real estate

4 questions to ask before buying a home

Couple on porch steps
Highlights
  • The recommended homeownership time has lengthened.
  • Pay attention to real estate market indicators before buying.
  • Your financial stability is important -- but so is the neighborhood's.

Homebuying carries risks, and it's a good idea to have an exit strategy. So it pays to ask the following questions before buying a home.

How long do I plan to live here?

In the past, three to five years in a home was an acceptable time to stay put before selling. "Now, that time frame has lengthened, so you really do need to put more consideration into how long you'll be living in one place," says Walter Molony, spokesman for the National Association of Realtors. Also consider the "kiddie factor" -- whether you plan to have children or add more to your family while living in a house. "You may need a larger home or find a community with better amenities for children, and that will increase the likelihood of you moving," Molony says.

What market indicators should I look at?

Forget about the state of the U.S. housing market. Instead, remember the phrase "all real estate is local," and find out all you can about the neighborhoods you're considering. One might be a buyer's market with a bunch of priced-to-sell properties, another might be more competitive because it's in a better school district. Eric Tyson, co-author of "Home Buying for Dummies," recommends talking to a real estate agent and getting facts and figures such as:
  • The inventory of homes.
  • Whether properties have gone up or down in value, and at what pace.
  • The number of days homes are on the market before sale.
  • How much homes are selling for compared to the listing price.

Tyson recommends comparing the costs of buying or renting in a neighborhood. "Look at the monthly mortgage, figuring in the tax benefits, for one home and compare it to the monthly rent for a similar home in the area," Tyson says. "If the rental is a better deal, that saves you from buying an overpriced home that's harder to unload later."

How financially stable am I?

Look at your job: Will you still be there in five years? Do you work in an industry with a rosy, or rocky, future? And does climbing up the career ladder mean you might have to move elsewhere to get ahead? "The better your job stability, the more confident you can feel about staying in one place for five years or more," Tyson says.

Take a look at your current debts and income, not your future salary, to determine whether you can afford to buy. "Buyers need to stay well within their means," Molony says. "If you can't afford a mortgage, or you must rely on an adjustable-rate mortgage, or you are not comfortable with the worst-case scenario of not being able to sell when you need to, then it's not yet time to buy."

What is the long-term future of the area?

Besides looking at historic home price appreciation in an area (Molony says the average in a normal market is 1 or 2 percentage points above the rate of inflation), look at its long-term prospects. "Are you buying in an area where there's lots of land available, and they're just beginning to develop it?" Tyson asks. "If so, that could keep the lid on potential price appreciation."

On the other hand, Molony says, you do want to live in an area that has growth prospects -- in more ways than one. "If a particular area's growth hinges heavily on one industry, its fortunes will also rise and fall alongside that industry's." Detroit, and the city's plan to raze abandoned buildings, is a prime example. But if you live in a region that has more than one type of industry keeping it afloat, your home's appreciation is more likely to stay on a steady course.

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