Buying a House Checklist: 10 Points You Need to Hit
Buying a house is probably one of the biggest purchases you will make in your lifetime. It can be an overwhelming process, especially if it is the first time. Having a buying a house checklist will help you stay on track with your objective and be prepared for the next step.
1. Your Credit Score Will Define When and How to Buy a House
As soon as you feel you are ready to buy a house, check your FICO credit score. Unless you can purchase a house using only cash, it will be a deciding factor in the home buying process. Most lenders will not consider a buyer with a FICO credit score below 620. In addition, the higher your credit score is, the less interest you will have to pay in the long run: taking the time to bring your credit score in the higher tier (above 760) can save you tens of thousands of dollars across the life of your loan. If your credit score is not in great shape, it is well worth postponing your purchase to focus on strengthening it. Think of it as the first step toward your dream home.
2. Take an Honest Look at Your Budget
Buying a house is the perfect opportunity to take a harsh look at your general budget. If you are currently renting, keep in mind that owning a house entices costs that are not featured in your current budget, like Home Owner Association fees, general maintenance or property taxes. It is in the lending companies’ interest for you to spend more, so although you might qualify for a bigger mortgage, it is better to take a conservative approach. According to the Consumer Finance Protection Bureau, you should aim for a Debt-to-Income ratio at or below 36 percent and you most likely will not qualify for a loan if your Debt-To-Income ratio is higher than 43 percent.
3. Which Mortgage is the Right Fit for You
Shopping for the right mortgage is as important as shopping for the right house: it will determine the required down payment and the interest rate of your loan. Depending on the location and condition of the house you are buying and your personal history you may qualify for different mortgages. Conventional loans are the most common in the United States and must put a down payment between 3 percent and 20 percent of the purchase price of the house. However, you might also qualify for a federal insured loan that may only require a low down payment and have lower interest rates. Former and current military personnel might qualify for a VA loan. If the property is located in a rural area, it might be eligible for a USDA loan. If you are purchasing a property that will be your main residence, you might be able to obtain an FHA loan. If you would like to use those loans, keep in mind that they are only available if the property is in fairly good condition.
4. How Much Cash will You Need to Buy a House
Down payments are only one element of the cash you must have on hand when purchasing a house. You will also need to factor in the closing costs of the house, which usually range between 1 percent and 3 percent of the price of the house. In some places, you will also be responsible for prorated property taxes. In addition, most lenders will also need proof that you will be able to meet your mortgage obligations for the first couple of payments. When purchasing a house, you might be able to bring some of those costs down by splitting them with the seller or asking for concession, but you must be financially prepared to meet your lender’s expectations no matter the outcome of the negotiation.
5. Prepare Any Required Documentation Ahead of Time
Time is often of the essence in the homebuying process, so make sure you have all the documentation on hand before starting your house hunt. You do not want to miss on your dream house for a paperwork issue. Your lender will give a complete list of the documents you will need to provide. Amongst other, you will need:
- Proof of income and/or employment: tax returns, W-2s, 1099s and pay stubs for the past 2 years
- Proof of identity: federal driver or non-driver license or passport and social security card if applicable
- Proof of funds: bank account statements, proof of funds to close
6. Obtain a Pre-Approval Letter
To ensure that the home buying process goes smoothly, you will need to obtain a pre-approval letter from your lender before going house hunting. Your lender will verify the information you provided in the previous step and make the commitment to lend you a given amount of money.
7. Choose Your Real Estate Agent Wisely
Although hiring a real estate agent is not compulsory, it can help you keep the home buying process simple, especially if it is the first time or if you are not familiar with the area. A good real estate agent will be able to negotiate for you and save you both time and money in the long run. He or she can also give you a realistic expectation of the type of houses you might find in your budget and save you some heartaches and bad surprises. He or she should also be able to help you negotiate unusual situations, like foreclosures and short sale which might require an extensive knowledge of the real estate industry. You will most likely need to be in touch a lot with your agent until you finally get the keys to your new house in hand, so choose one with good communication skills and quick turnaround time. Real estate is a very local industry so ask candidates what their experience is in the neighborhoods you are interested in.
8. Go House Hunting
This is probably the step most buyers look forward to. However, do not make the mistake of falling in love with the wrong house. Before going house hunting, establish a list of the things of “must-have” vs. “nice-to-have” with anyone that will be involved in the home buying decision. Check with your realtor what is feasible in your budget and stick to houses that fit your criteria, especially in the financing department. Keep an open mind, since the perfect house for you might not “look” the right way. Location and structural issues are things that are not redeemable, the wrong color carpet is.
9. Make An Offer
Once you have your heart set on the perfect home for you, you might need to move fast to make an offer which is why you want to have your ducks in a row beforehand. Your real estate agent, if you have one, will be able to guide you so you can make a reasonable offer since having an intimate knowledge of the local market. Depending on the situation, you need to offer more or less than asking price, include concessions or not, or negotiate repairs to be made by the seller before closing. It can be a delicate balancing act and the sellers might come back to you with a different offer. Once your offer is accepted, you will be considered “under contract” but it is not the end of the home buying process.
10. Close on the house
Buying a house is often a game of “hurrying up then waiting”. Having your offer accepted is often the beginning of a long emotional rollercoaster. It can be weeks, if not months, between the moment you are under contract and the moment you finally hold the keys to your new home in your hand. As soon as your offer is accepted, arrange for the house to be inspected: although this step is not compulsory, it is the last occasion you will have to back off an offer or renegotiate the terms of your contract depending on what you may find. Hire a reputable house inspector (your real estate agent might be able to recommend one). Once this is done, you will still need to wait for the legal and lending process to run its course. Depending on where you are located and which actors are involved besides you and the seller (in the case of a foreclosure or a short-sale for example), it could be weeks before you see the inside of your new house. In those cases, the best strategy is often to learn patience. Do your due diligence and be prepared to give any additional documentation required in a timely manner, but some things are just out of your hands.
We hope you found this buying a house checklist helpful, and good luck on your house hunting journey!
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