Buying a home is a big investment, both financially and emotionally. There are a number of steps to buying a house for the first time. If you don't have a blueprint to guide you, you can easily become overwhelmed, especially as a first-time homebuyer.
This homebuying checklist is designed to make purchasing your first home easier. As you navigate the process of becoming a homeowner, keep this list handy as a helpful reference.
#1 Review Your Credit
If you're planning to get a mortgage to buy a home, be prepared for lenders to take a close look at your credit. Your credit score, along with your income and other financial details, helps determine whether you're approved for a loan and the interest rate that you will pay.
It's good to check your credit reports from each of the three credit bureaus six months to a year out from buying a home. This gives you enough time to address any areas that need to be improved or to dispute any inaccuracies or errors.
You also may want to check your credit score, which is separate from your credit report. Knowing how strong your credit score is can give you an idea of what loan terms you're most likely to qualify for when applying for a mortgage.
#2 Establish Your Homebuying Budget
When considering how much home to buy, review your monthly expenses and income. Then ask yourself how much you'd be comfortable with spending on a mortgage payment each month.
Remember also to factor in the additional costs of owning a home beyond the mortgage. Insurance and property taxes may be escrowed into your monthly payment, but you'll still need to plan for things like ongoing maintenance, repairs, and any upgrades or renovations you plan to make.
Doing the math using a home affordability calculator can help you determine what dollar amount range you should be looking for when you're ready to buy.
#3 Shop for a Lender
After you've checked your credit and estimated how much you can spend on a home, the next step is comparing lenders to find the right one for you. If you're a first-time homebuyer, a good place to start is by researching the first-time homebuyer programs offered in your state. Many are designed to provide assistance with down payments and fixed mortgage rates, and work with lenders that offer such options. This is especially helpful as there is currently no longer a first-time homebuyer tax credit.
You'll also want to connect with a mortgage loan advisor at your bank and see if you qualify for a mortgage loan pre approval. That's when the lender checks your credit and financials, then conditionally approves you for a mortgage loan. Having a preapproval sends a signal to sellers that you're serious about buying, and it gives you a financial framework for making an offer on a home.
#4 Find the Right Agent
An experienced agent who specializes in the area in which you are looking can prove invaluable as you navigate the home shopping and buying experience. Your agent can take an inventory of what you need and want from a first home — as well as your first-time homebuying budget — and then help you find properties that are as close a fit for both as possible.
Remember, you won't pay your agent anything out of pocket to help you find a home. The agent does earn a commission on the purchase, but this is typically paid by the seller at closing.
#5 Make an Offer and Secure Financing
Once you've found a home you think is "the one," the next steps to buying a house for the first time are making an offer and applying for a mortgage.
Once you and the seller agree on a price, you'll sign a purchase and sale agreement, which stipulates the price and the target closing date, among many other details. At this time, you'll likely be required to pay an earnest money deposit into an escrow account as a good-faith gesture. The earnest money deposit is typically 1 percent to 3 percent of the purchase price.
Next, you'll need to apply for a home loan with your lender. You can specify what kind of mortgage you're interested in or ask the lender which types of loans are best suited to your buying needs. For example, you may buy your first home using a conventional loan, FHA loan, USDA loan or VA loan.
There are many different varieties of mortgages, but they all fall into one of two broad categories: fixed-rate mortgages and adjustable-rate mortgages (or ARMs). As the names imply, the interest rate on a fixed-rate mortgage stays the same throughout the life of the loan, while the rate on an ARM will change to reflect current market rates after a set period of time, which usually ranges anywhere from 1 to 10 years.
#6 Perform Due Diligence
The window between signing a contract to purchase a home and the closing date will be a busy one. Here are a few of the most important things you'll take care of during this time:
- Continue working with your lender. You'll need to pull together a wide variety of financial and employment information, including recent pay stubs, investment and savings account statements, and tax returns for the past two years. Your lender also will ask you to pay for an appraisal to determine the home's value.
- Get homeowner's insurance. Coverage needs to begin on the day you take possession of the keys. Talk to your insurance agent about coverage: you may be able to get a discount by using the same company through which you have car, life and other insurance. Your agent also can help you determine what additional protection you may need, such as for contents or added liability coverage.
- Schedule a home inspection. While not required, most experts recommend that buyers hire their own independent inspector to professionally inspect the home before closing. This will help uncover any potential problems or repairs that aren't obvious to your unprofessional and untrained eye.
- Prepare to move. In the midst of the hustle and bustle of buying a home, you also need to start packing up all your belongings and preparing for the big move. Start early, get rid of things you won't need, and try to accomplish a little bit each day so that you're not overwhelmed the last few days before moving day.
#7 Getting Ready to Close
Sitting down at the closing table is the final step on your first-time homebuying checklist and, once you sign off on the paperwork, the home is officially yours. Before the closing, your lender will provide you with a good-faith estimate (or GFE) that details all of the various charges and fees that will appear on the settlement statement (also known as a HUD-1 form) you'll receive at closing. Review the GFE carefully and ask your lender or settlement agent if you have any questions about it.
Your lender also should tell you how much money you'll need to bring to the closing to cover your closing costs and down payment. Closing costs encompass the various fees charged by the lender and other third parties, such as the title insurance company and your closing attorney. Plan to budget anywhere from 2 percent to 5 percent of the purchase price for closing fees.