Top 8 Questions for Homebuyers

By Terry Roberts

The Home Loan Hub

Published Jan. 5, 2023 at 1:19pm

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After spending nearly 20,000 hours of my life over the last decade meeting with potential homebuyers across the nation, I have been asked a lot of questions about homeownership.  These are the 8 most common questions that I have been asked.  This article will only focus on the first question, as this will be an article series, answering each of the 8 questions individually with as much thought and experience as I could recall and also with respect to your time. 

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This is a lot to educate yourself on and consider, but it’s important to do so because your home purchase may be the single largest expense of your life.

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1. How will I know if I’m ready to own a home?

2. Is now the time to buy?

3. Is my credit score good enough?

4. How much does it cost?

5. Can I afford it?

6. Do I have to have a real estate agent?

7. What is the best financing option for me?

8. How do I get started?

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Part 1:  How will I know if I’m ready to own a home? 

Of all the questions you might ask, this is the most important question to ask yourself when considering homeownership.  Knowing when the right time to own a home can be like knowing when the perfect time will be to have a baby.  The truly perfect timing is unknown!  The answer to this question is different for everyone and will depend on your life’s circumstance such as:  finances, income, location, future plans etc.. 

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As Andy Stanley so eloquently puts it: “In light of your past experiences, your current circumstances, and future hopes and dreams, what is the wise thing for you to do?”.  A lender or real estate agent won’t have this answer, but a trusted lender and real estate agent will help answer questions about the process of buying a home, how much you would qualify for, what area may be best suited for your future goals, etc… 

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Prior to digging into the financial, credit, and income questions, I always recommend listing out a pros and cons table because it gets all of the big issues out in the open.  Here's a sample below:

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These are a few good benefits and challenges that would be good to consider as you prepare for the homeownership journey. 

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Pro #1

Owning real estate can build equity!  Equity is the difference between how much you owe on your home and what the value of your home is.  For example:  If you buy a home for $300,000 today and the home appreciates (increases in value) over the next 10 years at 7.7% per year (according to Credit Karma), then your home would be worth approximately $584,874.  The difference (584874 – 300000) is $284,874.  This means that you would have nearly $285,000 in home equity in 2033.  When renting a home, this will never happen.

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Pro #2

You can improve your home without having to ask permission.  Home improvements can range from wall paint and kitchen remodels, to landscaping or even putting in a swimming pool.  None of these improvements require a landlord’s permission because YOU are the landlord.  Be sure to check your local government restrictions and neighborhood covenants prior to making any drastic changes, however. 

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Making improvements to your home can help with building equity as well, but don’t assume that it will be a dollar for dollar increase in value.  In other words, if you spend $5,000 in landscaping, that may not translate to increasing the home’s value by $5,000.  It may not increase the value at all.  Adding heated square footage to the home is typically the way to increase the value of the home as much as possible.

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Pro #3

Owning a home can help improve your credit score.  A mortgage is a type of debt that will likely include the mortgage servicer reporting your payment history to one or all of the three major credit reporting bureaus (Experian – TransUnion – Equifax).  The more payment history for a trade line that appears on a credit report, the more it helps your credit score.  For example:  Having a credit card that indicates 3 months of total payment history over the last 6 months will have substantially less impact on increasing your credit score than a mortgage with 5 years of 60 on-time monthly payments.

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Pro #4

Your principal and interest payments will never change for the life of the loan.  In some states, landlords have the right to increase the rent to any amount with no notice or justification.  Since 2021, landlords across the United States have increased rent, on average, by nearly 18%.

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Owning your own home, you won’t have to worry about landlords increasing your payment.  Again, because you are the landlord.  However, when financing real estate, unless you are exempt, you will have real estate property taxes and homeowner’s insurance.  Local governments do have the right to change property tax rates and when they do change, it’s not to a lower rate.  Insurance companies are typically the same.  When insurance rates or property tax rates increase, then your total monthly payment will increase as well.  Principal, Interest, Taxes, and Insurance also known as PITI are what make up the total mortgage payment.

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Pro #5

Depending on your tax filing status, you may have the option to deduct certain expenses that come along with purchasing and owning a home, such as certain closing costs, mortgage interest, real estate property taxes, etc..  However, it is recommended to consult with a tax accountant to confirm.

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Pro #6

Owning a piece of good old-fashioned American real estate is one of the most gratifying experiences of my life.  This is important to me because I am building wealth by building equity in the land and homes that I own.  More importantly, I am building generational wealth for my children and my children’s children.  You can own it forever.  If you do decide to move, you have the option to rent it to someone else and continue building equity.

 

As with any list of benefits, there are most likely challenges as well.  Owning a home is no exception.

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Con #1

Owning your own home means you will be 100% responsible for all maintenance costs.  If the water heater quits working, you won’t have hot water again until you have it repaired and you pay for it.  While I have this listed as a “con”, remember that while you will most certainly have home repair costs, the costs will be less than the appreciation of your home’s value over time and you will still build equity.

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Con #2

Related to Pro #4, local governments and insurance companies have the right to increase the property tax rate and homeowner’s insurance rate.  If this happens, your monthly payment will increase.  But it shouldn’t increase anywhere near the 18% increases that landlords have been instituting since 2021.

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Con #3

If you’re relocating to a different city or state or country, it will be your responsibility to have a plan in place to ensure that when you move out of your home, you are able to continue making your monthly mortgage payment on time, every month.  If you’re unable to make the payment or unable to lease the home to someone else, then you have the option to sell your home at any point.  I usually recommend exhausting all efforts to NOT sell the home, but to lease it to someone because of these 3 Reasons Why Buying American Real Estate Will Become Harder to Buy.  However, if it becomes a matter of selling or foreclosing, sell every single time.

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Con #4

If you miss a rent payment, the landlord will hound you until you’re caught up on rent.  If you miss multiple rent payments, the landlord will attempt to have you kicked out of the rental.  If you miss your mortgage payment (if your payment is made more than 30 days past the due date) then your credit score will plummet.  If you continue to not make your mortgage payment, then the lender (who technically owns your home) may have the right to foreclose on the home.  A foreclosure is the legal process that gives lenders the right to recover the amount owed on a defaulted loan by taking ownership of and selling the mortgaged property.  In this scenario, you lose the home, your credit is severely damaged, and you lose any equity that you might have had in the home.

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This is a lot to educate yourself on and consider, but it’s important to do so because your home purchase may be the single largest expense of your life.

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After reading through my 8-part series of answers to America’s most common homebuyer questions, I hope to guide you to the answer to the most important question:  Are You Ready?

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Terry Roberts is a U.S. Marine Corps Veteran and specializes in residential mortgages, including new construction, conventional, FHA, and VA home loans. He has helped more than 10,000 clients start the homebuying process across America.