Home Buying Checklist: A Survival Guide for Buyers

Owning a beautiful home you can call your own is a dream come true. Homeownership offers stability and a sense of security and safety, but the process of making the biggest purchase of your life can seem overwhelming. When faced with uncertainty, many first-time homebuyers opt to keep renting a home rather than taking their first steps toward buying a home. But it doesn’t have to be this way.

As you pursue your dream of homeownership, it’s crucial to understand the many moving parts of the home buying process. To help cover all your bases, this home buying checklist helps turn the complicated journey to homeownership into easy-to-understand steps. Let’s get started.

1. Know how much you can afford

Determining how much house you can afford is the first step in the home buying checklist – setting a realistic budget will relieve stress in the long run and help narrow your home search. Here are the steps to determine how much house you can afford:

First, determine your debt to income ratio (DTI). This is your monthly expenses versus your cash intake or the bills you pay divided by your gross monthly income. Debts include recurring bills, such as car payments, daycare payments, and student loans. Most lenders require your DTI to be no higher than 43%.

Be sure to build some breathing room into your budget, so you have money to spend on activities you enjoy and any emergencies that may arise.

The safest rule of thumb dictates that your mortgage loan payment should not exceed 28% of your monthly gross earnings. Your lender will use this number as an initial benchmark in their calculations to determine the loan amount for which you may qualify.

Here’s a quick example: Say your monthly gross income is $8,000. You’ll take $8,000 x 28 = $224,000. Now divide the total by 100. $224,000/100 = $2,224 is the maximum monthly mortgage payment, including principal, interest, taxes, house insurance (PITI) plus mortgage insurance, that you could afford according to the 28% rule.

2. Save for a down payment

When you can pay 20% of a home’s purchase price as a down payment, you’re in a good position with your mortgage lender, which often results in a lower interest rate and can potentially save you thousands of dollars down the road. You’ll also find that your monthly mortgage payments are smaller because you owe less on the house.

A 20% down payment also eliminates the extra monthly payment for private mortgage insurance, or PMI, a type of insurance often required if you make a down payment of less than 20% of the home’s purchase price. PMI becomes part of your mortgage payment to protect the lender—not you—if you stop making payments on your loan.

One of the most helpful tips to save for a down payment is to set a budget and stick to it – plan for every dollar you have. Calculate your net income, track your spending, set realistic goals, use the 50/30/20 rule, and adjust your spending to stay on budget.

Depending on your circumstances, loans are available with much lower down payment requirements, ranging from 3.5% to 10%. If you’re a veteran, you may qualify for a no down payment mortgage known as a VA loan. Whatever your situation, you’ll want to start saving each month for your down payment. Make sure to see if you’re eligible for down payment assistance programs that can help reduce the amount of money you put down on a house.

3. Check your credit rating, and if necessary, take steps to improve it

The third step in the home buying checklist is improving your credit score. Yes, it is still possible to buy a house with bad credit. However, the type of loan you’ll qualify for – and at what interest rate – will depend on your credit score. Lenders use your FICO score, a number between 300 and 850, to determine your creditworthiness for a mortgage. To get a conventional loan, you’ll need a score of at least 620. However, scores over 760 will earn you the best rates and terms.

Your lender can help you identify which debts to pay down or pay off first and which lines of credit to keep open to make the best improvement to your credit. “You’ll want to avoid doing anything that could affect your credit score or your debt-to-income ratio, which is an evaluation of all the debts and liabilities you have and would have once you own the home divided by your income on a monthly basis,” states Ashwin Dayal, the GM of Mortgage at Orchard. “Opening any new lines of credit, including getting a new car, opening a credit card — even the ones that stores like William Sonoma or Macy’s try to get you to open to get discounts — can potentially delay the closing process.”

Luckily, the money-saving tactics mentioned in step two of the home buying checklist can also help you increase your credit score.

If you notice something on your credit report that shouldn’t be there and is driving down your credit rating, consider contacting a credit repair company to help mitigate credit issues and get your score headed in the right direction.

4. Find a real estate agent you trust

A real estate agent will be with you every step during the home buying process and will offer expert knowledge of the local housing market. They can advise on whether a home is listed at a fair asking price, what to make of the home inspection, assist in the negotiation process, and explain the paperwork involved in the closing process.

Find a real estate agent who listens to you, understands your goals and needs for buying a house, and has the resources to help you succeed. Ask your friends and family for referrals to an agent they’ve worked with and felt did an excellent job representing their interests. If you’re moving to a new area, look at online reviews and see who you think would be best to represent your interests and who will take the time you need to find your perfect house.

Be sure you are comfortable with the person you choose – the home buying process can be stressful, and having an expert by your side who has your best interest in mind is imperative. They’ll guide you through many of the later steps in the home buying checklist.

5. Research mortgage options and get pre-approved for a home loan

Different lenders – banks, credit unions, and mortgage companies – all offer different mortgage loan options. It’s critical to research and shop around to get the best possible deal, so do your research and ask questions with each of these different lenders before choosing the one to finance your purchase. “A mortgage company offers the borrower access to a wide range of loan products and helps streamline the home buying process,” shares MSA Mortgage. “Loan originators will act as financial advisors to get the borrower the loan that best fits their situation. They’ll also stay in touch with you every step of the way from pre-approval to closing day as well as for the lifetime of the loan.”

“A mortgage company can help you cover your financial weak points,” shares Dayal from Orchard. “The key here is that a good mortgage provider can help you have the highest chances of affording your dream home while structuring it right for your unique financial situation. A mortgage company can also make your home offer stronger and optimize your buying power,” Dayal explains.

Once you have selected a lender you want to use and before you start looking at homes, get a mortgage pre-approval. A pre-approval includes a maximum loan amount and puts the agent in a position to negotiate with confidence on your behalf. It also strengthens your offer to the seller because a bank is already willing to lend you the money, improving the likelihood of closing the sale. This is an essential step in the home buying checklist.

6. Discover the area and neighborhoods you’d like to live in

Explore different neighborhoods and locations to get a feel for whether you would like to live there. Maybe you’re living in an apartment in South Boston, MA, and want to buy a condo in Downtown Boston, MA. Or perhaps you’re renting a house in Hillsboro, OR, and interested in relocating to Albuquerque, NM. Surprisingly, many people overlook this key consideration in the home buying checklist before they start looking for a home. When you take the time upfront for this exploration, you’ll be able to watch for houses in those areas that meet your criteria – rather than jumping at what might be the right house in a location where you don’t want to live.

Look for local amenities and services that support your lifestyle, such as a school, hospital, grocery, other retail shopping, a gas station, or public transit. Drive around at different times to see what’s happening in the neighborhood. Check it out during the week, on weekends, and during the day and evening.

7. Know what to look for and find your perfect home

Once you have zeroed in on a neighborhood or area you like, figure out what the perfect home for you looks like. Do you love Mid-Century Modern-style houses or prefer Victorian-style houses? Are you looking for a single-family home or a condo? Front porch or back deck? The options are endless.

You’ll also want to decide how many bedrooms and bathrooms you prefer and the overall square footage of your ideal home. Don’t worry about every nook and cranny of the home, but understand that an average two-bedroom home in the U.S. is between 1,600-1,800 square feet. A “small” house is less than 1,000 square feet. While a “large” house comes in at 3,000 or more square feet.

Now that you’ve set your search criteria and started looking for a home, you’ll want to make a list of the “required” and “nice-to-have” home features before you begin your home tours. Your real estate agent can help you narrow your search by using multiple listing services (MLS) results.

8. Attend open houses and home tours

Arguably the most enjoyable step in the home buying checklist is attending open houses and home tours. Watch the ads for open houses and start visiting the homes that fit your criteria. If they are in your chosen location, that’s ideal but not essential. Open houses outside of your desired location can be considered test houses, which will at least give you an idea of what’s on the market in your price range.

You can also attend virtual home tours if you don’t have the time to make it out to a house you want to look at or if you are moving cross-state or cross-country, for example. Video tours can help you identify the type of home you like, the layout you want, and the features you like or don’t want in your home.

9. Make an offer

If you’re pre-approved and find the right home during one of your home tours, you’re ready to make an offer. Your real estate agent will help decide how much to offer on a particular home, complete the offer letter, and ensure you’ve included all the important details in your offer – timing, exclusions, contingencies, etc. Your agent sends your offer to the seller’s real estate agent, who decides if they agree with your offer price and terms. This usually requires the home buyer to include an earnest money deposit that will be put into escrow, typically 1-3% of the purchase price. Once your offer is accepted, this money will be applied to the mortgage closing costs and down payment.

An offer below the asking price might be rejected in more competitive markets. However, in a slow market, home buyers might have a chance to offer below the asking price and get their offer accepted.

10. Negotiate

During the negotiations phase of this home buying checklist, an excellent real estate agent demonstrates real value to help buyers and sellers strike a deal. Your real estate agent can help you determine what to include in the offer. They can also help guide how you should respond to a counter-offer when the seller didn’t agree to your first offer but didn’t reject it outright. They may counter some or all of the requests in your offer. You can determine whether you can go along with the counter-offer items and if you’ll counter back.

11. Find a great home inspector and schedule a home inspection

You’ll want to get an inspector to walk through the home to ensure there are no major repairs, system issues, or unforeseen costs and liabilities. They will check that the plumbing, electrical, and fixtures (like windows) are up to code and ensure there are no maintenance issues. Your lender may require all this to close the loan, and your realtor can help you set it up.

“A home purchase is one of the largest single investments you will ever make, says Vegas Valley Inspections. “You should know exactly what to expect — indoors and out — in terms of needed and future repairs and maintenance. A fresh coat of paint could be hiding serious structural problems. Stains on the ceiling may indicate chronic roof leakage or simply result from a single incident. The inspector interprets these and other clues, then presents a professional opinion of the property’s condition so you can avoid unpleasant surprises. Of course, an inspection will also point out the positive aspects of the property, as well as the type of maintenance needed to keep it in good shape. After the inspection, you will have a much clearer understanding of the property you are about to purchase and be able to make your decision confidently.”

Nearly every home inspection reveals minor problems, at the very least. But, watch out for these red-flag items that come up in the home inspection, which come with varying but sometimes significant costs to repair or replace if you make an offer on the house:

Roof – look for shingles that are curling or peeling.
Windows – are they clear, or do they show evidence of moisture or fog between the panes? Are they single- or double-pane?
Furnace – is there a sticker indicating that most recent service date? Is it more than 15 years old, and is it working?
Air conditioning – is it more than 15 years old, and is it working?
Water Heater – is it more than ten years old? Is there any rust or calcium build-up around the base?
Flooring – look at the floor’s condition and determine if you can clean it up or if you’ll need to replace it before moving in.
Paint – how has the paint held up, both interior and exterior? Is it dirty but solvable with a good cleaning, or will you need to repaint it?

Be fair, but factor in your anticipated repair and maintenance costs in the short term. You may not need everything in perfect condition if the house fits your criteria otherwise, but you want to understand your risk of significant expenses in the near future.

12. Get a home appraisal

“Typically, the appraiser will walk through the property to observe its physical characteristics and condition, making notes of its features and amenities,” shares R. Scott Dugan of Dugan Appraisals in Las Vegas, NV. “The appraiser will compare the subject property’s characteristics to recent sales of similar homes in the same area, adjusting for significant differences between the subject property and those sales. The next step is reviewing the data and reconciling the adjusted sales into a single-point value opinion for the subject property. Depending upon the property type (urban location, luxury quality, rural location, etc.), the appraisal can take several days to several weeks.”

Your lender will send in a home appraiser to determine if the home’s value is equal to or less than what you offered to pay. Several factors may be at play here, but the offer and appraised value should be close for your lender to finalize your home loan. Every lender differs in their specific criteria.

13. Renegotiate

If your home inspector or the appraiser finds fault in the home, you may want to renegotiate your purchase offer. Your real estate agent can help you with this process, which allows you to adjust your offer in light of the findings or cancel the offer altogether. On the original offer, these items are often called contingencies.

14. Hire a real estate attorney to make sure you’re covered

In some states like New York, a real estate attorney is required. However, even if it’s not required where you live, if you are not using a title company to finalize the purchase, it’s in your best interest to hire a real estate attorney. A real estate attorney will review your offer and all related documents, like the inspection and appraisal. They’re equipped to know the answer to legal questions that may arise and will ensure you didn’t overlook anything in the contract and that all the agreements you and the seller made are met.

Trust us, having peace of mind with one of your life’s biggest purchases will be worth the extra expense of hiring an attorney.

15. Work with a title company

“One of the first major milestones in the home buying process after a buyer’s offer is accepted by the seller (also referred to as mutual acceptance) is when a title company conducts a title search, or an examination of public records, to underwrite a title insurance policy and produce a title report,” shares Wyatt Millar, Vice President of Local Markets for Doma, an innovative platform for a better closing experience. “This title report confirms a property’s legal ownership and identifies if there are any claims on the property that must be settled prior to, or potentially prohibiting, transfer to a new owner such as liens or claims of previous ownership of the property. Lenders also require title insurance in order for a potential homebuyer to obtain a loan in both purchase and refinance transactions.”

Millar states, “It’s important to find a title partner who is working to streamline the most frustrating and manual parts of the process through technology, such as creating instant title reports using machine intelligence, to help reduce the time to close and cost overall. Partnering with a knowledgeable and trustworthy title company for one of the biggest purchase decisions in your life can be a positive, memorable, and efficient experience.”

16. Close on the home and wrap up the home buying checklist

You’ve made it – the big day is here. Purchase agreements are signed, inspections are complete, contingencies are met, and your lender has approved funding your loan. Now, you will exchange money and the deed will now transfer from the seller to you. Closing can take place in person or online through a secure portal. The deed gets recorded at the county courthouse, and you are now the property’s owner. A title company or a real estate attorney can close and record the transaction.

“During the closing process, a title company—and in some states, a settlement agency and/or real estate law firm—helps a homebuyer secure legal ownership of a property and manage the secure distribution of funds,” states Qualia Labs, a cloud-based title, escrow, and closing platform. “Depending on the state, a title & escrow company’s responsibilities may include checking the property title and issuing title insurance, managing the movement of money, preparing closing documents, and overseeing the closing to ensure the transaction goes smoothly. Many title companies use real estate closing software to provide simpler and more transparent closings for homebuyers and sellers.”

There are many moving parts to consider when you’re looking to buy a house. When you understand the basics, you’ll be in a good position to assess your credit, apply for a loan, and successfully navigate the actual house purchase. The trip to homeownership may seem daunting, but with this home buying checklist, you’ll be in control and be a homeowner in no time.

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