Complete Home Buying Checklist: 10 Steps to Buying a House

This Checklist contains:

1. Start Exploring Online
2. How Much House Can You Afford?
3. What Loan is Right for You?
4. Getting Pre-Qualified or Pre-Approved is a MUST
5. Picking a Real Estate Agent
6. Picking a Neighborhood
7. Making an Offer
8. Home Inspection / Home Appraisal
9. The Final Walk-through and Closing
10. Mistakes to Avoid
11. *Bonus* After You Own Your Home, When Can You Refinance

1. Start Browsing Online

Browse real estate listings and find an appealing house that you can afford to buy, maintain, insure and cool. Review local real estate websites, newspapers, and magazines that have listings for homes for sale. Make a note of particular homes you are interested in and see how long they stay on the market. Also, note any changes in asking prices. This will give you a sense of the housing trends in specific areas.

Decide on your non-negotiable features from the beginning.

It’s best to know exactly what you’re looking for in your home from the very beginning. If you have a large family, one bathroom probably won’t cut it alone. If you love to cook, a tiny kitchen isn’t for you.

Of course, at the same time, you’ll need to be reasonable with your expectations — and take chances. Let your real estate agent know exactly what you’re looking for, but don’t be afraid to look at homes that don’t seem to fit the bill right away. You may be pleasantly surprised.

For more tips to consider if you are searching for your home in an unsettled market, review our blog "What to Look for When Buying a House in a Hot Market."

2. How Much House Can You Afford?

Some lenders recommend that people look for homes that cost no more than three to five times their annual household income if the home buyers plan to make a 20% down payment and have a moderate amount of other debt.

But you should make this determination based on your own financial situation. While your household income and regular monthly debts may be relatively stable, unexpected expenses and unplanned spending can impact your savings.

Another affordability rule of thumb is to have three months of payments, including your housing payment and other monthly debts, in reserve. This will allow you to cover your mortgage payment in case of some unexpected event.

For more tips to ensure you don't overspend, review our blog "How Much House Can I Afford? 5 Steps to Ensure You Don't Overspend."

3. What Loan is Right for You?

You might qualify for more than one of these kinds of mortgage loans, so you will need to do your research (on your own or with your lender) to determine which type of loan will make the most sense for your life, home ownership goals and unique financial situation.

Depending on your finances, home ownership history, and other qualifications, your choice regarding mortgage types and programs could be limited.

For tips on how to get approved for your ideal home loan, review our blog "Home Loans: What You Need to Know to Get Approved [10 Item Checklist]."

FHA (Fair Housing Administration)

With an FHA loan, the government guarantees loan repayment to the lender to incentivize lenders to make loans they otherwise would not approve. FHA loans feature low down payment requirements and no minimum income requirement. Applicants do need to show a reasonable debt to income ratio (the amount of income earned compared to the amount of payments made on existing debts) and decent credit history.

For a more in depth look at FHA Loans, review our blog "FHA Loans: Advantages and Disadvantages."

VA (Veterans Affairs)

The VA assists service members, veterans and qualifying spouses with home purchases and repairs by guaranteeing a portion of a VA loan, which allows lenders to offer more favorable loan terms to qualifying recipients. To qualify, applicants must meet certain eligibility requirements.

Conventional

A conventional mortgage is any type of a home loan which is not secured by a government program, such as the VA or FHA, and which is available through a private financier such as a credit union, bank or mortgage company or through the government-sponsored enterprises, Fannie Mae and Freddie Mac.

Fixed Rate Versus Variable Rate

With a fixed rate loan, your interest rate and interest payment will remain the same throughout the life of the loan. These rates are typically based on credit score, loan amount and loan term, and they might be higher up front.

With a variable (or adjustable) rate loan, you will likely benefit from a lower initial interest rate which will then be adjusted based on a predetermined schedule and a nationally reported index rate. A changing rate means the amount you pay monthly in interest will adjust with the selected index rate.

For a more in depth look at adjustable rate mortgages review our blog "Mortgage Options - Is an Adjustable Rate Mortgage Right for you?"

4. Getting Pre-Qualified or Pre-Approved is a MUST

A pre-approval on a loan means a lender has approved your loan request up to a certain amount, usually for a limited amount of time, (commonly 90 days). This gives potential home buyers the freedom to go house shopping with a specific maximum purchase price in mind: the loan approval amount plus the down payment.

To obtain a pre-approval on a home loan, you will need to submit a real estate loan application, proof of income, proof of assets, employment verification, credit history, and documentation proving your identity (such as a driver's license or passport).

Before getting pre-qualified or pre-approved, review our blog "Buying a House Checklist: It's Not as Difficult as You Think" for tips to make sure your credit score is ready.

Other key items potential borrowers need to know:

You must have sufficient income and prove that it is stable.

The National Association of Realtors (NAR) has found that the average first-time homebuyer earns $72,000 per year while the average repeat homebuyer earns $98,000 annually. Even if your income is above or far below these ranges, you need to prove that you have steady employment by being with the same employer for at least two years and if you are self-employed, at least five years of solidly making a profit.

Your down payment needs to be proportionate to what you can afford as well as satisfying any concessions of your sales contract.

NAR reports that most home buyers will finance 90% of their home purchase. In tight markets, the seller may insist on a 10% down payment or more to go into escrow. If you are purchasing a condominium or cooperative apartment, boards in this type of housing may also institute minimum down payment requirements.

Many documents will need to be assembled for your home loan application.

You will need to show proof of your income, assets, and obligations to be considered for a home loan. This will involve gathering one to two years of tax returns, bank statements, and other proof that your net worth is what you say it is. You want your debts to be as low as possible and your assets to be as high as possible when you apply.

Having a strong credit rating is crucial for getting approved for a home loan.

You need to get your credit score in good shape to get the best rate on a mortgage as well as be approved in the first place. Make sure that you are paying your bills on time, keep your debt load down if you can't eliminate it entirely, and make more than the minimum payments on your obligations. The credit utilization component is one of the largest triggers in your credit score, so even if you are debt-free but paying your credit cards in full every month you'll want to stay far from your actual credit limit.

For a short list of do's and don'ts to help you get approved, review our blog "5 Dos & Don'ts - How to Get Approved for a Home Loan."

5. Picking a Realtor

If you have bought a home in the past, then you probably already have a favorite, road-tested real estate agent in your contacts, or have an idea on where to start.

But if you are a first-time home buyer, then you will definitely benefit from working with a knowledgeable and reliable real estate agent who can help you throughout the process, not only locating homes within your price range and checklist but also with negotiating price.

When choosing a real estate agent, do not simply pick the agent with the lowest commission; look for someone recommended by their peers and yours. Ask your lender if they recommend anyone in particular, verify your agent's license with your local real estate board, see if she or he has any special certifications. And always take the time to look up their recent listings and online reviews and compare list prices with actual final sales prices.

Use your pre-approval amount, loan cost estimate, and down payment to determine the ceiling of your new home's price range. Then, think about your life in the long-term (or over your mortgage term, fifteen to thirty years).

Next, we recommend enlisting a trusted advisor, a real estate agent with a good track record and knowledge of your local market who can help you find quality homes for sale in your price range.

6. Picking a Neighborhood

Buying a new home can be overwhelming. Simplify the shopping process by narrowing your search to homes you can afford with the amenities you want in the areas where you want to live. Determining these key factors will help you limit the number of houses you will consider during the search, and ultimately could save you a lot of time and disappointment.

Answering these questions will help you determine the type and size of home and neighborhood you want.

• Do you think your family will grow?
• Will you want to live in a particular school district?
• Do you have pets that need a yard?
• Would you prefer dealing with a homeowner's association?
• Are you looking for a single-family home, townhouse, or condo?
• Will you grow tired of a long commute to the office?
• Is there a neighborhood that is primed to increase property value?

To complete your list of target areas or neighborhoods you should also look into local restaurants and other desired amenities, crime rates, walkability, and any needed public transportation options.

Picking a neighborhood is one of many aspects in your search for the perfect home. For a closer complete look at the home buying journey, review our blog "Buying A Home: The Good, the Bad, and the Ugly."

7. Making an Offer - the Art of Negotiation

When you find a property you like, you need to be prepared to make an offer.

For most buyers, a real estate agent will help you through this process, ensuring your written offer (which is essentially a contract), includes all of the legally required information in addition to certain buyer protections. Some states do give buyers the opportunity to begin negotiations with verbal offers, so it’s important you understand the local regulations wherever you are considering purchasing a home.

Your real estate agent should also help you locate other professionals to assist you in the home buying process, such as mortgage brokers and home inspectors.

The good news is that working with a real estate agent won’t cost you anything because the seller usually pays the entire commission, which can range from 5% to 6% of the house sale price, split between any agents involved in the transaction.

Finding out how motivated the owner is to sell the property will help you get a feel for how much room exists for negotiation. Once you submit an offer, the seller can either choose to accept, provide a counter-offer, or reject your offer.

If the seller counters, you might keep in mind that sometimes a higher price isn't your best option for getting a seller to reconsider your offer. Additions to your offer like no contingencies can be a huge incentive to get a seller to agree. But it is important to consider which contingencies to remove and which contingencies to keep for your protection.

If you lose out to another buyer, do not get discouraged. This type of competition is common in a tight market. So, you will want to be ready to move on looking at different properties. If your offer is accepted, you will be required to pay earnest money and sign a buy-sell agreement before you secure mortgage financing.

8. Home Inspection/Home Appraisal

A home inspector checks to ensure the home is in good condition. But you need to find one who knows what they’re doing.

Look for a home inspector who is a member of an association such as the American Society of Home Inspectors. Walk around with them when they do their inspection and ask questions to make sure the home you want is safe and a sound investment.

Make sure that whoever you hire for the inspection checks out the following parts of the property:

• Roof
• Electrical system
• Foundation/Termites
• HVAC system
• Plumbing

Also, if the home has a septic system, it may be a good idea to pay for a septic inspection to fully assess any potential issues.

A home appraisal isn't just about the condition of the home, like your inspection. Rather it's more about the total value of the property, including all structures, land, and any other relevant features.

If you are planning to take out a mortgage, your lender will require a property appraisal to ensure the house and land is worth the amount of money they are lending you.

For tips on the right questions to ask the home inspector, review our blog "20 Key Questions to Ask During Your Home Inspection."

9. The Final Walk-through & Closing

Make sure all contingencies are taken care of before closing. Some of the most common contingencies are: Inspection, Appraisal, Financing.

Make sure you get the final mortgage approval

Go through the HUD-1 Settlement Statement or the Closing Disclosure

Walk through the property within 24 hours before closing to make sure the previous owner has vacated unless contracted to rent otherwise. Also, to check that the condition of the property is satisfactory according to the contract.

Bring all the required documents to closing. Usually you have to have the home insurance purchased, home warranty lined up, and any paperwork that your bank required.

Make sure that you have wiring instructions from your bank or credit union and get your funds wired before closing.

10. Mistakes to Avoid

There are certain things that homebuyers need to consider to avoid the following mistakes:

Although during a seller’s market you may be tempted to remove the inspection contingency to win the bid on the house, it is important not to remove this contingency. A lot of times there are hidden repairs that may end up costing you more. Do not skip home inspection. Usually it costs between $300-$500 and is worth the investment to know what kind of property you are getting into.

Make sure to research the neighborhood. A lot of times the houses would look great, but it is very important to research things like school districts, HOA requirements, crime rate in the area and other details. There are various government websites that are widely available to research such information easily. Ask your realtor to provide you guidance on this.

It is very important for you to account for home/pool maintenance, home insurance, HOA, property taxes and utilities costs. These are added costs that may add to your monthly bill and if you do not account for this you may be getting a house that later you might not be able to afford.

For more time and money saving tips and mistakes to avoid, review our blog "6 Mistakes to Avoid as a First Time Home Buyer."

11. After You Own Your Home, When Can You Refinance

Refinancing your home loan can lead to a lower interest rate, lower monthly payment, or shortened repayment period by shortening the term of the loan. Refinancing can also allow the borrower to switch their loan type (adjustable to fixed or vice versa), borrow money from the loan for a variety of reasons, or to settle a divorce or other joined partnership.

For more tips to ensure you can successfully refinance your mortgage, review our blog "Finding a Better Mortgage Can be Tricky - Tips to Refinance with Ease."

How quickly you can refinance depends on the type of mortgage you have and the type of refinance mortgage you are considering. Some mortgages require a period of time to pass while others let you refinance immediately. For answers relating to your specific circumstances, you should contact your local lender.

To find the best mortgage lender to help you refinance your home loan, review our blog "Need to Refinance? Find the Best Mortgage Lenders: 10 Tips and Tricks."