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House Buying Checklist

Table of Contents

A real estate transaction can be complicated. It is especially daunting for first-time homebuyers. It’s no wonder so many people put off buying a home when renting seems so much easier. I want to simplify the process for you to find your dream home.

Homebuyers really only need two things to simplify the homebuying process: good organization and an understanding of which questions to ask when buying a house.

Simplify the homebuying process with a home buying checklist with easy-to-follow steps. After you’ve read this ultimate checklist for buying a house, you’ll have a good idea of what questions to ask. You might even enjoy the home buying process!

Buying A House: The Checklist

1. Check Your Finances

Most people don’t have the financial resources to pay cash for their home so you are probably going to need a mortgage loan. That means you’ll need to find someone to lend you money. With the median home price at over $300,000, your lender is going to want to be sure you can keep up with your payments. The mortgage lender (bank, credit union, savings and loan, etc.) is going to review your finances carefully before agreeing to lend you money.

You should make sure that you address all of the standard lender’s questions before they ask you! You’ll need an income history with steady paychecks so that you can make your mortgage payments.

You need to check your credit score. This is a major consideration for lenders when they determine if they should lend you money and what type of mortgage you qualify for. Each of the three major credit reporting agencies, Experian, Equifax and TransUnion, will give you your full credit report (including your score) free, once per year.

Credit scores are reported on a scale between 300 and 850. The best rates and terms are given to scores over 760 while scores under 500 are almost always too low to get a loan. The exception is for a VA loan which is government subsidized.

A home buyer can get a conventional loan with a score of at least 620. FHA loans will go as low as 580. But those loans with low scores come with a price – higher interest rates than loans given to borrowers with higher credit scores. Better credit scores allow buyers to borrow money cheaper.

Another thing to consider when checking your credit report – review all of the information to see if there are any late payments on your record. If any of them are inaccurate, and it does happen, you should dispute it with the credit reporting agency to have it changed. This will improve your credit score and possibly, reduce your cost of borrowing money, and possibly make the difference in your loan being approved or not.

Finally, see how much cash you have for a down payment and closing costs (the charges the lender passes on to you for making the loan). Some mortgages will require only 3-5% down payment while others will be up to 20%. IF your down payment is below 20%, you’ll have an additional fee for private mortgage insurance (PMI) which helps protect the lender in case you default on the loan. Once your equity in the home is above 20% you can have the PMI removed.

2. Set Your Budget

You’ll need to determine a budget for your house purchase. You need to list all of your monthly expenses including any other loans (car, student loan, credit card payments) plus any expenses related to your new house and regular living expenses.

Next, take your total monthly expense number and divide it by your regular monthly income. This percentage is referred to as your debt-to-income ratio (DTI). The bank will acknowledge you if your DTI is under 43%, they’ll like you if it’s under 36%, and they’ll love you if it’s under 30%.  Lower DTI’s get better interest rates.

Use the DTI number as a guide for you to adjust your lifestyle if you really want to buy a house. You might need to wait until your income increases or other loans are paid off before you decide to buy a house. Or you can look at a less expensive house. It is important that you can easily manage your mortgage payments so having a DTI number under 30% gives you financial comfort after you’ve bought your new house.

3. Get a Mortgage Pre-Approval

Find out if you can get a loan before you find a house! Visit lenders, ask questions, and basically find out if you can get a loan, which lender you’d like to work with, and how much the loan will cost you. You’ll want to know that you have been pre-approved for a loan. Pre-approval doesn’t mean that you are guaranteed a loan but it shows that your finances have been reviewed by lenders who believe you are a good risk. This is not the same as pre-qualification. Pre-qualification is based on what you tell the lender, not what you’ve actually shown them. You’ll want to be pre-approved with a pre-approval letter in hand, not pre-qualified. Also, pre-approved doesn’t mean that you have to work with that lender. You can always shop around after you’ve found the house you want to buy.

4. Find a Trustworthy Realtor or Real Estate Agent

Sellers pay realtors to sell their homes so using a realtor to buy a house is smart.

Agents can be a wealth of information about the local real estate market and help you to know if a house is worth the price. They are experienced at deal making and can help if the negotiation gets tricky. Because of this, it is important that you find a realtor you can trust, someone who puts your best interests first. That means that they are more concerned about placing you in a good situation than about the commission they earn from the sale.

5. Get Your Financials Together

Your lender will require a lot of financial documentation. It is best to start gathering everything early so that when the time comes to submit it to the lender the process can move more quickly. You’ll need:

  • ID (preferably a driver’s license or passport)
  • Letter of recommendation from previous landlord, if you’ve been a renter
  • Pay stubs for the last two months
  • Your tax returns for the past two years
  • All bank, brokerage, investment account statements for the last two years
  • Proof that you have the cash for a down payment and closing costs

Those are the basics. Your lender might require more information.

6. House Hunting

Look at houses. Not just a few. Look at enough that you have a feel for what is out there in your price range. Consider what is important to you – size, number of bedrooms, location, schools, parks, shopping, proximity to work, etc. Your realtor will help but you have to trust your instincts. Remember that any home you look at should be inspected to see what issues might exist. Every house has some issues, even brand-new houses. If you find your dream home don’t nickel and dime it on the offer unless you and your realtor believe that the house is over-priced. Sometimes it takes buyers a while to realize that they are asking too much. You need to be willing to walk if that’s the case. Remember, there are plenty of houses out there and the next one might make you forget the last one!

7. Hire a Lawyer (If Necessary)

In most states, an attorney is optional for the closing on a house. But some states require it. Your realtor can tell you if you need one. Real estate transactions have pretty standard forms and contracts. Experienced realtors are familiar with the process. Remember that your realtor should be used for more than just finding the house.

If the purchase is simple and if your state doesn’t require it, an attorney might be an unnecessary expense. If the state requires it or if the purchase is more complex (e.g. liens on the property, house is in a trust, title problems) it is time to get a real estate attorney.

Your realtor might be able to recommend a good one but you should shop around. Make sure to get recommendations from friends. Be sure that you are comfortable interacting with the attorney you choose. 

8. Make an Offer and Negotiate

You’ve found your house! Your realtor will know how to make an offer and can advise you on an amount based on the local market. You might offer the asking price, less or even more depending on local market conditions.  When you make your offer, you can include conditions or contingencies such as including appliances in the sale, a preferred closing date, or the sale being conditional on your current home being sold first. This is a negotiation and you should expect that there will be some give and take in the process.

You’ll need to include “earnest money” with your offer, basically a deposit to show that you are serious about your offer. The earnest money is held in an escrow account that is released at closing. If there is an issue with the seller you’ll get the earnest money back. If there is an issue on your end, your loan for example, the seller can keep the deposit.

9. Secure Your Loan

When your offer is accepted it is time to make a decision on your lender. This can take some time since the people who make the decision on the loan will require information. They might contact you several times for additional information. Sometimes final approval on the loan comes just before the closing date. The lender is also aware of the closing date and they are just doing their best to make sure you are able to repay the loan.

You’ll also need to have a title search done by a title company. Your realtor will help guide you on this. You’ll also need to find an insurance carrier for homeowner’s insurance – this will be required by the lender unless you are paying cash. Even if you are paying cash, homeowner’s insurance is almost a necessity.

10. Home Inspection and Appraisal

You shouldn’t sign a contract on a home unless it has a contingency for a home inspection. Every house has issues and some have major ones. You want to be sure there are no major structural issues with the house or major issues with the working components of the house. You will pay for the inspection and the inspector works for you. Find one that you are comfortable with and that does a thorough job. When the inspection report is complete, and you see the inspection checklist, it might have only minor issues or more serious problems. You have to decide if the problems are acceptable and you can use the checklist to help negotiate the price if there are any major issues with the house.

Your lender will also want to know if the value of the house is in line with the purchase price. They will have an appraisal done to be sure that the value is consistent with the price you are paying. This helps protect your lender (and you!). You pay for the appraisal as part of the closing costs.

11. Closing

Finally! All of the contracts, inspection, appraisal, negotiations are complete. The closing event is when you and your realtor sign all of the paperwork (there’s a lot of it) so that the house becomes your property and you accept responsibility for the loan. You’ll need to arrange for a certified check or a scheduled wire transfer for the down payment and the closing costs. These will be calculated for you in advance. Your insurance carrier will supply you with a binder for your homeowner’s insurance which you will also need at the closing.

You’ll likely want to attend the closing in-person with your attorney (if you have one), although a number of states now allow everything to be done virtually with e-signatures. You can also assign someone else to act as your surrogate if you can’t attend in-person.

The period leading up to the closing can be tedious, frustrating, and exciting all at the same time. The closing itself is an hour of signing documents. Make sure you understand everything that you are signing, just for your own peace of mind. Don’t be afraid to ask questions – the parties to the closing operate pretty automatically and like to fly through it unless you stop them. Congratulations on your new home!