Questions to Ask When Purchasing a Home

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For one of the largest investments, few actually use financial common sense to arrive at a buying decision. A July 2010 article in RealtyTimes discusses the number of ways that consumers use emotion instead of logic when purchasing a home. Learning about the buying process and being able to evaluate the home and mortgage loan without emotion allows a person to ask the right questions that lead to a wise home purchase.

Affordability

Be certain that the first thing you ask is how much of a house is affordable based on your regular monthly net income. Carefully evaluate income situations and debt comfort levels, as too high of a payment may engage future risk in the event of illness or job loss. Limiting the amount of the monthly payment to not more than 25 percent of monthly take-home pay is advised by financial educators like Dave Ramsey. However, recommendations for the amount of the monthly house payment vary to more than 33 percent, as noted by Liz Pulliam Weston for MSN Money Central.

When viewing homes, consider how well each one suits current or upcoming life situations. For example, a two story home offers exterior charm, but may mean additional effort during regular chores, or be unsuitable for retirement living, elderly family members or guests.

The asking price of a home does not ensure that the price is the value of the home. Ask the realtor for "comps," or the comparative sales, a printout of homes with similar qualities in the immediate area with the actual sales prices for the past six months or year. The comparative sales are what the appraiser will use to evaluate the home's value based on the current condition of the home. Consider the repairs currently needed or will be needed in the next few years, and deduct contractor repair rates from retail values. Then ask questions of local experts regarding the neighborhood, local economy, upcoming zoning changes and other factors that might cause the home to lose or gain value over the next five to 10 years.

The price offered to pay for a home is not the final cost of the home. Closing costs for the purchase average two to four percent of the purchase price of a home according to TheMoneyAlert. The mortgage lender provides a good faith estimate (required by federal law) that “clearly discloses key loan terms and closing costs” that HUD acknowledges as associated with the loan. Ask the real estate agent for a list of additional fees and costs to avoid closing table surprises. TheMoneyAlert notes that typical fees cover the attorneys, escrow, wire transfers, title insurance and search, transfer fees and more.

The better a credit score, the better the financing options. Regardless of how good the financing appears at first glance, ask about the cost of the mortgage over the term of the loan. Carefully review the good faith estimate and ask the lender for a amortization schedule based on the estimate. Or, enter information into Bankrate's online amortization schedule calculator. This reveals the actual cost of the loan/home over the term of the mortgage. Now is the time to evaluate if the home is worth the price based on personal comfort level and future financial goals. Change values in the online calculator to determine how a higher down payment, lower interest rate or additional annual principal payments can change the outcome. Make necessary changes with the lender to create a more favorable loan.