Buying a home is one of the most serious and expensive investments most people make in their lives. It can be a complicated process, especially for first time home buyers. However, if you have a checklist for buying a house, it can become easier.
While the home buying process is fairly straightforward with specific steps to follow, working with a professional real estate agent can help better guide you through these steps and help you avoid mistakes. From getting your finances together, to house hunting for the right home, and ultimately sitting at a table on closing day, there is a lot that goes into buying a house.
In this article, we'll go over the process of buying a house to get you started on one of the most exciting times of your life. Let's dive right into it!
Get Your Finances in Order
Before you start browsing Zillow listings, you need to take a look at your finances. Can you afford to purchase a home right now?
It’s important to plan for home buying expenses including making the down payment, loan origination fees, and title services. Also consider the monthly expenses you’ll have after purchasing your home such as utilities, the mortgage, and property taxes.
Check Your Credit Score
Bad credit affects your credit score. A credit score of at least 740 benefits you from very good interest rates. Check your credit score through credit bureaus such as Experian or TransUnion, for example. You can get a credit report from major credit bureaus for free once every twelve months. This credit report will list all credit accounts you currently have along with the credit history of those accounts.
Look through your credit report to find errors or fraudulent activity and make corrections or disputes if necessary. Correct any mistakes in order to boost your credit score and improve the home loan terms offered by lending institutions. Also, make sure that your credit is not damaged because of public records such as bankruptcies and late payments.
Building Your Credit
Once you have checked your credit score and corrected any mistakes, the next thing to do is start building your credit. Keeping all accounts active is important because closed accounts may appear as bad debt on your report. But remember not to use more than 30% of the available credit limit for each account, or that will also negatively affect your credit score.
While most banks require that you build some sort of independent credit history before giving approval for a home loan, there are exceptions. The best thing is to avoid applying for such credit and focus on your overall credit profile instead.
Having a good credit score will increase your chances of getting pre-approved for a mortgage and better interest rates.
Plan The Down Payment
Part of the home buying process is giving the home sellers a check amounting to a percentage of the home’s total purchase price, otherwise known as a down payment, at settlement. This payment can range from 3.5% to 20% of the home's purchase price. Some people already have this money for a down payment in their savings account when they start looking for a home, while others have to figure out how to save for it.
If you have this money for a down payment in your savings account, you can focus your energy on finding the right home. In fact, waiting too long can stifle your ability to negotiate the best price for the house you really want. If you're still looking for down payment funds, don't forget that you can always take out a loan from a bank or other financial institution just for this purpose.
Saving For The Down Payment
Generally, it's a good idea to save money for the down payment before you look for a home. However, some people decide to start saving when they begin the process.
There are many ways to boost your savings account for a down payment. You could get a second job, cut current expenses, or receive a gift from family members. It's important to create a strategy for how you will save for this down payment and how much you can save in a certain amount of time.
Talk To Mortgage Lenders And Get A Pre-Approval Letter
It's important to shop around and speak to different mortgage lenders. Talking to a mortgage broker doesn't obligate you in any way to get a home loan from them. But it does give you an idea of what lenders are looking for when they provide home loans to qualified buyers. You can also compare all the options available in terms of interest rates, credit score requirements, and other special conditions that may be important to you when choosing a loan provider.
Pre-approval is different from pre-qualification. Buyers need to be prequalified, which only verifies your basic personal details without checking your financial status or giving approval for a specific credit agreement. It's not necessary to get pre-approved before finding a house since this process takes weeks or months in some cases. However, it will help you speed up the home buying process if you are pre-approved before you find your dream home.
Find The Right Mortgage For You
It's a good idea to assess your financial situation and figure out what type of home loan you need. There are conventional loans that don't require mortgage insurance, as well as those that do. Make sure that your monthly payment is something you can afford by taking into account other expenses such as property taxes, homeowner association fees, and utilities.
If you're a first time home buyer, you could qualify for an FHA loan, which only requires a down payment of 3.5%. VA loans are also available to veterans and offer even more benefits.
Talk to your mortgage lender to see which mortgage is right for your financial situation.
Set A Budget
It's important to set a home buying budget before you start looking for houses on the market. Your home loan lender will probably want to see this budget so you should save some time and figure out your home price range before going house hunting. This includes everything from closing costs, home inspection fees, moving expenses, new furniture, renovations, and repairs.
Your home buying plan should include a monthly home payment estimate as well as other expenses that can come with owning a home. These include homeowner association dues, homeowner's insurance, and maintenance fees. You also need to think about how much money you have available right now in your savings accounts after you get pre-approved for a mortgage.
Choose A Real Estate Agent You Trust
When you're looking for a new home, it's important to find an experienced and trustworthy real estate agent. An experienced real estate professional can provide key information regarding market conditions and show you properties on the market that meet your criteria. They could also help prepare a proposal or counter-offer as well as guide you down the path of buying a home.
To find an agent, the best thing to do is request a recommendation. The agent who might have helped your friend find their dream home might also do this for you, so make sure to contact agents with glowing reviews. If you're new to the neighborhood your realtor can suggest available properties in the neighborhood in accordance with your specific needs.
You should ask plenty of questions when choosing a real estate agent. These questions include how many homes they have sold in a certain time period and if they have experience working with first-time home buyers. It's also important to ask what types of services they provide. Some real estate agents will just show you properties, while others can help you get pre-approved for a mortgage or negotiate the sale price of the house.
Once you find an agent, make sure to develop a good relationship and keep them informed about what you're looking for in a new home. Make sure to check out their background and get references from other clients who used this real estate professional before.
Create A House Wish List
It's important to create a home buying wish list before you start your home search. The home features on this list will help you determine if the house is worth looking at and for what price. For example, do you want an attached garage, a home office, or a sunroom? Is central air-conditioning a must-have and does it need to be modern or recently renovated?
Make a list that includes everything from the square footage of bedrooms and number of bathrooms as well as less important features such as a fireplace or deck. You should also include details regarding homeownership such as whether there are homeowner association dues, property taxes, and home insurance costs.
Your agent might have information regarding some of these things but you shouldn't rely fully on them. Spend some time browsing listings yourself and ask your real estate agent to show them to you.
Start House Hunting
After you know your home buying budget, home loan pre-approval, and home search wishlist, it's time to start house hunting. Make sure to let your real estate agent know what type of home you're looking for so they can do some searching on their end as well. They might show you listings that are out of your price range or homes that don't meet all the requirements on your home search wishlist.
Many people spend their weekends attending open houses to see homes quickly in a specific area too. House hunting can be frustrating, but make sure to be patient. You'll come across your new home soon enough.
Make An Offer And Negotiate
Once you find your dream home, it's time to make an offer. A purchase offer usually includes the purchase price, earnest money deposit, contingencies, and any items that are negotiable.
If your offer is accepted, you'll need to pay earnest money before you close on the sale of the house. This money is held in an escrow account and is usually 1%-2% of the home's purchase price. From here, you'll schedule your inspections, secure financing, and go to settlement.
Secure Your Financing
Even though you've been pre-qualified for a loan, it doesn't mean you have secured financing just yet. After submitting your offer, it's time to go to your mortgage broker and submit all of the documents to secure your mortgage loan.It could take anywhere between 30 and 45 days to secure your home's financing. It's common to run into delays and problems, but a good real estate agent will help you fix them promptly.
Schedule An Appraisal And Home Inspection
Once you've secured your home's financing, it's time to schedule your appraisal and home inspection. An independent appraiser will come to the house to determine its estimated current market value. This is helpful for buyers as well as lenders because they ensure that neither party overpays or underpays respectively by reviewing the home’s appraised value along with a recent sale price of similar homes in the area.
After the appraisal comes back, you'll also need to hire an inspector to come and check out the home's condition including things such as roofing, foundation, electrical/plumbing systems, and appliances. These professionals give an estimate of what repairs or replacements can be done now and those that may need attention in the future.
Once these inspections are complete, you'll have a better understanding of the home's current market value. If something is wrong, this might affect how much your lender will finance.
If there are major repairs or issues with the home, the buyer can back out of the deal. They can also negotiate with the seller to either fix the issues before settlement or provide a seller credit for the buyers to make the repairs themselves.
After both inspections are complete and approved, you'll finalize your closing documents at settlement.
Get Homeowners Insurance
You're almost there! Just a few more days and you'll be the homeowner. The last thing you need to do is get homeowner's insurance. Some lenders require borrowers to have homeowner's insurance with their mortgages in order to get one. You should have enough coverage to completely replace the home in case of extreme damage such as a house fire. Also keep in mind that your policy usually becomes effective at your closing date.
Take The Final Walkthrough
Once the closing date arrives, you now need to do a final walkthrough of your home with the closing agent. This is your last chance to view the house, ask questions and deal with lingering issues. The closing agent will go over all closing documents as well as inspect the property together with you to make sure it's in good condition and everything looks correct.
Take your checklist and other documents like repair bills and receipts for work conducted by the owner to make sure everything in the house works.
Close On Your New Home
Once all inspections are complete and the settlement date has arrived, you'll finalize your closing documents. This is where you pay the remaining balance of what you owe on the home to the lender and get a document called a "closing statement" that confirms this amount. If you're not able to appear for settlement in person, there might be an extra cost to have your real estate agent go in your place. However, it's worth going yourself just in case something goes wrong along the way.
Of course, settlement can also include transferring the utilities into your name if they haven't already. You will need to contact your new home's utility providers to have the service transferred into your name. One final thing you'll be responsible for during settlement is requesting keys from the previous owner. Once settlement has been completed successfully, it means that everything went as planned and you now own your new home!
Buying A House Checklist FAQ
See the most asked questions
Your checklist should include an overview of the home buying process and contains everything you need to do and prepare before your closing date.
Before buying a house, be sure to schedule a home inspection to see that the structure is in good standing, appliances work, and there are no major issues with the property.
You should not go unprepared to settlement when buying a house. Make sure you have talked to your mortgage lender and real estate agent to ensure you have everything in order. Don't be afraid to ask for help, especially if this is your first time buying a house.
Having a handy checklist to refer to as you’re going through the homebuying process is important. Ensuring you don’t miss any steps allows you to have the peace of mind needed to know that you’re on the right track and allows you to have an idea of the timelines involved.