The Essential Financial Questions First-Time Homebuyers Must Ask

A home is the biggest purchase of your life. It requires meticulous research, consideration and study.

For first-time buyers especially, the home buying process can feel overwhelming. A new house can come with a hundred questions. This is not a purchase you can make on a whim or the fly.

You have to know without a doubt you are ready and how you are going to pay for your new home.

“If you’re buying a home for the first time, you can benefit greatly by familiarizing yourself with the homebuying process,” Finance Buzz’s Matt Miczulski writes. “The more you know, the more likely you are to avoid any major setbacks.”

But what are the essential payment questions first-time homebuyers should ask when meeting with their realtors and potential sellers at an open house? Let’s focus on these “Must Ask” financial inquiries you need to make before even thinking of making an offer.

What’s My Total Budget?

The most important question in any homebuying endeavor will determine what type of house you can comfortably and safely afford. Know this before you pick up the phone or circle an Open House listing.

“Don’t waste your time looking at houses without first understanding how much house you can afford,” Bankrate’s Sarah Li Cain cautions.

Can I Afford a Mortgage?

The yes number here is 43. If your total debt – including your monthly mortgage payment – makes up 43% or less of your before-tax income, you can afford a home. Lenders refer to this as your debt-to-income (DIT) ratio. For example, if you earn $4,000 a month, then your total monthly debt, including your new house payment, shouldn’t top $1,720.

How Does A Mortgage Work?

This is likely the largest, long-term loan most homeowners will ever take out, so it’s imperative to understand the mortgage process. A mortgage is a loan from a lender used to finance a home purchase. You are promising to repay the money you’ve borrowed at an agreed-upon interest rate.

Your home is the collateral. The loan doesn’t become a mortgage until it’s attached as a lien to your home. Your ownership of the home is subject to you paying the loan on time each month at the terms you agreed on.

A monthly mortgage payment is split up into four different areas of the loan: Principal, interest, taxes and insurance (PITI). Over time, you will pay less interest and more principal until the loan is fully paid off.

Fixed-Rate Mortgages vs. Adjustable-Rate Mortgages

A Fixed-Rate Mortgage, as its name promises, is a home loan where the interest rate stays the same (or fixed) for the duration of the loan. This allows homebuyers to lock in a favorable interest rate that won’t jump if the market rates increase. The tradeoff: the interest rate won’t decrease if the market rates dip.

Fifteen and 30 years are the most common lengths for fixed-rate mortgages, but shorter and longer terms are available. Fixed-rate loans are by far the most popular types of mortgage for American homebuyers. The National Association of Realtors reports 94% of 2021 homebuyers chose a fixed-rate mortgage.

Adjustable-rate mortgages can adjust according to market rates. This can mean varying monthly mortgage payments.

An adjustable-rate mortgage begins with a fixed rate for a predetermined period of time that could be months, one year or a few years and then adjusts each year after that. The adjusted rate is dependent on the market rate and what is outlined in the mortgage agreement.

What Is a Good Mortgage Rate?

Today, good mortgage rates for a 15-year fixed loan generally start in the 5% range while strong rates for 30-year mortgages start at 6. As of February 2023, the average 30-year fixed rate stands at 6.09% per Freddie Mac’s weekly survey.

As Mortgage Reports notes, “a ‘good’ mortgage rate is different for everyone. Be sure you and your lender find the right rate for you for both today and tomorrow.

Make Your List

Buying a house brings seemingly a thousand questions. But be sure you are asking the essential payment questions before you dive head into purchasing your American Dream. A Skogman Realty agent can make sure you and your family are on solid ground and on a straight path to finding the right house for your family and your budget.

“It’s smart to make a list of first-time homebuyer questions so you’re ready for this important financial milestone,” Lending Tree’s Denny Ceizyk advises. “Having the answers can help you decide if it’s the right time for you to become a homeowner.”