It is a dream come true to have a lovely home that you can call your own. The process of making the biggest purchase of your life can seem intimidating, but homeownership brings stability, security, and safety.
Understanding the numerous moving pieces of the house-buying process is vital as you work toward the goal of becoming a homeowner. This home-purchasing checklist will help you make sure you've covered all the bases by breaking down the challenging process of becoming a homeowner.
1. How Much House You Can Afford
The first item on the home-buying checklist is figuring out how much house you can afford; by creating a realistic budget, you'll reduce stress over time and be better focused on your home search:
Calculate your debt-to-income ratio first (DTI). The ratio of your monthly bills paid to your gross monthly revenue is your monthly expenses to your cash inflow. Debts include ongoing expenses like auto loans, daycare fees, and student loan payments. The majority of lenders demand that your DTI not exceed 43%.
Make sure to allow for wiggle room in your budget so you have cash for fun activities and spontaneous adventures. The general rule of thumb states that your monthly home loan payment shouldn't be more than 28% of your gross monthly income. This figure will serve as the starting point for your lender's calculations to establish the maximum loan amount you might be eligible for.
2. Save for a Downpayment
A 20% downpayment puts you in a strong position with your mortgage lender, which frequently results in a reduced interest rate and could potentially save you thousands of dollars. As you owe less on the house, you'll also discover that your monthly payments are lower.
The additional monthly payment for private mortgage insurance, or PMI, which is frequently necessary if you put down less than 20% of the home's purchase price, is also eliminated with a 20% down payment. If you cease making loan payments, PMI is added to your mortgage payment to protect the lender rather than you.
Loans are available with substantially smaller down payment requirements, ranging from 3.5% to 10%, depending on your circumstances. If you are a veteran, you might be eligible for a VA loan, which requires no down payment. Whatever your circumstance, you should start setting aside money each month for a downpayment. Check to see if you qualify for programs that can help you put less money down on a house by seeing if you qualify.
3. Check your Credit Score and Take Action to Raise it if Necessary.
Increasing your credit score is the third item on the checklist for buying a house. You can still purchase a home with terrible credit, yes. However, your credit score will determine the kind of loan you may get and at what interest rate. Your creditworthiness for a mortgage is assessed by lenders using your FICO score, which ranges from 300 to 850. You need a score of at least 620 to be eligible for a conventional loan. The finest prices and terms are available to you if your score is higher than 760.
Fortunately, you can raise your credit score using the cost-cutting strategies listed in step two of this home buying checklist. Consider contacting a credit repair company to assist alleviate credit difficulties and get your score moving in the right direction if you find something on your credit report that shouldn't be there and is lowering your credit rating.
4. Find a Realtor you Trust.
Throughout the entire home-buying process, a real estate agent will be by your side and provide knowledgeable insight into the neighborhood housing market. They can provide guidance on a variety of topics, including whether a home is listed at a reasonable asking price, how to interpret the results of the home inspection, how to approach negotiations, and the specifics of the closing paperwork.
Find a real estate agent who will listen to you, comprehend your preferences and goals for purchasing a home, and who has the tools to make it happen for you. Ask your friends and relatives for recommendations of a real estate agent that they've dealt with and who they thought did a great job defending their interests. If you're relocating to a new area, check out online reviews and decide which realtor you believe will best serve your interests and give you the time you need to find the ideal home.
The house-buying process may be stressful, so having a professional by your side who has your best interests in mind is essential. Make sure you feel comfortable with the individual you hire. Many of the coming items on the home-buying checklist will be guided by them.
5. Research Mortgage Options and get Pre-Approved for a Home Loan
Different mortgage loan choices are offered by various lenders, including banks, credit unions, and mortgage firms. Before selecting a lender to finance your purchase, do your homework and shop around to find the best offer available. Speak with each of these potential lenders to learn more about their products and services. They'll communicate with you continuously throughout the entire loan term, from pre-approval through closure.
Get a mortgage pre-approval after deciding which lender you want to work with and before you start looking at houses. With a pre-approval that includes a maximum loan amount, the agent is in a position to confidently bargain on your behalf. Additionally, because a bank has already agreed to give you the money, it makes your offer stronger and increases the likelihood that you will close the deal. This is a crucial step in the checklist for buying a house.
6. Find the Region and Neighborhoods Where you Want to Live.
Visit and/or research different areas and neighborhoods to see whether you would like to call them home. Surprisingly, many people fail to take into account this important factor in the home purchasing checklist before they begin looking for a property, for example, if you live in an apartment in New York City, and want to purchase a home in Warrenton, Virginia. By investing the time in this research up front, you'll be able to check for homes that fit your criteria rather than impulsively choosing what might be the ideal home in a neighborhood you don't want to live in.
Learn about nearby facilities and services that support your ways of life, such as a school, hospital, green areas, grocery store, or other stores for retail, gas station, or public transportation.
7. Know What to Look for and Find your Perfect Home
Determine what your ideal home might look like after settling on a community or region. Do you favor Victorian-style or Mid-Century Modern architecture? Do you prefer single-family homes or condominiums? Back deck or front porch? There are countless alternatives.
Additionally, you should decide on the total square footage of your dream home as well as the number of bedrooms and bathrooms you like. Don't worry about every little detail of the house, but be aware that a two-bedroom home in the US typically has a square footage of 1,600–1,800. Less than 1,000 square feet is considered a "small" dwelling. A "big" house, however, has 3,000 square feet or more of space.
After establishing your search criteria and starting your home search, you should compile a list of the "must-have" and "nice-to-have" aspects of your ideal home before starting your home tours. Your real estate agent can assist you in focusing your search utilizing the results from multiple listing services (MLS).
8. Participating in Home Tours and Open Houses
Attending open houses and home tours is arguably the step in the checklist for buying a home that is most pleasant. Watch for open house advertisements, then start touring the homes that meet your requirements. It would be excellent but not necessary if they were in the area you selected. Go to open houses that aren't in the area you're looking for, which will at least give you an idea of what's available in your price range.
If you don't have the time to travel to a house you want to see in person or if you're moving across the state or nation, for example, you can still participate in virtual home tours. You can use video tours to choose the style of home you prefer, the layout you prefer, and the extras you want or don't want in your future home.
9. Make an Offer
You're prepared to submit an offer if you're pre-approved and locate the ideal residence. Your real estate agent will assist you in determining how much to offer on a certain house, write the offer letter, and make sure your offer contains all the necessary information, such as time, exclusions, and contingencies. The seller's agent receives your offer from your agent and decides whether or not they accept its terms and price. A 1-3% of the purchase price earnest money deposit, which will be held in escrow, is commonly required for this. This cash will be used to cover the down payment and mortgage closing expenses after your offer is approved.
In more competitive markets, an offer that is below the asking price might be turned down. However, in a quiet market, buyers may have the opportunity to make an offer that is lower than the asking price and have it approved.
An outstanding real estate agent provides genuine value to help buyers and sellers reach an agreement during the negotiating stage of this house-purchasing checklist. You can get advice from your real estate agent on what to include in the offer. When the seller didn't accept your initial offer but didn't flatly reject it, they may also be able to provide guidance on how you should react to a counteroffer. They might reject some or all of your offer's demands. You can decide whether or not you will counter back and accept the counter-offer terms.
11. Schedule a Home Inspection.
To make sure there are no significant repairs, system problems, or unanticipated expenditures and liabilities, you should hire an inspector to walk through the house. They will make sure there are no maintenance issues and that the plumbing, electricity, and fixtures (such as windows) are up to code. Your realtor can assist you in setting this up as your lender might need it to close the loan.
At the very least, nearly every home inspection turns up small issues. But if you submit an offer on the house, be wary of these warning signs that surface during the home inspection because they may require various but occasionally substantial amounts of money to fix or replace:
- Look for curling or peeling shingles on the roof.
- Do the windows have any condensation or fog between the glass panes or are they clear? Do they have one or two panes?
- Is the most recent service date for the furnace marked on a label somewhere? Is it functional and older than 15 years?
- Is your air conditioner operating and is it older than 15 years?
- Is the water heater older than ten years? Is the foundation covered in rust or calcium buildup?
- Flooring: Before moving in, evaluate the state of the flooring to see if it can be cleaned or if you will need to replace it.
12. Obtaining a Home Appraisal
An appraiser will often go through a property to assess its physical attributes and condition while noting its features and amenities. The appraiser will account for substantial differences between the subject property and those sales when comparing the subject property's attributes to recent sales of comparable properties in the neighborhood. The data will then be examined, and the adjusted sales will be compared, to produce a single-point value opinion for the subject property. The time it takes to complete the appraisal can range from a few days to several weeks, depending on the type of property (urban location, luxury quality, rural location, etc.). There may be a number of variables at play, but for your lender to approve your mortgage, the offer and appraisal value must be close. Each lender has unique requirements that vary from case to case.
You might wish to revise your purchase offer if the appraiser or your home inspector uncovers issues with the property. Your real estate agent can assist you with this procedure, which enables you to modify or withdraw your offer in light of the findings. These items are frequently referred to as contingencies on the original offer.
14. Engage a Title Company
A title company will conduct a title search, or an examination of public records, to underwrite a title insurance policy and produce a title report. This is one of the first major milestones in the home buying process after a buyer's offer is accepted by the seller (also known as mutual acceptance). This title report establishes a property's legal ownership and determines whether there are any claims on the property, such as liens or claims of past ownership of the property.
15. Complete the house purchase checklist and close on the property
You've made it, and now is the big day. You have signed purchase papers, completed inspections, satisfied all contingencies, and your lender has approved funding your loan. The deed will now shift from the seller to you when you exchange money. You now own the property after the deed is registered at the county courthouse. The deal can be closed and recorded by a title company or real estate lawyer.
When seeking to purchase a home, there are numerous variables to take into account. When you grasp the fundamentals, you'll be well-positioned to evaluate your credit, submit a loan application, and successfully complete the real home purchase. With this home purchasing checklist, you'll be in control and a homeowner in no time as you navigate the sometimes-daunting path to homeownership. To facilitate this complex process contact Laura Larson now!