Questions to Ask When Buying Your First Home

Buying your first home is a financial and personal milestone. This journey involves many decisions; understanding what to expect can alleviate complexities. Asking the right questions empowers informed choices, aligning the home with your financial capacity and lifestyle. This guide outlines questions for the home-buying process, from initial financial assessments to closing.

Questions About Your Financial Readiness

‘How much home can I realistically afford?’ Evaluate income, expenditures, and debts to determine a monthly mortgage payment. Financial institutions recommend housing costs (PITI) not exceed 28% of gross monthly income, and total debt payments, including housing, not surpass 36%.

Credit score directly influences mortgage rates. Lenders use scores (300-850) to assess creditworthiness. A higher score, typically above 740, can lead to favorable interest rates, potentially saving thousands over loan’s life. Review credit report for inaccuracies before applying.

‘How much do I need saved for a down payment and closing costs?’ While 20% down payment avoids private mortgage insurance (PMI) on conventional loans, many programs allow lower down payments. Examples include 3-5% for conventional, 3.5% for FHA, or 0% for VA and USDA loans. Closing costs typically range from 2-5% of the loan amount.

‘What is my debt-to-income ratio?’ Calculated by dividing total monthly debt payments by gross monthly income. Lenders often prefer a DTI ratio below 43%, though some may approve higher ratios. Reducing existing debts before applying can improve this ratio and enhance borrowing power.

‘Should I get pre-qualified or pre-approved, and what’s the difference?’ Pre-qualification estimates how much you might borrow based on self-reported financial information, without a hard credit inquiry. Pre-approval involves a review of financial documents and a hard credit pull, resulting in a conditional commitment. A pre-approval letter strengthens offer by demonstrating intent and financial capability.

‘Are there any first-time homebuyer programs I qualify for?’ These can uncover opportunities for grants, low-interest loans, or down payment assistance. Many states and local governments offer programs to help first-time homebuyers, often with specific income or purchase price limits. Federal programs like FHA, VA, and USDA loans also cater to specific borrower groups.

Questions About Potential Homes and Neighborhoods

‘What is the age and condition of major systems (roof, HVAC, plumbing, electrical)?’ Knowing their age provides insight into remaining lifespan and replacement costs. An asphalt shingle roof may last 20-30 years, and HVAC systems often have a lifespan of 15-25 years.

‘Are there any known structural issues or past repairs?’ This inquiry can reveal problems like foundation cracks, water damage, or significant settling that could lead to costly repairs. Sellers are often required to disclose known material defects, but asking directly can prompt further discussion. Understanding past repair history helps assess the home’s long-term stability.

‘What are the average utility costs?’ Requesting past utility bills for electricity, gas, water, and sewer can provide an estimate of monthly expenses. These costs vary significantly based on the home’s size, age, insulation, and heating/cooling system efficiency. High utility costs might indicate a need for energy efficiency upgrades.

‘What is included or excluded in the sale (appliances, fixtures)?’ Standard inclusions often involve built-in appliances, but items like refrigerators, washers, dryers, or decorative light fixtures might be negotiable or excluded. This question ensures clarity on what personal property transfers with the home.

‘What are the school district ratings and boundaries?’ This helps families understand local school quality and whether the property falls within desired attendance zones. School ratings can influence property value and are a common concern for buyers with or planning children.

‘What are the neighborhood amenities (parks, shops, public transport)?’ This provides insight into the local lifestyle. Proximity to essential services, recreational facilities, and transportation options can enhance a home’s desirability and convenience. This also includes understanding commute times.

‘Are there any Homeowners Association (HOA) fees, and what do they cover?’ HOAs typically charge monthly or annual fees for maintaining common areas, amenities like pools or clubhouses, and sometimes exterior building maintenance. Understanding the fees and HOA rules is important.

‘What is the property’s history, including previous sales, renovations, or insurance claims?’ This can reveal patterns of ownership, major alterations, or past issues that led to insurance claims, such as water or storm damage. This historical context can inform due diligence and provide a more complete picture of the property.

Questions During the Offer and Due Diligence Period

‘What contingencies should I include in my offer?’ Common contingencies protect the buyer. These typically include:
A financing contingency (making the purchase dependent on loan approval)
An inspection contingency (allowing withdrawal or renegotiation if defects are found)
An appraisal contingency (ensuring the home appraises for at least the purchase price)
These clauses provide safeguards.

‘What is the typical earnest money deposit, and when is it refundable?’ Earnest money, usually 1-3% of the purchase price, is held in an escrow account and applied towards down payment or closing costs. It is generally refundable if a contingency is not met, such as financing falling through or a home inspection revealing unacceptable issues, provided you adhere to the purchase agreement terms.

‘What does a standard home inspection cover, and what specialized inspections might I need?’ A general home inspection typically covers:
Structural components
Roofing
Plumbing
Electrical systems
HVAC systems
Depending on the property’s age or location, specialized inspections for pests, radon, lead-based paint, or septic systems might be advisable. These assessments provide a deeper look into concerns.

‘What happens if the inspection reveals major issues?’ If significant problems are discovered, you generally have several options: negotiate with the seller for repairs, request a credit at closing, or, if severe and the contingency allows, withdraw your offer and receive your earnest money back. Specific actions depend on the purchase agreement terms.

‘What is the appraisal process, and what if the home appraises for less than the offer?’ An appraiser evaluates property value based on comparable sales and characteristics. If the appraisal comes in lower than the purchase price, the lender will only finance up to the appraised value. This often leads to renegotiation, the buyer making up the difference, or the deal potentially falling through if an appraisal contingency is in place.

‘What disclosures is the seller legally required to provide?’ State laws vary, but sellers are typically required to disclose known material defects that could affect property value or desirability (lead-based paint, asbestos, past water damage). These disclosures offer transparency and protect buyers from undisclosed issues.

‘How long is the due diligence period?’ This period, typically 7 to 14 days, is the buyer’s opportunity to conduct all necessary inspections and investigations before committing to the purchase. It is a time-sensitive window to uncover and address any concerns.

Questions About Mortgage and Closing

‘What types of mortgages are available to me (fixed-rate, adjustable-rate, FHA, VA)?’ Fixed-rate mortgages offer a consistent interest rate and monthly payment, providing predictability. Adjustable-rate mortgages (ARMs) have an interest rate that can change periodically, leading to fluctuating payments. FHA, VA, and USDA loans are government-backed options with specific eligibility requirements, offering lower down payments or more lenient credit standards.

‘What is the interest rate, APR, and how do they differ?’ The interest rate is the percentage charged on the principal loan amount. The Annual Percentage Rate (APR) includes the interest rate plus other loan costs (origination fees, discount points), providing a more comprehensive measure of the loan’s total cost. The APR is generally higher than the interest rate because it incorporates these additional fees.

‘What are the total closing costs, and who typically pays which fees?’ Closing costs can range from 2% to 5% of the loan amount and include fees for:
Loan origination
Appraisal
Title insurance
Attorney
Recording fees
While some costs are traditionally paid by the buyer and others by the seller, allocations can be negotiated.

‘What is title insurance, and is it necessary?’ Lender’s title insurance is typically required to protect the lender’s investment against claims on the property’s title. Owner’s title insurance, while optional, protects equity against unforeseen issues like forged documents, undisclosed heirs, or errors in public records that could challenge ownership. It provides peace of mind by safeguarding investment.

‘What documents will I need to sign at closing?’ You will sign legal documents, including the promissory note (promise to repay the loan) and the mortgage or deed of trust (securing the loan with the property). You will also sign the Closing Disclosure, detailing all financial aspects of the transaction. Reviewing these documents in advance is advisable to ensure accuracy and understanding.

‘What should I expect on closing day?’ Closing day typically involves signing all final documents, transferring funds, and officially taking ownership of the home. It is often conducted at a title company or attorney’s office, with representatives from the lender, buyer, seller, and real estate agents present. The process usually takes one to two hours, depending on transaction complexity.

‘When do I get the keys to my new home?’ Often, keys are handed over immediately after all documents are signed and funds are disbursed, signifying transfer of ownership. In some cases, if the seller needs a few extra days to vacate, key handover might be delayed by a day or two, as agreed upon in the purchase contract. This moment marks the culmination of the home-buying journey.