Tired of renting and ready to move into your first home? From determining your budget to making an offer, this homebuying checklist will cover what you need to know to prepare to buy your first property.
Determine Your Budget and Learn About Loan Types
Create a budget to understand how much you can comfortably afford to pay on housing costs each month. A mortgage should account for no more than 20% of your monthly take-home pay. For instance, if you earn around $4,000 per month after taxes, you should allocate $800 or less toward your monthly mortgage payment.
Remember, the larger your down payment, the less you’ll pay in interest. Aim for a 20% down payment to avoid the cost of private mortgage insurance (PMI). You’ll also want to budget for closing costs, such as those listed below:
- Loan origination fee: A charge by the lender for evaluating and preparing a mortgage loan.
- Property taxes: Buyers pay around two months’ worth of property taxes at closing.
- Title insurance: A policy that protects you in the event of title problems or claims made on your home after closing.
You’ll also want to learn about the borrowing options available to you prior to applying for a mortgage. Pay close attention to mortgage rates and lengths, as these factors will determine how much and how long you’ll be paying.
Get Preapproved and Submit Your Mortgage Application
After you find a reputable lender, you’ll need to get preapproved for a mortgage up to a certain loan amount (a pre-approval is usually good for 60 days).
When you apply for a mortgage, the lender will ask to see several documents. If you gather everything ahead of time, you’ll be better prepared to move forward. Make sure you have access to the following:
- W-2 forms from the past two years
- Pay statements from the last 30 days
- Proof of other sources of income
- Federal tax returns from the past two years
- Bank statements from the past three months
- Details on long-term debts, like car or student loans
- ID and Social Security number
Keep all of these documents in a safe place, such as a folder or binder, to ensure you don’t lose track of anything.
Find a Real Estate Agent and Begin Your Home Search
Finding a real estate agent is an important step in your homebuying process. Start by asking family members and friends for recommendations on trustworthy real estate agents, particularly ones with experience working in the residential area you’re interested in.
Be sure to talk to more than one real estate agent. You could be working with them for a while, so you’ll want to make sure your realtor is someone you can trust and rely on.
Now comes the fun part — searching for homes. Compile a list of must-haves and nice-to-haves to help guide your search. For instance, it may be nice to have a spacious backyard, but you can compromise on less acreage if a home has all of your other must-have features, like a swimming pool and a finished basement.
Make an Offer and Schedule a Home Inspection and Appraisal
Once you’ve found the perfect place, it’s time to make an offer on the home, contingent upon a home inspection. Consult with your real estate agent to come up with a smart, reasonable offer. Your offer will depend on numerous factors, such as the state of the local and national housing market, how long the property has been on the market, and if any other potential buyers have made offers.
If the seller accepts your offer, you’ll need to schedule an inspection to make sure there are no issues with the home. If the inspection results in a major issue being discovered, you’ll likely want to negotiate a change in purchase price or request seller assist – both options can be discussed beforehand with your realtor.
A Guide to Buying Your First Home
While buying your first house may seem like a complicated process, it doesn’t have to be. Using this checklist will help you better understand the steps involved in homeownership so that you can head to closing and get the keys to your new home!
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