Checklist for buying your first house

Becoming a first-time homeowner can feel exciting and satisfying - but the process may at times seem overwhelming and scary. From finding the right house to getting a mortgage, there are a lot of steps that go into home buying that can trigger a range of emotions. One way to make the process more manageable is to break it up into smaller pieces. Whether you’re just starting to investigate buying a house or you’re already serious about house hunting, we’ve got a step-by-step house buying checklist to help make your home buying journey easier.

1. Determine how much home you can afford

The first step to buying a home is figuring out just how much you can afford. A home purchase comes with both up-front and ongoing costs, so it’s best to understand your budget before you begin house hunting.

To close on a home, you’ll typically need to make a down payment and pay closing costs. Financing a home purchase typically requires a mortgage, so you’ll have to make sure your monthly payment fits within your budget. You’ll also need to factor in the costs of utilities, repairs, and maintenance.

One easy way to determine your home buying budget is to use our home affordability calculator. Experts also recommend you follow the 28/36 rule. According to this rule, your monthly mortgage payment and other housing costs shouldn’t exceed 28% of your gross monthly income, and your total debt payments shouldn’t exceed 36% of your gross monthly income.

So, if you earn $7,000 per month before taxes, then your total monthly housing costs shouldn’t exceed $1,960 and your total monthly debt payments shouldn’t exceed $2,520.

Calculate your debt-to-income ratio

Your debt-to-income ratio is a percentage that measures your monthly debt payments against your gross monthly income. It’s a figure that reflects how much of your income is taken up by debt. Lenders use DTI ratio to determine how much of a loan you can afford. 

The “debt” portion of your DTI ratio 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%.

2. Find a real estate agent

Your real estate agent can be an experienced guide who helps you navigate the home buying process. A good real estate agent can take the lead when you scout out potential homes, put together an offer, negotiate the price, and close on the deal.

You can rely on your real estate agent to help you:

• Determine whether an asking price is fair
• 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 bring their knowledge of and experience with the market to help make sure you find the right home and get a good deal. To find a real estate agent, you can ask for referrals from family and friends or browse reviews online. It’s a good idea to interview a few candidates first before deciding who you think you’d work best with.

3. Save for a down payment and closing costs

Your mortgage payment is only one of the financial responsibilities of a home purchase. Some prospective buyers underestimate the up-front costs of buying a home - which often include a down payment and closing costs.

You’ll typically need a down payment of at least 3% to get a conventional loan. To avoid paying for private mortgage insurance, that down payment will need to be at least 20%. Some government-backed loans - like Veterans Affairs loans and U.S. Department of Agriculture loans - do not require a down payment.

A larger down payment can also help you:

• Get a lower interest rate
• Pay less interest overall
• Reduce your monthly payment

That being said, many home buyers can only afford to make a minimum down payment. Saving up a larger down payment can delay your home buying plans and leave you with less money in savings for repairs. To decide which down payment is right for you, be sure to weigh your own budget against the pros and cons of a large or small down payment.

You’ll also need to pay your closing costs, which are all the different charges and fees required to close on your home. This includes origination fees, appraisal fees, inspection fees and more. You can expect your closing costs to come out to 3% – 6% of the home purchase price.

If you’re working on saving up for a down payment and closing costs now, here are some tips:

• Track your expenses and debts
• Set specific goals
• Take advantage of credit card cash-back rewards
• Consider a side hustle

4. Get preapproved for a mortgage

Mortgage preapproval from a lender tells you how much they’re tentatively willing to lend you up to a certain amount. While it’s not the same as a guaranteed loan offer, it can help you get an idea of how much you’ll be able to borrow and how much home you can afford. It also shows sellers you’re serious about buying and can likely get financing. In fact, many sellers won’t accept an offer if you don’t have mortgage preapproval.

Keep in mind that a preapproval from a lender typically expires after 30 – 60 days. For this reason, you may want to hold off on getting preapproved until you’re ready to start house hunting.

Documents you’ll need for preapproval 

Lenders need to know information about your finances to determine how much they’re willing to lend you. In addition to running a credit check, the lender will also typically ask you for:

• Recent pay stubs
• W-2 forms
• Tax returns
• Proof of additional income
• Bank statements
• Retirement or investment account statements
• Monthly debt statements
• Rent payment history

5. Start the home buying process by searching

Once you’ve gotten preapproved for a mortgage and know how much you can spend, it’s time for the fun part: house hunting. You may have already gotten the ball rolling by browsing online listings. Your real estate agent may also have access to listings that aren’t publicly available and can show you the ones that meet your needs.

Here are some factors to consider when searching for the right home for you.

• Price: If you buy a house you can’t afford, you run the risk of becoming house poor, which is what happens when your housing costs leave you without enough money to cover the rest of the budget.
• Location: Consider how close the home is located to work, school, public transportation, and shopping. The location can also impact noises levels and certain safety hazards.
• House size: Depending on the size of your family, you may need a certain number of bedrooms or square footage.
• Property taxes: The amount you pay in property taxes is based on the value of the home and where it’s located.
• Home features: It may be a priority for you for the home to have central air conditioning or an energy-efficient HVAC system.
• Homeowners association: If the house is part of a community with a homeowners association, you’ll have to pay dues and follow certain rules.

It can help to separate your must-haves from your nice-to-haves. For example, you need a home that fits in your price range, and you may need a minimum number of bedrooms. You may also want to have a pool, but a house that size with a pool in your area may not be in your budget range. While you may have to make some compromises, the most important thing is that the home meets your needs.  

6. Make an offer 

Once you’ve found a house you want to buy, your real estate agent can help you put together an offer. An experienced agent who is familiar with that specific market will know how to strategize to make sure the offer is smart and fair.

Your agent can help put a variety of factors into perspective. For example, your offer number will depend on:

• The state of the housing market, both nationally and locally
• How long the house has been on the market
• Whether offers have already been made on the house

In a slow market, home buyers can reasonably hope for a small discount on the asking price. In a more competitive market, making an offer below the asking price might lead to your offer being rejected. If you’re facing competition from other buyers, you may need to bid above asking price.

Your offer should include specific terms, such as how soon you need to be in the house, and any contingencies you want to include. Contingencies are conditions that must be met for the deal to go through. For example, if you include a home inspection contingency and the inspection reveals serious flaws with the home, you can walk away from the deal without penalty.

The seller may make a counteroffer, which can result in negotiation on price, contingencies, or certain repairs the seller is or isn’t willing to make. Your real estate agent can take the lead on negotiating and advocate for you. If the seller accepts your offer, then it’s time to get final approval on your mortgage.

7. Select a mortgage lender

If the seller has accepted your offer and you’ve entered into a purchase agreement, it’s time to commit to a lender and get final mortgage approval. You can choose a lender that’s provided you with a mortgage preapproval letter, or you can select a different lender. Be sure to get Loan Estimates from multiple lenders so you can compare the offers. Lenders are required to provide Loan Estimates in the same standardized format to help you easily compare the offers and choose the one with the best terms.

Applying for a mortgage 

Even if you’ve already gotten preapproval, your lender still needs to conduct the underwriting process before they’ll issue you final approval on your mortgage. This is the stage when lenders carefully review your finances to confirm that you can afford to repay your mortgage. Your lender will pull your credit report and will likely ask you to provide the following financial documents: 

• Tax returns
• Government-issued photo ID
• Pay stubs
• Proof of other income
• Monthly debt statements
• W-2 forms or CPA letter confirming self-employment
• Profit and loss statement, if self-employed
• Social Security number
• Purchase agreement
• Bank statements
• Letter of employment
• Investment or retirement account statements
• Proof of homeowners insurance
• Proof of earnest money deposit

8. Order a home appraisal 

While you’re waiting for your loan to be finalized, your lender will likely arrange to have an appraisal done to assess the home’s value. Your lender will not let you borrow an amount that exceeds the appraised value of the home. If the house appraises for less than the agreed-upon purchase price, you will have leverage to ask the seller to lower their asking price. If the seller is unwilling to do this and you’re willing to pay the difference between the asking price and the appraised value, you can still secure a loan. Otherwise, the loan will fall through. If the house appraises for higher than the purchase price, that means you’re getting a deal.

9. Schedule your home inspection

A house can look like it’s in good enough shape when you walk through, but you’ll want a deeper understanding of its condition before you buy it. A home inspection is a thorough assessment of the condition of the home and its systems by a licensed third-party professional. The inspector will provide you with a detailed report to let you know of anything that’s damaged, broken, or hazardous.

Although you’ll pay the inspection fee as the buyer, it will be well worth it if the inspection protects you from unforeseen costs and liabilities. If there is damage that requires extensive and costly repairs, you’d otherwise inherit those costs.

The home inspector is also likely to find minor problems, which are common and typically no reason to panic. Instead, you can potentially use these issues to your advantage as a bargaining chip for negotiating seller concessions such as a reduced purchase price. You’ll have more leverage if your purchase agreement includes an inspection contingency.

Check with your real estate agent about whether you should include a home inspection contingency. If the market is hot and you’re facing competition from other buyers, this contingency can hurt your chances of having your offer accepted.

In addition to a general home inspection, some buyers order specialty inspections for potential problems, such as the presence of radon or mold in the home.

Home buying inspection checklist 

When a home inspector examines your property, you can expect them to evaluate the condition of the following:

• Grounds and exterior
• Interior rooms
• Bathrooms
• Kitchen
• Electrical systems
• Heating and cooling systems
• Plumbing
• Basement
• Attic

10. Prepare for closing

If the inspection passes with no major red flags, you’ll soon be ready to close on the home. This is when you’ll want to ensure you’re ready to pay closing costs. You’ll also want to avoid making any big purchases or other financial moves that could affect your credit score.

In addition, start to:

• Gather your documentation. Before your loan is cleared to close, your lender may request additional financial information and documentation as a part of the underwriting process.
• Hire a real estate lawyer. In some states, having a real estate lawyer is required. Even in states where a real estate lawyer isn’t required, though, they can be good to have on standby if you end up in a complex legal situation.
• Get homeowners insurance. If you finance your home with a mortgage, you’ll need to sign up for a homeowners insurance policy and be able to show proof of coverage at closing.
• Perform a final walk-through. During the closing process, you can arrange for a final walk-through of the home to ensure that negotiated repairs have been performed and everything is in working order.
• Consult contractors about future repairs. If you plan to make renovations after closing, request the current owner’s permission to shop around for contractors, painters, carpenters, and other trade workers. This sort of work takes time and can be hard to schedule on short notice, so you’ll appreciate the long lead time.

11. Close on your new home

On closing day, you’ll sign closing documents, make your down payment, and pay your closing costs. You’ll also likely need to have the money sent via wire transfer from your bank to the office of the attorney who’s handling your closing. As an alternative, you may be able to present a cashier’s check at closing.

Once everything is paid and signed, you’ll get the keys to your new home.

The bottom line: Use a home buying checklist to eliminate the guesswork 

The home buying process can get stressful, but you can stay on top of it by knowing what to expect. Working with a real estate agent you trust, setting realistic house buying goals, and gathering the appropriate documentation can make house hunting an exciting journey.

Getting an initial mortgage approval lets you shop smarter while making you a more competitive buyer. If you’re ready to start your house hunt, it’s a good idea to begin the approval process today.