Your Best Home-Buying Checklist

Considering a move? The good news is there’s no “right” or “wrong” time to buy a home. Rather, it all depends on when you’re personally and financially ready.

It’s also normal to have questions, especially if you’re a first-time home buyer. After all, you’re preparing to make one of the most expensive purchases of your life. But the great news is that you don’t have to feel uncertain.

That’s because we’ve prepared a buying-a-new-home checklist designed to help you successfully manage and complete every step involved in the home buying process.

1. Find A Real Estate Agent

While you might want to do some house hunting on your own – whether by browsing online listings, attending open houses or a combination of both – most home buyers find value in working with a real estate agent.

Not only can a real estate agent scout out prospective homes for you, but they can provide expert knowledge on the housing market. This expertise can help you:

• Determine whether an asking price is appropriate
• Compare the pros and cons of various homes
• Find the up-and-coming neighborhoods
• Navigate the mortgage and preapproval process
• Negotiate with sellers and handle potential bidding wars
• Juggle paperwork and prepare for closing

A good agent will play an especially important role in guiding home buyers through many of the later steps on this home-buying checklist. A real estate agent should be on your side, looking out for your best interests – which should take some stress off you and help you manage the emotions of home buying.

2. Determine How Much Home You Can Afford

Once you’ve found a real estate agent, or even before finding one, determining your house buying budget is a critical early step on the road to homeownership. By setting a realistic budget, you can embark on your home search with a clear understanding of your price range.

Getting mortgage preapproval in the beginning stages of your house hunt can help you figure out your buying budget and set realistic goals.

Calculate Your Debt-To-Income Ratio

Expressed as a percentage, your debt-to-income ratio (DTI) measures your monthly debt payments against your gross monthly income. The “debt” portion of your DTI includes any student loans, car payments and child support payments you make monthly. It doesn’t include items such as utility bills or groceries.

To secure a qualified mortgage from most lenders, you’ll need a DTI that’s no higher than 43%.

Consider Your Monthly Payments

When you buy a home, you’re making a long-term financial commitment. Most experts recommend getting a mortgage that adheres to the 28/36 rule, which states that your monthly mortgage payment and other housing costs shouldn’t exceed 28% of your gross monthly income. Meanwhile, your total debt payments shouldn’t exceed 36% of your gross monthly income.

You’ll also want to leave room in your budget for utilities, home upkeep and maintenance costs. By building some breathing room into your budget, you’ll be able to enjoy your new home with less financial stress. This handy home affordability calculator is a great place to start.

3. Save For A Down Payment

Your mortgage payment is only one of the financial responsibilities of a home purchase. For example, depending on the loan program you use, you may be required to make a down payment.

While lenders may offer for you to put 3% down on the purchase price of a conventional loan, a down payment of 20% or more will exempt you from private mortgage insurance (PMI).

A larger down payment will, in all likelihood, also result in a lower interest rate since a lower loan-to-value ratio (LTV) decreases the lender’s risk when approving a mortgage. In addition:

• The larger the initial payment against the principal loan amount, the less interest a borrower will pay over the life of the loan – potentially saving them thousands of dollars.
• A bigger down payment results in smaller monthly payments because you owe less on the house.
• Smaller monthly mortgage payments could positively influence future borrowing power, meaning you’re more likely to qualify for a car loan, credit card or other financing.