Your Best Home-Buying Checklist

Considering a move? The good news is there’s no “right” or “wrong” time to buy a home. Rather, it all depends on when you’re personally and financially ready.

It’s also normal to have questions, especially if you’re a first-time home buyer. After all, you’re preparing to make one of the most expensive purchases of your life. But the great news is that you don’t have to feel uncertain.

That’s because we’ve prepared a buying-a-new-home checklist designed to help you successfully manage and complete every step involved in the home buying process.

1. Find A Real Estate Agent

While you might want to do some house hunting on your own – whether by browsing online listings, attending open houses or a combination of both – most home buyers find value in working with a real estate agent.

Not only can a real estate agent scout out prospective homes for you, but they can provide expert knowledge on the housing market. This expertise can help you:

• Determine whether an asking price is appropriate
• Compare the pros and cons of various homes
• Find the up-and-coming neighborhoods
• Navigate the mortgage and preapproval process
• Negotiate with sellers and handle potential bidding wars
• Juggle paperwork and prepare for closing

A good agent will play an especially important role in guiding home buyers through many of the later steps on this home-buying checklist. A real estate agent should be on your side, looking out for your best interests – which should take some stress off you and help you manage the emotions of home buying.

2. Determine How Much Home You Can Afford

Once you’ve found a real estate agent, or even before finding one, determining your house buying budget is a critical early step on the road to homeownership. By setting a realistic budget, you can embark on your home search with a clear understanding of your price range.

Getting mortgage preapproval in the beginning stages of your house hunt can help you figure out your buying budget and set realistic goals.

Calculate Your Debt-To-Income Ratio

Expressed as a percentage, your debt-to-income ratio (DTI) measures your monthly debt payments against your gross monthly income. The “debt” portion of your DTI includes any student loans, car payments and child support payments you make monthly. It doesn’t include items such as utility bills or groceries.

To secure a qualified mortgage from most lenders, you’ll need a DTI that’s no higher than 43%.

Consider Your Monthly Payments

When you buy a home, you’re making a long-term financial commitment. Most experts recommend getting a mortgage that adheres to the 28/36 rule, which states that your monthly mortgage payment and other housing costs shouldn’t exceed 28% of your gross monthly income. Meanwhile, your total debt payments shouldn’t exceed 36% of your gross monthly income.

3. Save For A Down Payment

Your mortgage payment is only one of the financial responsibilities of a home purchase. For example, depending on the loan program you use, you may be required to make a down payment.

While lenders may offer for you to put 3% down on the purchase price of a conventional loan, a down payment of 20% or more will exempt you from private mortgage insurance (PMI).

A larger down payment will, in all likelihood, also result in a lower interest rate since a lower loan-to-value ratio (LTV) decreases the lender’s risk when approving a mortgage. In addition:

• The larger the initial payment against the principal loan amount, the less interest a borrower will pay over the life of the loan – potentially saving them thousands of dollars.
• A bigger down payment results in smaller monthly payments because you owe less on the house.
• Smaller monthly mortgage payments could positively influence future borrowing power, meaning you’re more likely to qualify for a car loan, credit card or other financing.

4. Get Preapproved For A Mortgage

Before you even start looking at homes, it can help to shop around for mortgage lenders. You can also consider letting a mortgage broker handle the shopping for you. In today’s housing market, the seller wants to feel confident you’ll be able to purchase the house if you make an offer, and a mortgage preapproval often goes a long way toward providing a seller the assurance they need.

A letter of preapproval doesn’t imply a commitment to a particular lender, however. In fact, it’s not a bad idea to ask multiple lenders to compete for your business since this will allow you to find the loan that’s most financially advantageous.

5. Start The Home Buying Process

Once you know how much you can spend and you’re preapproved for a mortgage, you can start looking for a home. However, before you begin attending open houses, you’ll want to take a couple of important actions.

Create A Home-Buying-Process Checklist

If house hunting starts to feel overwhelming, it’s wise to ask your real estate agent to weigh in. They should be able to offer advice on subjects you might not have considered, such as whether the home has been on the market for a while or is in the right school district for you.

You can also drive around to find appealing homes in your neighborhood of choice, or you can use Rocket Homes^SM or another real estate listing site to do research and build a “what to look for when buying a house” checklist.”

Use The Right Home-Buying Tools

6. Have An Offer Accepted

Above all, a real estate agent should be equipped to help you make a smart purchase offer on the right home. Be sure to consult them when deciding how much to offer for a house.

Your agent can help put a variety of factors into perspective. For example, your offer number will depend on:

• The state of the housing market, both nationally and locally
• How long the house has been on the market
• Whether offers have already been made on the house

In a slow market, home buyers can reasonably hope for a small discount on the asking price. In a more competitive market, making an offer below the asking price might lead to your offer being rejected.

Your offer should include specific terms (such as how soon you need to be in the house) and any contingencies (such as whether you need to sell your current home to buy this one).

7. Select A Mortgage Lender

8. Order A Home Appraisal

While you’re waiting for your loan to be finalized, your lender will likely arrange to have an appraisal done to assess the home’s value. If the house appraises for lower than the agreed-upon purchase price, you can ask the seller to lower their asking price. If the seller is unwilling to do this and you’re willing to pay the difference between the asking price and the appraised value, you can still secure a loan. Otherwise, the loan will fall through.

9. Schedule Your Home Inspection

It’s impossible to accurately judge every aspect of a house’s integrity and fitness before making an offer. This is where a home inspection comes into play.

Although you’ll pay the inspection fee as the buyer, it will be well worth it if the inspection protects you from unforeseen costs and liabilities. For example, you’ll know how much “roof life” is left, whether the home’s foundation is failing and whether the electrical system is up to par.

The home inspector is also likely to reveal any minor problems, which are common and typically no reason to panic. Instead, you can potentially use these issues to your advantage as a bargaining chip for negotiating seller concessions such as a reduced purchase price – assuming you included an inspection contingency in your offer. Check with your real estate agent about whether you should include this contingency, particularly in a hot market – where it’s more likely to hurt your chances of having your offer accepted.

In addition to a general home inspection, some buyers order specialty inspections for potential problems, such as the presence of radon or mold in the home.

10. Prepare For Closing

If the inspection passes muster, you’ll soon be ready to close on the home. This is when you’ll want to ensure you’re ready to pay closing costs. You’ll also want to avoid making any purchases or other financial decisions that could affect your credit score.

In addition, you’ll need to:

• Gather your documentation. Before your loan is cleared to close, your lender may request additional financial information and documentation as a part of the underwriting process.
• Hire a real estate lawyer. In some states, having a real estate lawyer is required. Even in states where a real estate lawyer isn’t required, though, they can be good to have on standby if you end up in a complex legal situation.
• Get homeowners insurance. If you finance your home with a mortgage, you’ll need to sign up for a homeowners insurance policy and be able to show proof of coverage at closing.
• Perform a final walk-through. During the closing process, you can arrange for a final walk-through of the home to ensure that negotiated repairs have been performed and everything is in working order.
• Consult contractors about future repairs. If you plan to make renovations after closing, request the current owner’s permission to shop around for contractors, painters, carpenters and other trade workers. This sort of work takes time and can be hard to schedule on short notice, so you’ll appreciate the long lead time.

11. Close On Your New Home

On closing day, you’ll sign closing documents at a previously agreed-upon location after having the chance ahead of time to review closing documents such as your Closing Disclosure. You’ll also need to bring a few pieces of documentation to your home closing. Your real estate agent and mortgage lender can help you with the specific list, but you’ll most likely need proof of homeowners insurance and one or multiple forms of identification.

You’ll also likely need to have the money for your down payment and closing costs sent via wire transfer from your bank to the office of the attorney who’s handling your closing. As an alternative, you may be able to present a cashier’s check at closing.

Once everything is paid and signed, you’ll get the keys to your new home.

The Bottom Line

House hunting can create moments of stress, but it doesn’t have to be this way. Working with a real estate agent you trust, setting realistic house buying goals and gathering the appropriate documentation can make house hunting an exciting journey.