Top 5 First-Time Homebuyer Questions

Working with first-time homebuyers presents its unique questions and challenges. Here are 5 of the top questions new homebuyers ask and how to address them.

Q: Is it better to buy instead of rent?

Homeownership gives you more than just a place to live. Owning your home gives you greater stability and permanence than renting. Financially, homeowners benefit by building equity and deducting some or all of their mortgage interest and property taxes.

Renting, on the other hand, offers greater flexibility if your life circumstances change. However, selling under such circumstances is stressful. You don't get the financial benefits associated with homeownership, but you won't be responsible for the cost of household repairs.

Q: Should I use a real estate agent when buying my first home?

As an agent, you are predisposed to say yes immediately. But take the time to explain to your client the value you bring to the table.

Make sure to explain that an agent handles all aspects of buying a home, which is a complex process. When your client begins their search, you will learn their needs and desires for a home, then narrow down the search by showing them homes that fit their profile. As an agent, you have valuable insights about neighborhoods, schools, recreational amenities, shopping areas, and planned new development.

Once your clients find the property they want, you will help them determine the offer that will fit their budget while hopefully securing the house. Then, once they go under contract, you will help them with the home inspection and appraisal process and assist with contractors needed for repairs before closing if required. Lastly, you will help guide them through the closing process, which can be complex and intimidating.

Q: Do I need to be pre-approved for a mortgage?

The short answer is yes. Pre-approval tells sellers you are a serious buyer, not a time-wasting tire-kicker. It also lets you know how much house you can afford. What's more, pre-approval means that when your offer is accepted, the process of getting a mortgage has already started. Mortgage pre-approval, by the way, is different than prequalification. The latter is a more cursory process.

Q: What costs will I pay at closing?

Closing costs vary by state and the type of mortgage. Here are some typical ones.

• A fee for the title search the title company conducts to determine whether there are liens and easements affecting the property.
• In certain states, a closing or escrow fee to the title company for managing the transaction.
• Attorney fees for review of escrow documents and mortgage loan paperwork.
• An appraisal fee for the lender.
• Prepayment of two months of property taxes, homeowners insurance, and mortgage insurance.
• Homeowners association transfer fees and first month's dues.
• Mortgage application, underwriting, and origination fees.
• Per diem mortgage interest covers the time between closing and the first monthly payment date.
• Loan discount points paid to buy down the loan's interest rate.
• A lender's title policy.
• In some states, an owner's title policy.
• Various fees for couriers, county clerk document recording, surveys, and miscellaneous other costs.

Q: Is now a good time to buy, or should I wait?

The phrase "marry the house, date the rate" has become popular recently. As rates change, there are two options: 1) lock in now to protect against higher rates, and 2) lock in now, and if rates go down, you can refinance your mortgage to lower your monthly payments. The main factor to consider is can your client afford the monthly payments comfortably at today's rate.

Are you missing mortgage opportunities? Shop around for the best rate with the best terms. Educate yourself on the terms, interest rates, fees, and details of each loan offer. Don't be afraid to interview lenders; make sure you use a lender with experience in your selected loan program.