Score a Homerun to Home Ownership
Where to find a REALTOR®:
Where can you begin to look for a REALTOR®? In Texas, you may begin with Texas Real Estate, the Texas REALTORS® Association. You can also begin at www.realtor.com or at www.gmar.org your local REALTOR® Association.
Questions to Ask When Choosing a Real Estate Agent or REALTOR®
These 9 questions will help you find the agent who's right for you.
How long have you been in residential real estate, and is it your full-time job?
Experience is no guarantee of quality. But, as in all professions, expertise is gained on the job.
Do you have any designations or certifications?
Real estate professionals must pass an agent or broker licensing exam before they can work with clients, and in most states they're required to take continuing education. Many take it further by obtaining designations or certifications. This training helps them gain specialized knowledge and skills that apply to a particular real estate need—from selling resort or second home properties to working with seniors. One designation buyers should look for is the ABR, or Accredited Buyer’s Representative.
What’s your business philosophy?
While there’s no right answer to this question, the response will help you assess what’s important to the agent and determine how closely the agent’s goals and business emphasis mesh with your own.
How many buyers did you and your real estate brokerage represent last year?
This will tell you how much experience they have and how up-to-date they are on the local market.
What’s the typical variation between your buyer clients' initial offers and final sales price?
This is one indication of the agent's pricing and negotiating skills.
Will you represent me exclusively?
When agents represent a client, they act as a fiduciary, bound by law to work in the client’s best interest. State law governs agency relationships and duties. Regardless of whether they represent you, agents who are REALTORS® are bound by a Code of Ethics to treat all parties fairly and honestly.
How are you paid?
Agents representing a buyer are often paid a percentage of the listing commission at closing by the broker who represents the sellers. In that scenario, your agent is not paid until you successfully close on your purchase. In other cases a buyer's agent may charge you a fee or commission for representation. Be sure you're clear upfront about how your agent will be paid, and know that the commissions are negotiable.
Can you recommend service providers who can help me obtain a mortgage, make home repairs, and so on?
Practitioners should be able to recommend several providers. Federal law prohibits brokerages from receiving referral fees from settlement service providers (such as lenders and title companies). The law allows for joint marketing and affiliated business arrangements; agents must disclose if their brokerage is involved in such arrangements with recommended vendors.
How will you keep me informed about the progress of my transaction?
The best answer here is a question. Effective agents pay attention to the way you prefer to communicate and respond accordingly.
Could you please give me the contact information of your three most recent clients?
Ask their former customers if they would use the agent again in the future.
REALTORS® are members of the National Association of REALTORS® and subscribe to its strict Code of Ethics. When you're buying a home, here's what an agent who's a REALTOR® can do for you.
Act as an expert guide. Buying a home typically requires a variety of forms, reports, disclosures, and other legal and financial documents. A knowledgeable real estate agent will know what's required in your market, helping you avoid delays and costly mistakes. Also, there’s a lot of jargon involved in a real estate transaction; you want to work with a professional who can speak the language.
Offer objective information and opinions. A great real estate agent will guide you through the home search with an unbiased eye, helping you meet your buying objectives while staying within your budget. Agents are also a great source when you have questions about local amenities, utilities, zoning rules, contractors, and more.
Give you expanded search power. You want access to the full range of opportunities. Using a cooperative system called the multiple listing service, your agent can help you evaluate all active listings that meet your criteria, alert you to listings soon to come on the market, and provide data on recent sales. Your agent can also save you time by helping you winnow away properties that are still appearing on public sites but are no longer on the market.
Stand in your corner during negotiations. There are many factors up for discussion in any real estate transaction—from price to repairs to possession date. A real estate professional who’s representing you will look at the transaction from your perspective, helping you negotiate a purchase agreement that meets your needs and allows you to do due diligence before you’re bound to the purchase.
Ensure an up-to-date experience. Most people buy only a few homes in a lifetime, usually with quite a few years between purchases. Even if you’ve bought a home before, laws and regulations change. Real estate practitioners may handle hundreds or thousands of transactions over the course of their career.
Be your rock during emotional moments. A home is so much more than four walls and a roof. And for most buyers, a home is the biggest purchase they’ll ever make. Having a concerned, but objective, third party helps you stay focused on the issues most important to you when emotions threaten to sink an otherwise sound transaction.
Provide fair and ethical treatment. When you're interviewing agents, ask if they're a REALTOR®, a member of the National Association of REALTORS®. Every member must adhere to the REALTOR® Code of Ethics, which is based on professionalism, serving the interests of clients, and protecting the public.
Vocabulary: Agency & Agency Relationships
State law, and the agreement between you and your agent, will determine what duties you're owed as a buyer.
The term “agency” is used in real estate to help determine what legal responsibilities your real estate professional owes to you and other parties in the transaction. Real estate agency is governed by state law and varies from state to state, but here are some agency terms you're likely to hear.
The buyer's representative (also known as a buyer’s agent) is hired by prospective buyers and works in the buyer's best interest throughout the transaction. The buyer can pay the agent directly through a negotiated fee, or the buyer's rep may be paid by the seller or through a commission split paid by the listing broker. The agency agreement usually is created by a signed buyer's rep agreement.
The seller's representative (also known as a listing agent or seller's agent) is hired by and represents the seller. The agent's fiduciary duties are to the seller, meaning it's the agent's job to get the best price and terms for the seller. The agency relationship usually is created by a signed listing agreement.
A subagent owes the same fiduciary duties to the agent's client as the agent does. Subagency arises when a cooperating sales associate works with the buyer but doesn't represent the buyer. Although a subagent cannot assist a buyer in any way that would be detrimental to the seller, a buyer customer can expect to be treated honestly by the subagent who is a REALTOR®, a member of the National Association of REALTORS®. That's because the REALTORS® Code of Ethics requires that all parties to a transaction be treated fairly and honestly.
A disclosed dual agent represents both the buyer and the seller in the same real estate transaction. In such relationships, dual agents owe limited fiduciary duties to both buyer and seller clients. Because of the potential for conflicts of interest in a dual-agency relationship, all parties must give their informed consent. Disclosed dual agency is legal in most states, but often requires written consent from all parties.
Designated agents (also called appointed agents) are chosen by a managing broker to act as an exclusive agent of the seller or buyer. This allows the brokerage to avoid problems arising from dual-agency relationships in situations in which licensees affiliated with the brokerage represent different parties to the same transaction. The designated agents give their clients full representation, with all of the attendant fiduciary duties.
A transaction broker (sometimes referred to as a facilitator) is permitted in states where nonagency relationships are allowed. These relationships vary considerably from state to state. Generally, the duties owed to the consumer in a nonagency relationship are less than the complete, traditional fiduciary duties of an agency relationship.
REALTORS® are members of the National Association of REALTORS® and subscribe to its strict Code of Ethics. When you're buying a home, here's what an agent who's a REALTOR® can do for you.
Act as an expert guide. Buying a home typically requires a variety of forms, reports, disclosures, and other legal and financial documents. A knowledgeable real estate agent will know what's required in your market, helping you avoid delays and costly mistakes. Also, there’s a lot of jargon involved in a real estate transaction; you want to work with a professional who can speak the language.
Offer objective information and opinions. A great real estate agent will guide you through the home search with an unbiased eye, helping you meet your buying objectives while staying within your budget. Agents are also a great source when you have questions about local amenities, utilities, zoning rules, contractors, and more.
Give you expanded search power. You want access to the full range of opportunities. Using a cooperative system called the multiple listing service, your agent can help you evaluate all active listings that meet your criteria, alert you to listings soon to come on the market, and provide data on recent sales. Your agent can also save you time by helping you winnow away properties that are still appearing on public sites but are no longer on the market.
Stand in your corner during negotiations. There are many factors up for discussion in any real estate transaction—from price to repairs to possession date. A real estate professional who’s representing you will look at the transaction from your perspective, helping you negotiate a purchase agreement that meets your needs and allows you to do due diligence before you’re bound to the purchase.
Ensure an up-to-date experience. Most people buy only a few homes in a lifetime, usually with quite a few years between purchases. Even if you’ve bought a home before, laws and regulations change. Real estate practitioners may handle hundreds or thousands of transactions over the course of their career.
Be your rock during emotional moments. A home is so much more than four walls and a roof. And for most buyers, a home is the biggest purchase they’ll ever make. Having a concerned, but objective, third party helps you stay focused on the issues most important to you when emotions threaten to sink an otherwise sound transaction.
Provide fair and ethical treatment. When you're interviewing agents, ask if they're a REALTOR®, a member of the National Association of REALTORS®. Every member must adhere to the REALTOR® Code of Ethics, which is based on professionalism, serving the interests of clients, and protecting the public.
Investigate down payment assistance programs.
Research shows homeownership is good for communities. That’s why lenders, municipalities and state governments offer programs to help qualified applicants cover all or part of the required down payment. These programs are often for first-time buyers earning up to a maximum income, but some programs are available to repeat buyers, too. Sometimes the assistance comes in the form of a grant and sometimes it’s a loan that’s forgivable if the buyers stay in the property and make their mortgage payments over a certain number of
years. Talk to a lender or a REALTOR®, a member of the National Association of REALTORS®, to learn what programs are available in your area.
Explore seller financing or an assumption.
In some cases, sellers may be willing to finance all or part of the purchase price of the home and let you repay it gradually, just as you would a mortgage. Be sure to consult a qualified real estate attorney to review the terms and ensure you’re protected. A similar option is the assumable mortgage, where a home buyer takes over the seller’s existing loan (with bank approval). FHA, VA and USDA loans are all assumable. These options can be attractive when the interest rate on the existing loan is lower than the going rate and the sellers don’t expect a big equity payoff from the sale.
Ask your family for help.
Perhaps a family member will gift you money for the down payment. Gifts must be documented: Lenders will need to know the source of a large deposit into your account and require proof that the money is a gift, not a loan. If you have a minimal credit history, the lender may require a co-signer. Before entering such an agreement, though, family members should understand the risks of co-signing— including being responsible for the loan should you be unable to make the payments.
Consider a shared-appreciation or shared-equity arrangement.
Under this type of agreement, a family member, a friend or even a third party may buy a portion of the home and share in any appreciation when the home is sold. The owner-occupant usually pays the mortgage, property taxes and maintenance costs, but all the investors' names are usually on the mortgage. Again, be sure a qualified attorney reviews the terms of the agreement.
Lease with the option to buy.
Renting the home for a year or more may give you the chance to save toward your down payment. And in many cases, owners will apply some of the monthly rental amount toward the purchase price.
Consider a short-term second mortgage.
If you qualify, a short-term second mortgage could give you money to make a larger down payment. This may be possible if you’re in good financial standing with a strong income and little debt. Such arrangements may also help you avoid jumbo loan restrictions or having to pay private mortgage insurance (required on conventional loans with a down payment of less than 20%), but they can be risky for lenders and borrowers.
Vocabulary: Loans & Lending Terms Loan Term
Mortgages are most commonly available for 15-, 20-, or 30-year terms. In general, the longer the term, the lower the monthly payment. However, shorter terms mean you pay less interest over the life of the loan.
Fixed- vs. adjustable-rate mortgages
A fixed-rate mortgage is one in which the interest rate stays the same as long as you hold the mortgage. An adjustable-rate mortgage (ARM) changes in accordance with some benchmark rate, typically the Secured Overnight Financing Rate (SOFR). The interest on an ARM is generally fixed for some initial period before floating up or down with the benchmark. Ask the lender how much and how frequently the interest rate can be adjust. ARMs may be a good choice for you if the initial rate is significantly below fixed-rate options, if you think you'll move or refinance before the rate begins to float, or if you expect your income to grow significantly in the coming years.
Amoritization
The process of gradually paying off a loan with some of your monthly payment going toward interest and some toward paying off the principal loan amount.
Government-backed loans
Loans insured by the Federal Housing Administration (FHA), the Department of Veterans Affairs, and the U.S. Department of Agriculture offer special terms, including reduced interest rates to qualified buyers. VA Loans are open to veterans, reservists, active- duty personnel, and surviving spouses and are one of the only options available for zero down payment loans. FHA loans are open to anyone, and while they do require a down payment, it can be as low as 3.5 percent. Borrowers need to pay go through a different, and some say more complex, purchase process when compared with conventional financing. FHA borrowers also pay a mortgage insurance premium.
Conventional loans
A conventional loan isn't part of a government guarantee program. It may be more difficult to qualify for a conventional loan, but the upfront costs are generally lower than those for an FHA mortgage. Conventional loans are either conforming, meaning originated in accordance with guidelines set by Fannie Mae and Freddie Mac or non-conforming. Non-conforming loans may refer to jumbo loans, meaning they exceed the conforming loan limits--or they may be so-called nontraditional or "exotic" mortgages.
Nontraditional mortgages originated in the subprime market were common in the run-up to the 2008 financial crisis and contributed to the crisis. They often featured no-doc qualifying and negative amortization. The financial crisis led to a spike in foreclosures and
resulted in a new federal Qualified Mortgage rule, which requires lenders to make a good faith effort to discern borrowers' ability to replay the loan.
Balloon mortgage
This is a form of non-traditional financing where the interest rate is very low for a short period of time—often three to seven years. Payments usually cover interest only so the principal owed is not reduced. This is a risky loan for both lenders and borrowers but may pay off for someone who is able to sell the home at a large profit within a few years.
As the housing market shifts, so do lending practices. A mortgage broker—an independent professional who acts as an intermediary between you and lending institutions—may be able to help you find a better rate and terms than you could find on your own. Be sure to shop around; slight variations in interest rates, loan amounts, and terms can affect your monthly payment.
Paying bills on time is just one step in maintaining a good credit score.
Credit scores play a big role in determining whether you’ll qualify for a loan and what your loan terms will be. So, keep your credit score high by doing the following:
Check for errors in your credit report.
Thanks to an act of Congress, you can download one free credit report each year at annualcreditreport.com. If you find any errors, correct them immediately. The Consumer Financial Protection Bureau explains what you need to know.
Pay down credit card bills.
If possible, pay off the entire balance every month. Transferring credit card debt from one card to another could lower your score.
Don’t charge your credit cards to the max.
Pay down as much as you can every month.
Wait 12 months after credit difficulties to apply for a mortgage.
You’re penalized less severely for problems after a year.
Don’t order items for your new home on credit.
Wait until after your home loan is approved to charge appliances and furniture, as that will add to your debt.
Don’t open new credit card accounts.
If you’re applying for a mortgage, having too much available credit can lower your score.
Shop for mortgage rates all at once.
Having too many credit applications can lower your score. However, multiple inquiries about your credit score from the same type of lender are counted as one if submitted over a short period of time.
Avoid finance companies.
Even if you pay off their loan on time, the interest is high and it may be considered a sign of poor credit management.
10 steps to take before applying for a mortgage loan.
Develop a budget.
Instead of guessing what you can afford to spend on a house, use bank statements and a spreadsheet to create a budget that reflects your actual spending pattern over the last several months to a year. This approach will help you factor in unexpected expenses alongside more predictable costs such as utility bills and groceries. You’ll probably spot some ways to save, whether it’s cutting out that morning doughnut run or canceling infrequently used streaming services.
Reduce debt.
Lenders will look at your debt load to determine how much they think you can afford to borrow. While only you can decide how much debt you're ready to take on, lenders have traditionally allowed a maximum debt-to-income ratio (DTI) of 36%. Some lenders or loan products allow a higher DTI, so be sure to shop around.
DTI is calculated by dividing your total recurring expenses for the month by your monthly gross household income (earnings before taxes and other deductions, such as funds allocated to retirement accounts). In adding up monthly expenses, don’t forget to factor in property taxes, insurance, maintenance, utilities, and association fees, if applicable. If your monthly income is variable, consider using a one-year average, or be conservative by calculating your DTI for your slowest-earning month.
A good ballpark for monthly housing costs is between 25% and 28% of your gross household income. So keep monthly payments on the rest of your obligations (including installment debt—car loans, student loans, and revolving balances on credit cards) down to no more than 8% to 10% of your gross monthly income.
Keep your job.
While you don’t need to be in the same job forever to qualify for a home loan, having a job for less than two years may mean you have to pay a higher interest rate.
Ask for a raise.
If that’s not an option, some people consider taking on a second job in order to qualify for the home they want. Remember, though, that quality of life is important, too. It may be better to compromise on the size or location of your home so that you have time to enjoy it!
Establish a good credit history.
If you're just getting started, well before you think about applying for a home loan, get a credit card, make it a practice to charge no more than you can afford to pay off each month. Pay your credit card bill on time each month, and do the same for all your other bills.
Obtain a copy of your credit report.
A credit report provides a history of your credit, bad debts and late payments. Make sure yours is accurate, and correct any errors immediately. The Consumer Financial Protection Bureau offers clear directions on how to otain a free credit report each year.
Save for a down payment.
Designate a certain amount of money each month to put into savings. While many people think a 20% down payment is essential, it's possible to get a loan for as little as 3% to 5% down. That can be a great option for first-time homebuyers who haven't yet built equity in an existing home. In 2023, the median down payment was 15% for all buyers, 8% for first-time buyers, and 19% for repeat buyers, according to the National Association of REALTORS® 2023 Profile of Home Buyers and Sellers. With a 20% down payment, you avoid the cost of mortgage insurance and can sometimes qualify for a better interest rate. Don’t forget to factor in closing costs, which can average between 2 and 7 percent of the home price.
Consider your mortgage options.
People generally look at homes valued at two to three times their gross income, but your level of recurring debt will be a factor in how much house you can afford (see #2 above). With the help of your real estate agent or mortgage lender, determine the best mortgage terms (30-year, 20-year, or 15-year? Fixed or adjustable rate? Conventional of FHA?) for your situation.
Gather documentation.
Lenders generally need a number of documents to preapprove you for a loan, such as W-2s, recent paystubs, and two to four months of recent bank statements.
Seek down payment help.
Talk with your agent, or check out state and local government websites, to find out whether you qualify for special mortgage or down payment assistance programs. If you have an IRA or Roth IRA account, you may qualify to withdrawal up to $10,000 for a home purchase before age 59-1/2 without incurring the normal 10% penalty for early withdrawal. Unless the account is a Roth IRA (composed of after-tax contributions), you'll owe taxes on the withdrawal amount. Some employers offer down payment assistance programs, too. And family members can be a source of down payment funds, provided they verify in writing that the assistance is a gift and not a loan.
Following these 7 principles will improve the homebuying experience.
Accept that no house is ever perfect.
The yard may be smaller than you had hoped. The kitchen may be imperfect. The roof may need repair. But if the home is in the right location and fulfills your shelter needs, don't immediately discount it. Make a list of your priorities, focusing in on those that are most important to you. Let the minor ones go. Accept that a little buyer’s remorse is inevitable and will most likely pass.
Know that there’s no “right” time to buy.
Found a great home? You risk losing it if you try to time the housing market and interest-rate shifts. Those factors usually don’t change fast enough to make a big difference in an individual home’s price.
Don’t ask for too many opinions.
It’s natural to want reassurance for such a big decision, but too many ideas from too many people will make it much harder to make a decision. Focus on the wants and needs of the people who will actually be living in the home.
Don’t try to be a killer negotiator.
Negotiation is definitely a part of the real estate process, but trying to “win” by getting an extra-low price or refusing to budge may lead to hard feelings or cost you the home you love.
Remember, the home doesn’t exist in a vacuum.
Don’t get so caught up in the physical aspects of the house itself that you forget about important issues such as noise level, access to amenities, and other aspects that also have a big impact on quality of life.
Plan ahead
Don’t wait until you’ve found a home to get approved for a mortgage, investigate insurance, or consider a moving schedule. Being prepared will make your bid more attractive to sellers.
Choose a home first because you love it; then think about appreciation.
A home is still considered a great investment, but its most important role is as a comfortable, secure place to live.
Be ready to move.
This is especially true in markets with a low inventory of homes for sale. It’s very common for home buyers to miss out on the first home they wish to purchase because they can't act quickly enough.
Find a trusted partner.
It’s absolutely vital that you find a real estate professional who understands your goals and who is ready and able to guide you through the home buying process.
Make a good offer.
Especially in a low-inventory market, your offer is unlikely to be the only one on the table. Do what you can to ensure your offer is appealing to a seller.
Factor maintenance and repair costs into your buying budget.
Even brand-new homes will require some work. Lenders and insurance companies generally suggest setting aside 1% to 4% of a home's value for annual maintenance costs. Don’t leave yourself short and let your home deteriorate.
Think ahead
It’s easy to get wrapped up in your present needs, but you should also be thinking about your long-term exit strategy. Buyers expect to stay in their home a median of 15 years, according to the National Association of REALTORS® 2023 Profile of Home Buyers and Sellers. Younger buyers, age 18–44, typically expect to move within 10 years.
Narrow down your search area.
Compile a list of three or four neighborhoods where you’d like to live in, taking into account factors that matter to you, such as nearby healthcare options, schools, recreational facilities, shopping and area expansion plans.
Develop a wish list.
Take your time and write down what you want, including a wide range of factors that matter to you—from noise levels to house layout to number of bedrooms and bathrooms. Prioritize items by dividing them into two categories—wants and needs. The needs are features you won't compromise on. The wants are features you can live without or add later. (This simple worksheet can be your starting point.
When starting your search, it is a good practice to compile a search through your preferred portal, like www.realtor.com or others.
Questions to Ask a Home Inspector
Homebuyers are strongly encouraged to have an inspection before they close on the sale of a home. An inspection can uncover potential structural or mechanical issues. Here are nine questions an inspector should be able to answer to your satisfaction.
Do you belong to a professional association?
There are two main inspection organizations today, the American Society of Home Inspectors (ASHI) and the International Association of Certified Home Inspectors (InterNACHI).
Will your report meet all state requirements?
Also, make sure their professional organization complies with a well-recognized standard of practice and code of ethics, such as those adopted by the American Society of Home Inspectors.
How experienced are you?
Ask inspectors how long they’ve been working in the field and how many inspections they’ve completed. Ask for customer referrals. New inspectors may be qualified, but they should describe their training and indicate whether they work with a more experienced partner.
How do you keep your expertise up to date?
Inspectors’ commitment to continuing education is a good measure of their professionalism and service. Advanced knowledge is especially important with older homes or those with unique elements requiring additional or updated training.
Do you focus on residential inspection?
Be sure to ask inspectors whether they have experience with the property type or features of the home you want to buy. They should be able to provide sample inspection reports for a similar property. While a qualified home inspector does a whole-house inspection, in some cases, they may recommend further evaluation by specialists such as a structural engineer or chimney inspector.
Do you do repairs or improvements?
Some state laws permit the inspector to provide repair work on problems uncovered during the inspection. In other states, however, it's considered a conflict of interest.
How long will the inspection take?
On average, an inspector working alone inspects a typical single-family house in two to three hours. Anything less may not be thorough.
How much?
Costs range from $300 to $500 but can vary dramatically depending on your region, the size and age of the house, and the scope of services. Be wary of deals that seem too good to be true.
Will I be able to attend the inspection?
The answer should be yes. A home inspection is a valuable educational opportunity for the buyer and a refusal should raise a red flag. That said, a big crew can impede an inspector’s work, so avoid bringing kids and third parties to the inspection if possible.
Questions to Ask About Property Tax
Real estate portal sites generally offer information on a property's annual taxes. But it's a good idea to verify this information with your real estate agent and the sellers.
What is the assessed value of the property?
Assessed value is generally less than market value. A recent copy of the seller’s tax bill will help you determine this information.
How often are properties reassessed in this area?
In general, this will happen annually, but properties in areas of slower growth may be reassessed less often.
When was the last reassessment done on this property?
Significant tax increases on an individual property usually can be linked to when that property was last reassessed.
Will the sale of the property trigger a tax increase?
Depending upon where you live, the assessed value of a property may increase based on the amount you pay for it. In California, for example, annual increases for existing owners are capped, and properties are reassessed when they're sold.
Is the tax bill comparable to that of other properties in the area?
If not, it might be possible to appeal the assessment and lower the rate.
Does the current tax bill reflect any special exemptions for which I might not qualify?
For example, many tax districts offer reductions to individuals 65 and older.
Questions to Ask About the Neighborhood
Where you live should reflect your lifestyle. These questions will help you find the best community for you.
Federal fair housing law prohibits real estate agents from steering you to one neighborhood or another, but agents they can direct you to resources that will answer your key questions about neighborhoods you're considering.
Is it close to my favorite spots?
Make a list of activities you engage in and stores you visit frequently. See how far you would have to travel to engage in your most common activities.
Is it economically stable?
Check with your local economic development office to see if household income and property values in the neighborhood are stable or rising. What is the ratio of owner-occupied homes to rentals? Apartments don’t necessarily diminish value, but they indicate a more transient population. Are there vacant businesses or homes that have been on the market for months? Check news sources to find out if new development is planned.
Is it a good investment?
If you're working with an agent, ask about price appreciation in the neighborhood. Although past performance is no guarantee of future results, this information will give you a sense of the home’s price stability and growth potential. Your agent also may be able to tell you about planned developments or other changes coming to the neighborhood — such as a new school or highway — that might affect its value.
Do I like what I see?
Once you’ve narrowed your focus to two or three neighborhoods, drive or walk around to get a feel for what it might be like to live there. Take notes: Are the homes well maintained? Are streets bustling or quiet? Pick a pleasant day if you can, and chat with people working or playing outside.
Is it safe?
Contact the police department to obtain neighborhood crime statistics. No neighborhood is free from crime, but consider not only the number of crimes but also the type and trend. Is crime going up or down? Pay attention to see where in the neighborhood crime is happening.
What’s the school district like?
This is especially important if you have children, but it can affect resale value as well. The local school district can provide information on test scores, class size, the percentage of students who attend college, and special enrichment programs. If you have school-age children, visit schools in neighborhoods you’re considering.
How will I get to work?
If you work outside the home, you may want to know about tolls, public transportation options and other factors that will affect your commute.
Questions to Ask the Condo Board
Before you purchase a condo, contact the condo board ahead of time to learn how responsive and organized its members are and be alerted to potential problems. Make sure you read documents about the condo association and have an attorney review them. Here are pertinent questions to ask.
How many units are owner-occupied?
Generally, the higher the percentage of owner-occupied units, the easier the condo will be to resell.
What covenants, bylaws, and restrictions govern the property?
Carefully read the bylaws to determine if you can abide by them. Also, find out if there are grandfather provisions that allow current owners more rights than you would have as a new owner, such as the ability to rent out your unit.
How much does the association keep in reserve?
A fat reserve could be a sign of a healthy association, or it could be a red flag about deferred maintenance. Ask how money has been used and invested.
Are association assessments keeping pace with the annual rate of inflation?
Smart boards raise assessments a reasonable percentage each year to build reserves for funding future repairs.
What does the assessment cover
Ask specifically about common-area maintenance, recreational facilities, trash collection, and snow removal (if applicable). What special assessments have been mandated in the past five years, and how much of that was the responsibility of individual owners?
Some special assessments are unavoidable. But repeated, expensive assessments could be a red flag about building conditions or fiscal policy.
What’s the turnover rate?
This will tell you if residents are generally happy with the building.
Is the condo building in litigation?
Obviously, this is never a good sign. If the builders or owners are involved in a lawsuit, reserves can be depleted quickly to pay legal fees.
What other projects has the developer built?
Try to visit one, and ask residents about their perceptions. Also, request an engineer’s report if the building has been converted from another use.
Are multiple associations involved in the property?
In very large developments, umbrella associations also may require separate assessments.
Questions to Ask About a Condo or Townhome
Buying within condo or townhome community generally offers certain perks, but it’s important to ask questions before you make the leap.
Consider these questions in your decision-making process.
How much storage is available?
Some properties include storage lockers, but there may not be attics or basements to hold extra belongings.
How’s the outdoor space?
Your yard will likely be smaller than you’d have with single-family home. If you dread yard work, it may be the perfect option.
Are amenities important?
Many condo and townhome communities offer swimming pools, fitness centers and other facilities that would cost much more in a single-family setting.
Who handles maintenance and security?
Property managers often hire professionals to care for common areas and perform in-unit repairs. Make sure you're comfortable with the security measures in place to regulate access to the building and your unit.
Are there required reserve funds and association fees? How much are they?
Fes help pay for amenities and provide savings for future repairs. Even if you’re not in favor of the board's decisions on amenities and improvements, be aware that the HOA or condo board determines these fees, and you’ll have to pay them.
What are the association rules?
Although you have a vote on future changes, association rules can dictate how you use your property. Some condos prohibit home- based businesses; others prohibit pets or don’t allow owners to rent out their units. Read the covenants, restrictions, and bylaws carefully before you make an offer.
What’s the average vacancy rate?
It’s never too early to be thinking about resale. The ease of selling your unit may depend on what else is for sale in your building, since units are similar.
How many units are owned by investors?
Some lenders require a certain percentage of the building to be owner-occupied and may not be able to offer you financing if the ratio is too low.
Can I meet other residents before making an offer?
You will share space and decision-making duties with your neighbors when part of a homeowner association, so it’s important to make sure you can work together. If possible, try to meet your closest prospective neighbors before you decide on a place.
Talk to a mortgage broker or lender.
Prequalifying for a mortgage should be the first thing on your homebuying to-do list. Talk an agent who's a REALTOR®, a member of the National Association of REALTORS® for lender and mortgage broker recommendations. (Mortgage brokers don't fund loans; instead they offer options from several different lenders.) Shop around to find the best mortgage for your particular situation, ask questions about anything that's unclear, and make sure you understand the home loan process completely.
Be ready to move.
This is especially true in markets with a low inventory of homes for sale. It’s very common for home buyers to miss out on the first home they wish to purchase because they can't act quickly enough.
Find a trusted partner.
It’s absolutely vital that you find a real estate professional who understands your goals and who is ready and able to guide you through the home buying process.
Make a good offer.
Especially in a low-inventory market, your offer is unlikely to be the only one on the table. Do what you can to ensure your offer is appealing to a seller.
Factor maintenance and repair costs into your buying budget.
Even brand-new homes will require some work. Lenders and insurance companies generally suggest setting aside 1% to 4% of a home's value for annual maintenance costs. Don’t leave yourself short and let your home deteriorate.
Think ahead
It’s easy to get wrapped up in your present needs, but you should also be thinking about your long-term exit strategy. Buyers expect to stay in their home a median of 15 years, according to the National Association of REALTORS® 2023 Profile of Home Buyers and Sellers. Younger buyers, age 18–44, typically expect to move within 10 years.
Narrow down your search area.
Compile a list of three or four neighborhoods where you’d like to live in, taking into account factors that matter to you, such as nearby healthcare options, schools, recreational facilities, shopping and area expansion plans.
Develop a wish list.
Take your time and write down what you want, including a wide range of factors that matter to you—from noise levels to house layout to number of bedrooms and bathrooms. Prioritize items by dividing them into two categories—wants and needs. The needs are features you won't compromise on. The wants are features you can live without or add later. (This simple worksheet can be your starting point.
1. Appreciation.
Historically, real estate has had long-term, stable growth in value and served as a good hedge against inflation. Census data shows the median price of a home jumped from $172,900 in Q4 2000 to $417,700 in Q4 2023. That's greater than 6% appreciation per year on average.
2. Equity.
Money paid for rent is money that you’ll never see again, but paying your mortgage month over month and year over year lets you build equity ownership interest in your home.
3. Tax benefits.
If you itemize deductions on your federal tax return, the U.S. Tax Code lets you deduct the interest you pay on your mortgage, your property taxes (up to $10,000 according to current tax law), and some of the costs involved in buying a home. Be sure to talk to your accountant to see if it's advantageous for you to itemize.
4. Savings.
Building equity in your home is a ready-made savings plan. And when you sell, you can generally exclude up to $250,000 ($500,000 for a married couple) of gain without owing any federal income tax. The IRS provide guidance(link is external)on how to qualify for the exclusion.
5. Predictability.
Unlike rent, your fixed-rate mortgage payments don’t rise from year to year. So, as a percentage of your income, your housing costs may actually decline over time. However, keep in mind that property taxes and insurance costs may increase.
6. Freedom.
The home is yours. You can decorate any way you want and choose the types of upgrades and new amenities that appeal to your lifestyle.
7. Stability.
Remaining in one neighborhood for several years allows you and your family time to build long-lasting relationships within the community. It also offers children the benefit of educational and social continuity.
