Buying a Home Checklist — Part 1

What are the steps to buying your first home?

To be best prepared, it's really important to look at an overview of all the steps involved in buying a home as early as possible. As you review the checklist below, something may jump out as an item you need to focus more time and effort on. Early preparation will allow you to be the most efficient with your time and money and may even save you from making mistakes.

Understanding Your Housing Needs & Wants

This is a great place to start — as you're about to embark on one of the most exciting times of your life. But also, the time when you will be making a very significant purchase. By taking the time to understand your needs and wants thoroughly, you can narrow down your house shopping and avoid buying too much or too little home.

As you start thinking about your housing needs, consider the following questions, including how long you plan on being in the property.

• Is this your forever home, or will you move after five years or so?
• Do you plan to start a family in this home?
• Or do you already have kids and need the additional bedrooms?
• Do you have pets that need a large yard?
• What is your commute like to work?
• Are your family and friends nearby?
• Are you close to the places you like to hang out or shop?
• Are you looking for something rural or more urban?
• Will you have access to amenities like pools and gyms nearby?
• What are your schooling needs?

It is best to create a detailed checklist of your needs and wants, but also understand that as you start your search, you may adapt this list as you learn more and view homes for sale.

Start by Checking Your Credit Score

It's very important to check your credit score early in your home buying process. It's not uncommon for there to be potential errors from the credit reporting services.

If there are errors, there are simple steps that you can use to have your credit fixed and updated. If your score is not what you'd like it to be, working on improving it early can help you secure a better interest rate. Taking the time to understand where you are credit-wise early in your planning will give you time to increase your credit score before you apply for a mortgage.

If you start checking your credit early, you can likely begin to reduce some outstanding debt and maybe pay down your credit cards. Anything you can do early in your home buying process to improve your credit score is time well spent.

Knowing What You Can Afford

One of the best and simplest ways to start figuring out how much house you can afford is by using a home affordability calculator. Getting an idea of what you can afford before diving deeper into the home buying process will prove to be helpful in the long run.

When looking at a monthly mortgage payment, consider how much you feel comfortable with. Some borrowers want to maximize their buying power. In contrast, others would prefer to be more conservative so they’ll have money left for other important things like private education or traveling.

When you have a maximum mortgage payment in mind, when you start shopping with your real estate agent, you'll be staying within your budget instead of viewing homes out of your price range.

Understanding the True Cost of Homeownership

It's somehow easy to think that the cost of buying a home is just your mortgage payment. Sure, that’s the majority of the monthly cost, but there are many more things to take into account.

Here's just a shortlist of items to consider when thinking about the total cost of homeownership.

1. Property taxes — which vary widely from state to state, city to city, and even neighborhood to neighborhood.

2. Home insurance — can vary depending on the location, age, condition of the home, and hazard areas like flood zones.

3. HOA fees — although the average HOA dues are $200 a month, some can be as high as $700 per month.

4. Utilities — generally, newer homes have lower utilities. Find out what the utility bills are in homes you're considering.

5. Landscaping needs or tools — small yards aren't very costly, but larger yards or acreage can require constant upkeep and ongoing costs.

6. Ongoing maintenance and repairs — having a home inspection first can give you an idea of upcoming repairs that may be needed.

Creating & Sticking to Your Budget

You may be tempted to increase your budget as you start viewing homes for sale, but the more you can stay within your price range, the better. As you begin to think about creating your budget, here are some possible home-buying costs you should be prepared for:

1. Closing costs which can typically be between 2-5% of the purchase price

2. Down payment — varies based on your credit, type of loan, purchase price, and more

3. Total cost of the home and monthly mortgage payment with interest

4. True cost of ownership — including utilities, maintenance, and more

5. Taxes — will probably be included in your monthly mortgage payment

6. Homeowner’s insurance — will probably be included in your monthly mortgage payment

7. Mortgage insurance, if necessary — would be included in your monthly mortgage payment

8. HOA fees, if necessary — can be a large expense depending on the community, amenities, and more

9. Miscellaneous items such as tools, a lawnmower, hoses, furniture, window coverings, etc.

Maintaining a Stable Job History

Part of getting a home loan is showing that your income is stable. As you're preparing to purchase your first home, keeping your income sources steady is vital. That's especially true once you put in an offer on a house.

Before you make any significant job changes — check with your loan officer first. Of course, there can be excellent reasons for a change. For example, you've received a job offer that increases your income substantially.

But you definitely want to avoid changing from one industry to another. For example, if you’re a nurse and decide to take a job in educational sales — that could be an issue.

Saving for a Down Payment

While a VA loan can have a down payment as low as $0, most mortgages will require some type of down payment. The rule of thumb to avoid additional costs on a conventional loan is 20% down. This will save you from paying private mortgage insurance (PMI), which can increase your payment approximately $100 or more per month.

Many loans today can be found with a 3-5% down payment, but the larger your down payment, the smaller your loan and overall interest over time. Starting to plan early for a home purchase will allow you to save as much as possible, get your credit in order, and pay off debts.

If you can, get assistance from a relative to help you with a down payment. Many parents gift their children down payment money to purchase their first house.

Start Shopping & Understanding Different Types of Mortgages

There are a lot of different types of mortgage options available because everyone's financial situation is different. Lenders have created great ways to enable people to get into their first home, but you need to understand your unique financial needs and what's available for you. 

For example, let's say you’re a veteran and maintain a good salary, low debt, high credit score but have little cash on hand. A VA Loan might be the perfect solution that fits those requirements.

On the other hand, if you've had credit issues and haven't saved very much for a down payment, an FHA loan could be the perfect solution.

Learning the different types of home loans will allow you to choose the best option for you and your financial situation.

Getting Preapproved for a Mortgage

Getting preapproved for a home loan is not a guarantee that you will receive final approval. But it is enough to show that you likely have the requirements to obtain a loan pending further review.

Plus, having a preapproval letter from a reputable lender shows the sellers that you are a serious buyer who can purchase their home. Additionally, it can help provide you with further guidance on what you can afford.

These are the first steps in buying a home. Be sure to read Buying a Home Checklist — Part 2 to learn more about the following:

1. Finding the best real estate agent

2. Seeing multiple homes to compare and contrast

3. Making an offer

4. Next steps — inspections and possible renegotiating

5. Securing your financing

6. Closing on your home