Questions to Ask When Buying a House

This page has frequently asked questions (FAQ) related to purchasing a home. If you’re looking for advice or tips on buying a home such as a list of what questions to ask when buying a home, refer to the other pages of our website available in the left sidebar navigation.

How much can I borrow?

A quick estimate is 2.5 times your income. Of course it also depends on your assets, debt and credit score. There is a term called Front-End Ratio which is a lender’s guideline which is annual salary times 0.28 divided by 12 = maximum total monthly mortgage payment. This figure is what financial advisors also recommend.

How do I know how much to offer?

Get a good assessment of the house value, consider the prices that similar houses in the area have recently sold for, consider also the current market trend, and you will be able to make an informed decision. Keep in mind, if there are other buyers bidding on this property, too low a bid might lose the deal, but remember, too, that there are other houses that you can bid on.

What is escrow?

Lenders most often require the borrower to include taxes and insurance payments to be included in their monthly mortgage payments. This protects the lender from liens being placed against the property that would have a higher priority than their own. At closing, there will be an initial deposit into an escrow account that amounts to two months calculated cost of the monthly insurance and tax payment.

Can I save money and then pay ahead to pay off the house sooner?

Often, the lender will place a provision in the contract that there will be a prepayment penalty if the loan is paid ahead of time. Many of these penalties will disappear after a few years (typically 5), but read the contract, or, better yet, have your real estate attorney read it and advise you.

How do I know if there are any problems with a house for sale?

You want to do a home inspection, and this is best performed by a professional who knows exactly what to look for. You want to make sure the title is clear by having a title search performed. This search looks for liens, easements, CC&Rs (similar to zoning regulations), and any other restrictions on the title.

What is a good deal on a mortgage loan?

This can only be decided after looking into many loan types and options, and acquiring enough education to understand the differences in each type. There are calculators online that can give an idea of the monthly payments and total cost over the life of the mortgage.

Are there foreclosures that are good deals?

There are some good deals, but again education in this area takes time and you need to be careful. Although there may be many foreclosures, and some may indeed be good deals, most have a small reduction in price in the beginning, some may have problems due to damages or needed repairs where the owner opted to allow foreclosure. There are even cases of owners purposely causing damage because they were foreclosed on. This is certainly an area where familiarity is key.

What are points?

“Points” stands for percentage points. They are an upfront payment given to the lender in exchange for a lower loan percentage rate. For example, 2 points on a $100,000 loan amounts to $2,000, which is 2%.

What are closing costs?

Closing costs are the fees paid at closing to all parties involved in the sale of a house. There is the origination fee which usually amounts to what is called a ‘point” and is paid to the lender. There are other fees paid to the title-company, surveyor, etc., but you must read the final contract and all papers that you sign, because although the law requires that the lender give a Good Faith Estimate, there is no enforcement of this law, so costs are most often higher and others are tacked on later.

For answers of other questions to ask when buying a home, continue to navigate our website by clicking on the linked pages.