This homebuying checklist breaks down the process into 15 main steps. Each step involves choices and actions. It can be stressful, it can be cool, and it can also be kind of annoying. Each step will bring you closer to your goal of becoming a homeowner.
1. Preparation
The first step to buying a house is to be financially prepared (see Step 2). Are you emotionally prepared? You are making a financial commitment and putting down roots, even if it is just your starter home.
Think about your other goals for the next few years. Are you buying with a partner, and if so, are your finances aligned? Could you possibly relocate for work? Planning to start a family? Considering these big-picture questions can help you decide whether now is the right time to buy a home.
2. Prepare your finances
When it comes to buying a home, it may be the biggest financial decision you’ll ever make, so be sure your finances are in order before you make the leap.
Calculate your budget by taking into account your income, debts, location, and down payment amount (more on down payments shortly). As a homeowner, you will be able to see how your monthly mortgage payments might add up.
Keeping your ambitions grounded can be helpful. Even if you qualify for a large mortgage, you may not want to spend so much money on housing.
3. Prepare a down payment plan
After determining your budget, you can decide how much you want to save for a down payment. Homeowners are increasingly putting down less than 20% of the purchase price. In the case of a smaller down payment, you will have to pay mortgage insurance, which increases your monthly payment. You must also pay a minimum down payment depending on the type of home loan you use.
In addition, you may want to look into state first-time home buyer programs if this is your first home or if you haven’t owned a house for a while. There are many organizations that offer financial assistance, including down payment assistance. Additionally, if you have a friend or family member who is capable of contributing to your down payment, you may also be able to use gift money as part of your down payment. Each loan program has its own rules regarding gift money.
It’s important to set aside money for more than just the down payment. The total cost of the loan includes closing costs, which are usually between 2% and 5%. If the home needs unexpected repairs, it’s also a good idea to have some emergency funds on hand.
4. Make a wish list
There are some fun steps ahead! Creating a list of your house’s must-haves and nice-to-haves is definitely one of them. Choosing a starter home or a home where you can see yourself living for years to come has lots of little details, but here are some of the bigger decisions you might make:
Is it better to live in a detached house or an attached unit? You should consider a traditional single-family home if you love having a backyard. Buying a condo or townhouse might be your best option if you don’t want to deal with all that maintenance or live in a more densely populated area. A co-op may also be an option in some cities. The price can be lower than a condo, but they are more difficult to finance.
Which location would be ideal for you? Having decided where you want to live and knowing the general area, it’s time to pick a neighborhood. You should consider safety, amenities (such as walkability, green spaces or coffee shops) and costs (such as property taxes and HOA fees if the property is part of an association). It’s also a good idea to consider the school district. When you decide to sell your home, school quality can affect the resale price, even if you are not planning to have children.
Are you looking for a move-in-ready property or a fixer-upper? There is no easier way to buy a house than simply moving in. It may be easier to afford a larger house or live in a more expensive neighborhood if you acquire a property that requires TLC if you’re in a pricey or competitive market. Fixer-uppers require work – and cash – to make them livable, so make sure you’re ready.
5. Choosing the right mortgage
When you buy a house, the type of mortgage you use determines what you’ll need to qualify for the loan (including how much down payment you’ll need) and how you’ll repay it. The right home loan can increase your chances of approval and save you thousands.
Learn the advantages and disadvantages of each mortgage type before choosing one. The following are some of the main types of mortgages:
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Conventional loans are mortgages that are not backed by the federal government. Minimum down payments are low, but qualifications are stricter.
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Federal Housing Administration mortgages are backed by the government. In general, these loans are easier to qualify for than conventional loans, but mortgage insurance requirements are stricter.
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Veterans Affairs loans are only available to active or former service members and their eligible spouses. No down payment is required for VA purchase loans.
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Jumbo loans are mortgages for houses that are more expensive than what’s allowed by standard lending limits. The down payment and credit score requirements are usually higher for these.
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With renovation loans, you can include the costs of home improvement in the total amount of the loan. You can borrow more money for repairs with a home improvement loan than you would with a personal loan, especially when mortgage rates are low.
You can choose between a fixed-rate or an adjustable-rate mortgage (also known as an ARM) for each of these loan types. Clearly, fixed rates are static; adjustable rates move up and down. A fixed-rate loan starts at a lower interest rate than an adjustable-rate loan, so you can buy more home for the same monthly payment – but the rate can increase (or decrease) over time.
A mortgage term must also be chosen. Most mortgages last 30 years, but 10-, 15-, and 20-year terms may be available at lower interest rates.
6. Obtain a mortgage preapproval
Knowing your homebuying budget and choosing the right home loan are the first steps to buying a home. Choosing a mortgage lender is now the next step. Many lenders are available, including big brick-and-mortar banks with familiar names, online-only nonbank lenders, as well as smaller, local banks and credit unions.
Finding out if a lender offers the type of loan you want is the first step when searching for one. If you decide to apply for an FHA loan and the lender is not FHA-approved, move on to another lender. But beyond that, you’ll want to find out how their sample rates compare to today’s mortgage rates, what closing costs you’ll be responsible for, and what mortgage origination fees you’ll be charged. Some of this information can be found on their websites; to get some numbers, you’ll need to contact a loan officer.
COMPARE MORE RATES
You can accurately determine your budget by working with a lender to get preapproved for a mortgage. Since the lender will have detailed information about your finances, a mortgage preapproval will give you real numbers. A hard inquiry will appear on your credit report. Shopping around for a lower rate may be easier if you apply with multiple lenders at the same time, since it will only count as one hard pull.
For a preapproval, collecting all the documents can be a time-consuming process. As soon as you have the documents you need for one lender, applying for others will be easier, and you will receive better terms. The lender can also provide you with a Loan Estimate form along with the preapproval letter. Since all lenders use this form, you can compare their rates, fees, and other costs easily. Preapproval letters are typically valid for 60 to 90 days, after which they must be updated.
Preapproval letters also indicate to sellers and realtors that you’re a serious buyer who can get financing, giving you an edge over other buyers. Additionally, pre-qualification gives you a rough estimate of what the lender may allow you to borrow based on self-reported information. In some cases, the terms are used interchangeably, but a preapproval letter carries more weight – though neither preapproval nor prequalification ensures that you will close the loan.
7. Get in touch with a real estate agent
Now that you’ve got your preapproval and know what kind of house you want, let’s find someone to help you find it. Choosing the right real estate agent can make a huge difference throughout the process of buying a house, from providing moral support during the search to helping you negotiate with the seller.
Interviewing at least three agents is a good idea. If you know anyone who has recently bought a house, ask them if they would recommend their agent. Don’t use the agent who is selling the home you are hoping to purchase. It is important to have an agent who will advocate for you and negotiate on your behalf.
The seller generally pays the buyer’s agent a commission. If the seller does not pay the commission, your representation agreement may make you responsible if they fail to do so. You should still read the agreement carefully and confirm who will pay in your case since it’s rare for the seller not to pay. It might happen, for example, if you’re buying a for-sale-by-owner property.
8. Go shopping
It’s time to move beyond scrolling through online listings and actually seeing some homes in person. If the market is hot, you might only see a home once in person before making an offer. Make sure you don’t get taken aback by other home shoppers or the seller’s agent (who might or might not be present).
To help you remember what you saw when making an offer, take a picture with your phone. Breakfast nooks might be easy to recall, but aging appliances or decking that needs to be replaced might be out of sight, out of mind. Your offer can be affected by potential issues, or you can bring them up with the home inspector.
9. Make an offer
Have you found the right home for you? It’s time to make an offer. You can benefit from your agent’s insight into comparable sales and any information they may have gleaned about the sellers from their agent (such as whether the sellers have already found a new place and are particularly motivated to sell). A real estate attorney may also be able to help you. Real estate transactions in some states require the involvement of a lawyer.
A seller might reject your offer or you might walk away – it all depends on their reasons. In the event that the seller counters, you can discuss it with your agent before accepting or making your own counteroffer. Buyer’s agents really earn their keep during these negotiations.
Has the offer been accepted? Congratulations! It’s just a matter of completing a few more steps. At this point, you may also write your first check. You will make a deposit toward the purchase of the house with earnest money. The money usually goes into an escrow account, and when the sale is completed, the buyer uses it as part of their closing funds.
10. Get a mortgage
It’s clear what property you’d like to purchase and how much it will cost. It is now time to choose a mortgage lender (you can go with the one who preapproved you or start fresh with another). When applying for a loan with an online-only lender, you’ll often work closely with a loan officer.
Get ready to do a lot of uploading, as this is a paperwork-heavy process. Here’s what you’re likely to need:
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W-2 forms from the past two years (possibly more, if you’ve changed employers).
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Pay stubs from the past 30 to 60 days.
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Proof of other sources of income (including documentation of any gift money).
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Federal income tax returns from the past two years.
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Recent bank statements (usually for the last couple of months).
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Details on long-term debts like car or student loans.
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ID and Social Security number.
Upon completion of your mortgage application, you will be sent to underwriting. This step involves the lender making a final decision on whether to approve your loan – it basically ensures that the deal isn’t too risky.
In order to qualify for a loan, you may be required to submit even more documents. Additionally, the lender will conduct an appraisal of the home you’ve chosen and request a title search.
Getting your loan underwritten can feel torturous – you’re ready to close, so what is your lender doing? The pandemic is causing the closing of loans to take longer. Since many people are buying and refinancing homes, lenders are dealing with a higher volume of loans. On the other hand, they also work with borrowers who are having trouble paying their mortgages and need to apply for forbearance. Lenders may also be understaffed if they are following state guidelines, since they may be limited in how many employees they can have in their offices.
11. Get homeowners insurance
It might seem strange to buy homeowners insurance for a house you don’t own yet, but most lenders require homeowners insurance as a condition of lending. The policy should begin to take effect at the time of closing, so that it can fully replace the home (which might not be the same as the purchase price or appraised value).
12. Make an appointment for a home inspection
Basic home inspections can identify issues you might face down the road and indicate any repairs that need to be done. In this visual assessment, every aspect of the house is examined, from the foundation to the roof. In addition to a standard inspection, you may want to get one of the more specialized types of home inspections if you have a specific concern, such as mold or radon. You may also want to have a pool, septic system, or retaining walls inspected if the home has them.
It is important that you choose a home inspector and pay for the inspection. It may be possible to negotiate with the seller if it uncovers problems not disclosed by the seller (see Step 14).
13. Have the home appraised
Home appraisals are completely separate from home inspections. Home inspections are for your own peace of mind, but appraisals are for the lender, who doesn’t want to lend you more than the home is worth. An appraisal analyzes the property you’re buying and comparable recently sold homes to determine its market value.
Lenders choose appraisers, but you pay for them. (Even if you’re buying a house with cash, you may want to hire an appraiser yourself to ensure your investment is safe.)
14. Any repairs or credits should be negotiated with the seller
You may still have some items to negotiate before closing, including prorating property taxes or HOA fees.
The type of market you’re in can affect your ability to negotiate. In a strong seller’s market, getting concessions can be difficult, since the seller can simply move on to the next offer. The seller still may have leverage if the issue will be raised by any buyer – for example, if the buyer’s home inspector flags a necessary repair. You can negotiate almost any aspect of the transaction in a buyer’s market, including having the seller pay some of your closing costs.
Rather than having the seller complete needed repairs, ask for a credit at closing. You simply receive a rebate for specific improvements agreed upon between you and the seller. Taking care of the repairs yourself (whether DIY or with a pro) can save you a bit of money at closing, plus the work will be done to your satisfaction.
15. Close on your new home
It’s time for the last step! The closing process can be less nerve-wracking if you are familiar with the standard closing documents in advance.
You must receive the closing disclosure at least three days before the actual closing. If any closing costs have changed since your Loan Estimate, you can compare them. In this way, you will be able to determine how much cash you’ll need to close the deal.
Your real estate agent will conduct a final walk-through with you on or close to closing day. Despite your excitement, make sure everything is as agreed upon (for example, that the appliances included in the sale are still there).
There have been a lot of emotions and paperwork, not to mention that you may have just written the biggest check of your life – but now you’re getting the keys. You did it! Congratulations!
READY TO SELL YOUR RENTAL PROPERTY?
In 2017, Colorado Realty and Property Management, Inc. developed a process called the CRPM Advantage to provide resources to assist investors in the transition from tenant-occupied leased rental property to a successful residential investment property sale.
Click to call us today at 303-710-8844 to get started.
