First-Time Home Buyer Checklist
Buying your first home is one of life’s major milestones. Although it may cause some stress to think about all of the steps involved before you’re able to officially move, understanding the process ahead of time can help ease your anxieties.
This checklist is designed to guide first-time home buyers through the process of searching for their first place, from determining the price you can afford and finding a real estate agent to closing and moving.
1. Check your credit score
All mortgage lenders will look at your credit score and financial history to determine your eligibility for a loan. Essentially, they are looking to see whether you will be able to make your monthly loan payments. There are a number of resources that allow you to check your credit score, and the Fair Credit Reporting Act allows individuals to request a free credit report annually from Equifax, Experian, and TransUnion.
To obtain a conventional home loan, you’ll need a credit score of at least 620. FHA loans — or mortgages backed by the Federal Housing Administration — are helpful for individuals with lower credit scores and require a score of 580.
2. Determine what you can afford
You will need to assess your financial health and savings as well as your debt-to-income ratio to determine what you’ll be able to afford when shopping for a house. It is also advisable to pay off any other debts such as credit card debt and pay off or refinance student loans or other loans before getting a mortgage.
To obtain a conventional loan, lenders typically require that you make a 3% down payment, and FHA loans require 3.5% down. Those with higher credit scores who can make higher down payments will receive better rates. Currently, the benchmark interest rate for a 30-year fixed mortgage is 2.95%, a 15-year fixed mortgage is 2.87%, and a 5/1 adjustable-rate mortgage (ARM) is 3.03%.
When calculating your budget, you will also want to factor in payments you’ll make once you’ve moved into your home, such as mortgage payments, property taxes, home insurance, utilities, and maintenance.
3. Get pre-approved for a home loan
Once you have prepared your finances, it’s time to get pre-approved for a mortgage. This step is critical because most sellers will not take your offer seriously unless you already have the funding for the purchase in place.
In addition to meeting the lender’s credit score requirements, borrowers will also need to have a debt-to-income ratio of 36% or less. Make sure to shop around to get the best rate and find a loan that matches your needs.
4. Find a real estate agent
Working with a local real estate agent is a huge asset when searching for a home. A good realtor understands their market like the back of their hand. They provide insights into neighborhoods and property values, find potential homes that meet your requirements, and help you negotiate for a better deal.
The average realtor commission ranges between 5-6%, and the seller is typically expected to cover these fees — so this is usually not a fee buyers have to worry about. Buyers can also ask their agent if they offer home buyer rebates, which is when a realtor gives back a portion of their commission to the buyer. Typically, home buyer rebates are around 1% of the final sale price.
5. Start your home search
After you’ve determined what you can afford and set your priorities, you can officially begin your home search. Your real estate agent should provide you with plenty of options that meet your price, size and location requirements. You should also sign up for local MLS alerts and use house hunting websites such as Realtor.com.
When looking at properties, make sure the area is a fit for your needs. You can do this by driving around to get a feel for the neighborhood, researching local schools and activities, calculating your commute, and finding the nearest grocery store and pharmacy.
You will also want to make sure the home itself is conducive to your lifestyle and watch out for any red flags such as visible water damage or foundation issues. Although you could get a property that’s in need of repairs at a lower price, you’ll want to factor in the cost of renovations if you purchase a fixer-upper.
6. Make an offer
When you find the right property, ask your agent to run a competitive market analysis to see how much other homes in the area have sold for. Also, take into consideration how long the property has been on the market. Once you determine a fair price, you will have to submit your offer to the seller in writing. Most offers also include an earnest money deposit, which is a deposit of around 1-2% of the purchase price that shows the seller you're serious, and may include stipulations that the seller must meet in order to close the sale. Although filling your offer with a laundry list of contingencies could put off the seller, there are certain contingencies you will not want to ignore. For instance, it is advisable to put an inspection contingency in your offer so that you can renegotiate or break the agreement if the home has more repairs than you can handle.
Ultimately, your agent will help you draft your offer letter and negotiate for the best deal.
7. Get a home inspection and appraisal
Most lenders will require you to get a home appraisal to determine the property’s value and ensure it is worth the amount they are lending. On the other hand, lenders do not typically require a home inspection, but it is highly advisable that you get one.
Home inspectors specifically search for defects in the home and areas that need repair. They will create a detailed report of major issues in the house, which you will want to review with your real estate agent. If the results came back less than perfect, they can help you negotiate for a better deal. You can also ask that the seller fix certain problems before you close or ask for credits to go toward renovations.
8. Close and move
After your offer is accepted, you can close on the house and move in. Be prepared to pay closing costs, which are usually 3-5% of the final sale price for buyers and include lender fees, prepaid costs (such as property tax and homeowners insurance), and title and escrow fees. Buyers usually ask the seller to cover their closing costs, but there will likely be a limit to how much you can receive.
The home-buying process can be overwhelming, but if you just take it one step at a time you’ll be moving into your dream home in no time.
