No matter how many episodes of “House Hunters” or “Love It or List It” you've watched, buying a home inevitably comes with surprises. Though a sharp real estate agent will help you navigate these hidden challenges, before you start shopping for a house, you should take account of some important things that you probably haven’t considered.
Curious what you might be missing? Here are five questions you’d never think to ask yourself but totally should before buying a home.
1. Have I checked my credit report?
When you apply for a mortgage to buy a home, lenders want some reassurance that you’ll repay them later. Of course they do! One way they assess this is to check your creditworthiness, by scrutinizing your credit report and score. Having a high credit rating or FICO score (named after the company that created it, the Fair Isaac Corporation) proves that you have reliably paid off past debts, whether they're from a credit card, college loan, or other forms of debt.
Credit scores can range from 300 to 850; in general, what's considered an excellent credit score is in the range of 750 to 850. A good credit score is from 700 to 749; a fair credit score, 650 to 699. A credit score lower than 650 is deemed poor, meaning that your credit history has had some rough patches.
The three nationwide consumer credit-reporting companies—Equifax, Experian, and TransUnion—are each required to provide you with a free copy of your credit report annually if you request it. You can order all three at once, or stagger them throughout the year, from one central source: AnnualCreditReport.com.
You should closely examine each report before you meet with a mortgage lender. Why? Because even if you're fairly sure you've never made a late payment, 1 in 4 Americans find errors on their credit file, according to a 2013 Federal Trade Commission survey. The simple truth is that creditors make mistakes reporting customer slip-ups.
If you discover errors, you can remove them from your credit report by contacting Equifax, Experian, or TransUnion with proof that the information was incorrect. From there, they will remove these flaws from your report, which will later be reflected in your FICO score.
2. Who's the best real estate agent for me?
Finding the right real estate agent to partner with can be a daunting task. A lot’s at stake, and there’s certainly no shortage of options. Should you go for a savvy veteran agent or eager newbie?
Veteran real estate agents can provide sage advice, based on the breadth of knowledge they've built up over the years. Having dealt with just about every issue that can affect a sale, they can help you navigate any complicated problems that may arise.
However, experienced agents are usually in high demand, working with several clients at once. Because their time is limited, they may not be available to show you as many homes in person, meet you for last-minute showings, or handle other pressing issues.
Rookie agents, meanwhile, bring fresh energy and enthusiasm to their job. And, because beginners usually have fewer clients than more seasoned agents, they may be able to spend more time with you than an experienced agent who's juggling multiple clients.
In short, choosing the right agent boils down to what kind of customer service you’re looking for.
3. If I get a new job, am I likely to have to relocate?
Your career plans play a pivotal role in determining whether it makes sense for you to buy a house.
“Previous generations planned to get one job, keep it forever, and ultimately retire. Buying into a house because they were looking for a permanent living situation made a lot more sense,” says Chandler Crouch, broker at Chandler Crouch Realtors in Fort Worth, TX. “Now, job-hopping is prevalent.”
Indeed, according to a recent report from the Bureau of Labor Statistics, the median tenure of workers of ages 55 to 64 is a whopping 10.1 years, more than three times that of workers ages 25 to 34, who stay at a job for 2.8 years on average.
Changing jobs won’t be a big deal if your new gig is in your current city, but if there aren’t a ton of job opportunities in your industry in your area, you may find yourself having to relocate a year or two after you bought your home—in which case you may not be able to recoup the amount of money it cost you to purchase the house.
“It honestly isn't a good idea to buy a house unless you plan on staying there for at least five years,” Crouch says. If you're considering buying a house but already know you are likely to move in that time frame, remaining a renter may be your best choice.
4. Can I afford to pay closing costs?
Getting a mortgage comes with a number of closing fees, which borrowers have to pay when they reach the settlement table. These are out-of-pocket expenses that you need to budget for.
Although buyers and sellers both typically pitch in to cover closing costs, buyers shoulder the lion's share of the load (3% to 4% of the home's price) compared with sellers.
Typical closing fees include the following:
- Closing fee ($300 to $600): A representative from the title company will come to your closing to supervise the transfer of title, and you'll have to pay for the service.
- Lender's title insurance (usually 0.5% of the purchase price): This protects your lender if something was missed in the title search. The cost depends on the size of the policy and is set by the state.
- Title search ($300 to $600): Your lender will do a search to ensure there are no liens on the property or anything that could prevent you from purchasing it. Sometimes this will be bundled with other title fees in your closing document.
- Wire or courier fees ($30 to $100): If documents need to be sent overnight or money needs to be wired, you'll pay these fees at closing.
- Document recording fees for the deed and mortgage ($125 on average): Every time a home is sold, the government must record the change of ownership; this fee is typically paid by the home buyer.
Under federal law, borrowers must receive what’s called a “loan estimate” form (previously called a "good-faith estimate”) that outlines their approximate closing costs from their mortgage lender. When you obtain this information, you’ll be able to gauge whether you can pay for closing costs and truly afford to purchase a home.
5. Am I dead set on finding my ‘dream home’?
People throw around the words “dream home” a lot. However, the honest truth is this: "There’s no such thing as a perfect house,” says Daniel Gyomory, a real estate agent in Northville, MI.
Some home buyers, though, have a hard time accepting this, Gyomory says, and make the mistake of holding out for their ultimate forever home.
If your list of “must-haves” is immensely long (you’re looking for great schools, affordable home prices, easy access to public transportation, good walkability, and lots of shops and restaurants) but you’re not willing to budge on anything, shopping for a house may wind up being a waste of your time.
This is why it’s important to sit down and identify your housing criteria in order to get a better picture of what it is you’re looking for—and whether that kind of home exists.