their financial state isn’t ready should wait a few years until it is.

#2: Does the House Have Serious Damage (Or Potential for Damage?)

One of the greatest regrets that homebuyers express is after they’ve purchased a money pit. Some houses have more wear-and-tear or potential problems than others, which sets you up for years of pouring money into repairs.

There are always some major red flags to watch for when you’re purchasing a home. Here are some of the most prominent:

  • Roof problems: Look for missing shingles, bent flashing, or decrepit gutters. Make sure a thorough inspection is part of the negotiation process.
  • Bad plumbing and wiring: Problems inside the walls are usually expensive and time-consuming to fix. Leaks, water damage and broken fixtures indicate plumbing problems. Exposed wiring, missing GCFI outlets, and outdated light fixtures are all warning signs of possible wiring issues.
  • Foundation issues: This is a big one. If you see cracks in the basement, exterior foundation, or walls of your home, that’s an indication the foundation has serious weaknesses. You could be looking at tens of thousands of dollars in repairs.
  • Old house: If the house was build or renovated more than 20 years ago, you’re more than likely to require expensive repairs.
  • Shifty owners: If the owner seems to be hiding something, seeks a very quick sale, or won’t allow a home inspection, take it as a sign there are serious structural issues with the home.

There are plenty of homes on the market. Don’t purchase the one that will drain your bank account.

#3: What Is the Market Like?

Good resale value is a factor many homebuyers don’t necessarily consider, but they really should. The market may be in your favor when you make the initial purchase, but you have to consider your return on investment.

Research shows that only 15% of homebuyers live in the same house for more than 21 years. The majority move out in fewer than 10. If you’ve purchased a home in a bad market, you won’t likely get your money’s worth out of the deal.

Always buy a home with resale value in mind. If the market isn’t in your favor, it may be best to explore a different neighborhood or wait until the local economy has improved.

When you’re shopping for homes, take a good look at the condition of the economy. Begin by doing online research to check for high unemployment rates and falling business revenue. Compare house prices now against what they’ve been over the past decade. Check the performance of school districts. If you see a lot of for-sale signs in front of both houses and businesses, that’s also a clear indication the local economy is struggling.

Making the biggest financial decision of your life requires preparation and financial soul-searching. Get off to a solid start with all of the facts.

Article printed from InvestorPlace Media, https://investorplace.com/2017/04/3-questions-every-potential-homebuyer-should-ask/.

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