Buying a house is an essential step in building wealth and financial stability. But it’s more than just picking out the home and signing a piece of paper—there’s a whole process to be followed with crucial steps along the way. This handy buying a new house checklist will help you to chart the entire course -- from eligibility checks to receiving the keys to your new home.
Checklist When Buying a New Home
Credit score
Your credit score is a vital metric in determining eligibility for home loans. Lenders look at this number to decide whether you are a good financial risk. A minimum score of 620 is required for a conventional loan, though some lenders may require a higher number, especially post-Covid.
A low credit score can prevent you from buying a home or refinancing your existing property. However, there are ways that you can improve a poor score. First, be sure to pay all of your bills on time. Late bills can show up on credit reports for seven years, but their impact on your score will decline over time. Next, pay down your debt. Last, do not open any extra lines of credit unless absolutely necessary.
Finances and Budget
Create a budget to get a picture of what you can truly afford to spend on a house. Analyze your DTI (debt-to-income ratio). This number will help determine your ability to get a home loan as high DTI’s are a red flag for lenders. Typically lenders want to see a DTI of less than 50%.
DTI= income/debt payments x 100. Calculate what you spend on debt per month, for example on rent, credit card payments, car loans, student loans, etc. Then calculate your gross income. This includes gross income from a W2, bonuses or overtime, and any other income sources. Divide your gross income by your monthly debt payments, then multiply by 100. This is your debt-to-income ratio.
Remember to carefully consider ALL expenses when calculating your budget. Taxes, insurances, any travel or commuting expenses, and a fund for emergency repairs are often overlooked.
Down Payment
To determine how much down payment you need, you need to know the required percentage for your lender. For instance, an FHA loan requires a 3.5% down payment. To calculate, multiply this number by the price of the home. (For example, if the house costs $150,000: 150,000 X .035=5,250. Your down payment is, therefore, $5,250.) If possible, save more than the minimum amount.
Having a sizable down payment for a new house is beneficial in two important ways. First, it gives you an advantage over competing homebuyers. It also whittles down monthly mortgage payments, lightening the burden on monthly expenses.
Documents
Be prepared! You want to be ready to spring when you see your dream house, so have all the necessary documents gathered and at-hand. Some of these documents include:
- Tax returns
- Proof of income
- Bank statements
- ID
- Letter of recommendation from the landlord if you’re a previous renter
- Proof of funds for the down payment
Mortgage Options and Mortgage Pre-Approval For Buying a Home
Most realtors will request a preapproval letter before starting a house hunt with you. This preapproval tells your realtor (and the seller!) that you can afford the home you are trying to buy.
Do your research! There are different types of mortgages, and it’s important to find out which is best for you.
To become pre-approved for a home loan, do the following:
- Get your credit score in line (remember, 620 is the minimum acceptable number for conventional loans)
- Have financial documents gathered to show mortgage broker (i.e proof of assets, proof of income)
- Disclose any financial issues
- Have several forms of I.D. available
Good Real Estate Agent
A good real estate agent is a valuable resource when purchasing a new home. They can pinpoint pricing on a home and determine whether it is too high or too low and whether the neighborhood is likely to hold its value. They will understand what you’re looking for and not waste your time with impractical choices. A real estate agent also knows what repairs to look for and can guide you toward a good home inspector. Lastly, they can objectively handle difficult negotiations with the seller and navigate the paperwork during the sale.
Your Dream House
When shopping for your dream home, consider your timetable for moving. Even an immediate closing can take upward of a month to complete, so be aware of dates and have a plan in place. Be sure to visit open houses and drive through surrounding neighborhoods to get a snapshot of the area. Research local schools and surrounding sites and attractions.
Purchase Offer and Renegotiation for Home Buying
Once you’ve found the house that you want to call home, it’s time to make an offer. Your realtor will advise you on what terms you should include and what a good offer will look like. Additionally, you will want to have the following in your buying a home checklist:
Real Estate Attorney
A real estate attorney oversees all aspects of a home sale from initial signing, through negotiations, and the final sale. They are required in some states, but even when not required, they help avoid mishaps and assist with negotiation in a calm and professional manner.
Home Inspection and Appraisal
An appraisal is simply a determination of what the home itself is worth. This is done by a professional and paid for by the buyer. An appraisal protects the lender, but the inspection is a protection for the buyer. A home inspector will check the new home for potential problems inside the home and on the grounds. They have a list of over 1,000 checkpoints such as faulty grading, water damage, foundational integrity, roofing, and rot or decay in the structure.
Closing on Your New Home
Closing is the final step of home buying. This is simply the meeting when the purchase becomes official. It’s best to schedule at the close of a month. Be sure to have already reviewed the paperwork with your real estate agent or real estate attorney so that you can move quickly through signing.
Though homeownership is an anticipated and welcome event, the home buying process itself can seem daunting with its many responsibilities. However, with a bit of planning, foresight, and research your dream home can become a reality. A big first step is building your team of home building experts. This includes a local representative who can guide you through the home buying checklist with ease and help you find the local professionals to best assist you on your home buying journey. Reach out and speak with a Hero Home Programs expert today.
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