First Steps

First-Time Homebuyer Checklist

Published on: October 13, 2021

The homebuying process can be overwhelming for first-time buyers who may find keeping up with all the details and borrowing hundreds of thousands of dollars nerve-wracking. Having a first-time homebuyer checklist to help you navigate the process makes all the difference.

With that in mind, we’ve created a checklist that outlines the steps of the homebuying process so you can proceed with confidence with life’s biggest financial transaction.

Calculate how much house you can afford

The first step on your homebuying process checklist is to review your financial situation. Look at your income, debt, credit situation, and assets to determine how much house you can afford

Having a clear idea of what you can afford before you start house-hunting will help prevent you from falling in love with a $750,000 home when your budget is $300,000. 

Review these aspects of your financial situation to determine your house-hunting budget.

Income

To qualify for a home loan, you must earn enough to keep up with the monthly payments. You must be able to qualify for the full payment and interest rate associated with your loan amount. 

Debt

The amount of debt you’re paying off also affects how much home you can afford. Debts include obligations such as student loans, car loans, and child support.  

Lenders look at your debt-to-income ratio, or DTI, to determine if you qualify for a loan. To calculate your DTI, add all your monthly debt payments, plus your potential mortgage payment, and divide the total by your monthly gross income (what you earn before taxes and other expenses are taken out of your paycheck). 

Your DTI shouldn’t be higher than 43% to qualify for most mortgages. Some lenders may prefer you have a lower DTI. If you’re paying 43% of your income on debts, you won’t have much money left for other expenses or emergencies.  

Credit score/credit history 

Lenders check your credit history to see if you’ve reliably paid your bills. Your credit score is a three-digit number that reflects your credit history. The higher your credit score, the easier it is to qualify for a mortgage. If your score is high, you may get a lower interest rate. If your score is low, lenders may require you to pay a higher mortgage rate because your loan is considered riskier. 

For a conventional loan, you will need a credit score of at least 620, although some lenders want a higher score. Some government-backed mortgages accept lower credit scores. 

Before applying, check your credit report for errors. You can get a free copy of your credit report once a year from all three credit bureaus, Equifax, Experian, and TransUnion. If you find mistakes, such as accounts you don’t own or a loan that doesn’t show as paid off when you’ve repaid it, follow the credit bureau’s instructions for disputing the entry. 

Assets/cash on hand  

Lenders also want you to have some money saved up. You need money for the down payment and closing costs. You may also need money for moving expenses, utility deposits, and other fees that come with a new home.  

After reviewing all your financials, use an affordability calculator to determine the price range you qualify for.  

Your financial review might indicate you’re not ready to be a homeowner yet. If that’s the case, take steps to improve your finances before starting down the road to homeownership.

Save up for a down payment and closing costs

Buying a home requires upfront money, so it’s wise to start saving early. Unless you qualify for a zero-down-payment mortgage (from the U.S. Department of Veterans Affairs or U.S. Department of Agriculture), you’ll need a down payment of at least 3% of the home’s price. If you put down less than 20% on a conventional loan, you must buy private mortgage insurance, or PMI, which increases your monthly mortgage payment. 

You’ll also have to pay closing costs totaling 3% to 6% of the loan amount. Closing costs are due when you close on your mortgage, so you need the money in the bank.  

To build up your savings: 

  • Develop a household budget and look for ways to cut expenses. 
  • Open an account just for your dream home and resist the temptation to withdraw the money for other purposes. 
  • Determine how much you want to save from each paycheck and have it direct-deposited into the account. 
  • Consider finding a side hustle to boost your savings. Could you freelance or do other gig-style work?

Get preapproved with a mortgage lender

It might seem odd to talk to a lender before you’ve looked for a home. But a lender can explain the loan programs available and help you find the right program for your needs. 

Lenders can also preapprove you for a loan. They’ll look at your finances, determine the maximum loan amount you qualify for, and issue a preapproval letter. 

Preapproval is important because the process can move fast once you start looking at houses. Being preapproved shows the seller that you’re serious about buying and may give you an edge if there’s more than one offer. If you have to wait for approval after making the offer, the seller may select another buyer who already has preapproval. 

You’ll need to present a few documents for preapprovals. They include: 

  • ID 
  • Paystubs for the last month (monthly, weekly, or biweekly) 
  • Two years of W-2 forms 
  • Two years of federal tax returns 
  • Bank statements for last two months 
  • Documents showing source of your down payment (such as a savings account statement or a gift letter) 

Each lender will provide a loan estimate that shows the loan amount, interest rate, monthly payments, and closing costs. Use the loan estimate to compare lenders’ offers. The annual percentage rate, or APR, includes the interest and fees on the loan, so you can see which loan will be less expensive over the life of the mortgage. 

For help finding the right mortgage solution for your needs, contact a local Finance of America Mortgage Advisor.

Hire a real estate agent

An experienced real estate agent can guide you through the process of finding your dream home and closing the deal. Look for one who knows the area you hope to buy in and who you feel comfortable working with.  

Find local agents by seeing what agencies have listings in your desired area. Read their online reviews and talk to them. Be sure the agent you pick listens to what’s on your home-shopping checklist.  

An agent who knows the area can provide insights such as which homes have been on the market for a while, indicating the seller may be anxious and willing to cut the price. Local agents may also be able to show you homes before they are officially listed, giving you a jump on other buyers.  

An experienced agent can help you negotiate a sales price based on prior sales. 

In some states, you may be required to hire a real estate attorney. However, if it’s not required, you still may want an attorney for a complicated deal, such as a short sale, and your agent can probably recommend one.

Figure out your wish list for your new house

Unless you have an unlimited budget, you probably can’t afford everything you want in a house. Decide on your must-have features and others that would be nice to have but aren’t deal-breakers. Some issues to consider: 

  • Home price. Your preapproval letter shows the maximum you can afford, but many buyers choose something that costs less to keep their mortgage comfortably affordable. 
  • Location. What’s your primary consideration for the location: school district, close to amenities, easy access to work?  
  • Home size/number of bedrooms. What is the smallest that works for your family? 
  • Home age/condition. Move-in ready often costs more. An older home may have more maintenance issues unless it’s been renovated. 
  • Home type. Do you want a single-family, town house, condo, or manufactured home? 
  • Lot size. A large yard provides space but requires more maintenance. 
  • Distance from work. How long of a commute are you willing to accept?

Submit an offer on the house

Once you find a home you want, the next step is to submit an offer. The offer lists the price you’re proposing to pay, which you’ll determine on factors such as what similar homes in the area have sold for, the condition of the house, and whether you think other buyers are putting in offers too. Your agent can help you by finding comparable sales and providing advice on market conditions. Of course, you’d like to get the house for less than the list price, but seriously undercutting the asking price isn’t a good idea in a seller’s market. 

Your offer will also include other details, such as the proposed closing date and contingencies. Contingencies are conditions that need to be met for you to proceed with the deal. Typical contingencies include a home inspection and that the home appraises for the sale price or higher. Such contingencies allow you to break the deal without financial penalty if, say, the inspection shows the house needs extensive repairs. The contract includes a timeline outlining when the appraisal and inspection must occur. 

The offer also includes your preapproval letter to show the seller you can get financing.

Get a home inspection

You should have a home inspection to evaluate the home’s condition, including for expensive systems like HVAC and plumbing. A home inspector will spend a couple hours checking everything from the foundation to the roof. You’ll get a report pointing out potential problems and items that need repair. 

A thorough inspection may turn up a lot of small issues, but you should focus on the big ones – expensive repairs and safety concerns. You can ask the seller to make the repairs or lower the sales price. If negotiations fall through, you have to decide if you can pay for the repairs yourself or if you want to get out of the contract.

Be responsive to your lender’s requests

After your offer on the house is finalized, your lender will review your financial documents and prepare you for final approval. (Preapproval is conditional and requires this final step.) 

During the final approval process, your lender may have questions or need additional documents. Stay in touch with your lender and provide the requested information promptly. Delays in paperwork can delay final approval, which could push back your closing date.

Prepare for the home appraisal

While a home inspection evaluates the condition of the home, the home appraisal evaluates how much the property is worth. A professional appraiser visits the home, compares it to others in the neighborhood, and assigns a value to the house. The lender orders the appraisal, and you’ll be charged for it. 

If the appraised value is less than the sales price, it’s time to negotiate the price. You can ask the seller to lower the price, come up with cash to make up the difference, or reach a compromise with both the seller and buyer giving some. If the seller won’t budge on the sales price, an appraisal contingency allows you to walk away from the deal.

Complete your final walk-through and review the closing disclosure

As closing approaches, the next step on your checklist after buying a home is the final walk-through, which usually occurs the day of closing or the day before. The name says it all – it’s your last chance to walk through the house and make sure everything is as it should be. As you go through the home: 

  • Confirm the seller has completed all promised repairs. 
  • Make certain appliances and systems are working. 
  • Check that no items have been removed if they were supposed to remain with the house. 
  • Make sure the seller has not left unwanted furniture, trash, or other items on the property.

You’ll also receive your closing disclosure at least three days before closing. The closing disclosure includes the final numbers for your mortgage, including the loan terms, monthly payments, and the amount of closing costs due.  

Compare the closing disclosure with your loan estimate and contact your lender if you have any questions. Now is the time to correct any errors you find. Also, ask your lender the requirements for paying your down payment and closing costs; the lender may require a cashier’s check or wire transfer.

Close on your home

At closing, you will sign a lot of documents to complete the sale. The people attending the closing can vary, but they typically include the buyers and their real estate agent, an escrow agent or attorney, a representative from the lender, and the sellers and their real estate agent. The sellers may sign the paperwork in advance and be absent when you’re there. 

Paperwork will include: 

  • The deed, which transfers the property from the seller to the buyer. 
  • The loan note, which outlines how much you’re borrowing and the repayment terms. 
  • Deed of trust, or mortgage, in which you agree to put up the home as collateral in case you default on the loan. 

You’ll probably have to sign new copies of your loan application, loan estimate, closing disclosure, and other documents. 

At closing, you must also present proof that you have obtained homeowner’s insurance, and you will pay your down payment and closing costs.   

Once you’ve signed the documents and paid your fees, you’ll receive the keys to the house. Congratulations, new homeowner!

How Much House Can You Afford?

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