15 Questions Every Home Buyer Should Ask - Part 2

Continued from page 1

Editor's note: Welcome to the second part of our two-part series on home buyer questions. If you missed the beginning of this lesson, you might want to start here.

In part two, we will address more of the questions you need to ask. Based on my previous conversations with home buyers, I would say that many first-time buyers ignore half of the items on this list. Don't be one of them! There's too much at stake for you to blunder your way into this process.

10. What are the schools like in the area you're considering?

This question piggybacks on the one before it (where do you want to live). It's important to consider the local schools before buying a house. It doesn't matter whether or not you have kids. The quality of schools will affect your property value, as well as your home's resale potential.

If you do have kids, you have even more reason to research the local schools. School registration these days is mostly driven by where the student lives. That's why they usually ask for a utility bill with your address on it, when you register your kids.

Remember, you're not just buying a house. You are also buying into the neighborhood and the area around that house -- and that includes the schools.

11. What's your real estate market like?

Before buying a house, you need to research the current real estate market in your area. Home prices and other real estate conditions will vary from one market to the next. So it's not enough to research state or national housing trends. You need to find out exactly what's going on in the area where you're planning to buy.

Home buyer questions to ask here:

  • Are you in a buyer's market, with low inventory and high demand?
  • Or is it a seller's market, with high inventory and low demand?
  • Or maybe the market is fairly "neutral" right now.

This will affect everything from the amount you offer on a house to the way you negotiate. For example, you wouldn't make a low-ball offer in a seller's market. They would probably ignore you completely. But that same strategy might work for you in a slower market. This is why need to be intimately familiar with local market conditions.

Where do you find this kind of information? The newspaper is a great place to start. If your local newspaper has a business section, it will probably have information about the local real estate market. The Sunday edition should have an expanded section with homes and real estate information.

You can also talk to a friend or family member who has bought a home recently. They can tell you what they learned about the market. And, of course, a local real estate agent can be helpful.

And don't forget to use Google. If you do a Google search pertaining to the housing market in your area, you'll find a wealth of information. Here's an example of how I did this when buying a house in San Diego.

12. What are home prices doing right now?

This is an offshoot of home buyer question #11, but it deserves to be addressed individually. It's extremely important to know what home prices are doing in your area. For one thing, it will help you determine if it's a good time to buy a house.

If prices in your area have been dropping over the last few months, you might want to wait and see what happens. It's usually not a good idea to buy a home in a declining market. You may find yourself upside down in your home loan if you do.

On the contrary, if prices have been steadily rising in recent months, it could be a good time to buy. You'll probably enjoy some appreciation in that scenario -- at least in the foreseeable future.

There are plenty of websites that offer pricing trends. Here again, Google is a good place to start. If you do a search for home prices in your city or town, you should be able to find some data for the last few months. Zillow.com is another good website to use for this purpose.

13. How long are homes staying on the market, on average?

This is another important home buyer question, because it relates to your bargaining power. If houses are selling quickly, you probably won't have much leverage when negotiating the price. The seller can probably expect another offer to come along pretty soon.

But if the average home is staying on the market for 90 days or more, it means you're probably in a buyer's market. In this situation, you have more leverage for negotiating. When homeowners have been on the market for a long time, they are more willing to negotiate the price. Who knows when another offer will come along?

The real estate term for this is average days on market. You can find this information online, or by speaking to a local real estate agent. When shopping for homes on a website such as Realtor.com, pay attention to the amount of time each home was listed. Eventually, you'll start to see a trend.

14. Which type of mortgage loan is right for you?

If you're paying cash for a home, you can skip this section. In fact, you can skip the next question as well. But for the rest of us non-wealthy home buyers, this is a question that needs to be answered. You will eventually have to zero in on a certain type of mortgage loan. Choosing wisely will help ensure your financial security for years to come.

I have good news and bad. The good news is that you have fewer mortgage options to choose from today. The bad news is that you have fewer mortgage options. How can this be both good news and bad? Well, it certainly makes things easier from a research perspective. But it also makes it harder to qualify for a loan.

Prior to the housing bust, there were all kinds of exotic mortgage products for borrowers. The lending industry found creative ways to put just about anyone into a mortgage loan. But today, in the wake of the housing crisis, we've gotten back to the basics. There are only a handful of options to choose from in the current lending market.

This is bad news for borrowers with bad credit scores, low income or other financial problems. But it's good news in the sense that you don't have as much homework to do.

Home buyer questions to ask here:

  • Do you want a fixed or adjustable-rate loan?
  • Do you want a conventional mortgage or a government-backed loan?

There are pros and cons associated with each of these questions. For example, a fixed-rate mortgage loan offers more stability but generally has a higher interest rate. An adjustable mortgage might be cheaper in the short term, but it's more unpredictable in the long term. An FHA loan minimizes your down-payment expenses, but it requires additional mortgage insurance.

Here is some information to help you weigh the pros and cons:

15. What's your five-year plan, in terms of housing?

Why should you ask this question when buying a house? Because it will help you determine the right type of home loan for your situation. If you're pretty sure this is where you want to plant roots, and you expect to be in the home for many years, you're better off with a fixed-rate loan. But if you're only planning to be in the house for five years or less, you might want to consider a five- or seven-year ARM loan.

These are not the only questions a home buyer should ask. But they are some of the most important. If you consider each of the items on this list, you'll be in a better position than most first-time buyers.

You will know which type of loan is best for your situation. You will have a good understanding of your local housing market. You will know which neighborhood or area best suits your lifestyle. And you will be better prepared for the mortgage-application process.

If you would like to learn more about any of the topics discussed in this article, you can use the search box at the top of the page. This will give you instant access to more than 1,000 home-buying articles. I've also provided some links to related information throughout this article. So you might want to go back through and peruse the hyperlinks. Good luck!