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7 questions every homebuyer should ask


Whether you’re considering a starter home or your dream home, here’s how to determine whether buying is the right move for you to make now.

Real estate is an American obsession — just look at the number of TV shows, Pinterest boards and websites dedicated to finding, renovating and decorating the perfect home. As a signifier of “the American dream,” homeownership still looms large. And although a lot has changed of late, the desire to own a home — and to belong to a neighborhood — has stayed strong. In fact, according to Bank of America’s 2022 Homebuyer Insights report, 53% of millennials say their dreams of homeownership are fueled by a desire to set down roots for their growing families.

There’s a lot to consider about homeownership. Are you a renter with a desire to purchase your first home? Or an existing homeowner considering buying a second residence? Whether you’re pursuing your first, second or third property, the decision to purchase a home is a big one. To help you think through all the considerations, we turned to Merrill Lynch Wealth Management Advisor Neil Stikeleather. Here, he shares seven questions that he asks potential homebuyers and offers up some thoughts on the issues you should consider as you answer each one.

1. Is owning the roof over your head your No. 1 priority?

“Your answer is going to depend on the other things you’ve got going on in your life. Are you socking away funds for a wedding or graduate school? If so, how will a mortgage payment affect your budget? Have you started saving for retirement or are you planning to begin soon? Buying a home should mesh with the rest of your priorities. Having other financial goals doesn’t necessarily prevent you from buying a home, but it could help narrow your price range or lead you to consider postponing the purchase for a few years.”

“Buying a home should mesh with the rest of your priorities. Having other financial goals doesn’t necessarily prevent you from buying a home, but it could help narrow your price range or lead you to consider postponing the purchase for a few years.”

–Neil Stikeleather, Merrill Lynch Wealth Management Advisor

2. Do you expect any big changes in your life in the next few years?

“Could your career make it necessary for you to move? Are you thinking about starting a family? Is it possible that you might need to take care of ailing parents soon? If you’ve got major short-term plans or expenses, you might think twice about buying now. In most cases, you should stay in a home for at least five years to recoup your up-front costs.”

3. Will you qualify for a mortgage?

“For many homebuyers, sitting down with a bank representative to discuss mortgage options (fixed or adjustable rate; 15 years or 30?) is the moment of truth. Before you get to that point, though, take a few minutes to calculate your debt-to-income ratio. That figure compares the amount of debt you have against your overall income. Banks often use it to assess your ability to handle a mortgage and the interest rate they can offer you. Generally, to qualify for a mortgage, monthly payments on your debts should come to no more than 43% of your monthly pre-tax income. It might also be wise to go through the loan prequalification process at your bank. It’s a relatively easy way to find out whether you’ll qualify for a loan and, if so, how much you can afford.” If you’re approaching retirement and planning to downsize to a smaller home, you’ll have more factors to consider when deciding how large a mortgage you might need and what type is the best fit for you.

4. How’s your credit?

“Your credit score factors heavily into your ability to get the best interest rate available. Before you apply for a mortgage, take advantage of your right to a free credit report from each of the three nationwide credit reporting companies to find out where you stand. (You can see all three reports at Request corrections right away for any inaccuracies you find—updates can take time.”

5. Have you saved enough for your down payment?

“The traditional practice is to put down at least 20% of the purchase price of a home in cash. There are, however, many exceptions to this rule. In some cases, you can provide investment assets as collateral to help reduce your down payment. There are also a number of mortgage programs available today that require little or no down payment, such as a VA loan (guaranteed by the United States Department of Veterans Affairs), FHA loan (insured by the Federal Housing Administration and issued by an FHA-approved lender) or other bank-specific programs.

“It’s important that you’re comfortable with the monthly mortgage payment, which will include the principal on the loan, plus interest, as well as the amount put aside monthly to cover real estate taxes and insurance. It’s also important to have sufficient emergency savings set aside so that you could comfortably make the mortgage payments for several months in the event your income was suddenly reduced.” If you’re nearing retirement (or already retired), you’re likely thinking about living on your retirement income. Consider how a mortgage payment would factor into your budget.

“It’s important that you’re comfortable with the monthly mortgage payment, which will include the principal on the loan, plus interest, as well as the amount put aside monthly to cover real estate taxes and insurance.”

–Neil Stikeleather, Merrill Lynch Wealth Management Advisor

6. Are you aware of all the expenses of being a homeowner?

“Costs like heating and insurance are often higher for homeowners. You may also have to pay for things you currently get for free, such as waste removal and lawn care. And when the hot water heater breaks or a storm damages your roof in the middle of the night, you won’t be able to simply call your landlord. Because home expenses vary widely by region — a heating bill in Maine looks very different from one in Virginia — your best bet is to talk to either a real estate broker or homeowners in the area where you hope to live, just to get a sense of what you are in for.”

Aside from standard homeowner expenses, have you thought about how your home will affect your taxes? This is one of the many financial considerations you’ll want to weigh as you plan ahead to cover your expenses in retirement. If relocating is an option, you may want to consider the eight states with no personal income tax to reduce your tax liability.

7. Might it make sense for you to rent?

“Don’t feel pressured by the conventional wisdom that you’re throwing away your money by renting because you aren’t building equity with your monthly payments. And resist the temptation to try to predict how interest rates or home prices will rise or fall in an effort to pick the perfect time to make a new home purchase. That approach makes more sense for someone who is investing in real estate. You don’t want to get caught up in the noise around real estate speculation when you’re making a decision about your family and your future.

“Look at your take-home pay and living costs — and how those numbers will change when you move into a home. The point here isn’t to discourage anyone. But homeownership is a big life decision, and you need to be fully aware of the commitment it requires before you sign on the dotted line.”

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