A house is often the biggest purchase you’ll make in your lifetime, and there’s a lot that goes into buying a home. A home buying checklist is a great way to tackle this daunting task. By following a home buying checklist, you’ll get through the home buying process with flying colors.
Find the Price Range That Fits Your Budget
Step one is to take a good look at your finances. You don’t want to get in over your head and struggle to make the payments, nor do you want to be disappointed when you like a home outside your price range. Start with calculating your debt-to-income ratio (DTI), which is how it sounds — the ratio of your outgoing monthly expenditures relative to your monthly income.
Your monthly cash flow statement would include all sources of income and any monthly payments you make. Most lenders look at a maximum of 43% DTI, so you should consider paying down some debt first if you are above that. Also, that’s a maximum and not necessarily what you should try to obtain. You don’t want to have all of your monthly income go toward debt, not leaving money for other expenditures.
Save Enough for a Down Payment
Not only will the lender most likely require some sort of down payment, but it is also of benefit to you, as it will save you a lot of money over the term of the loan. If your mortgage amount exceeds 80% of the home’s value, you will be required to carry private mortgage insurance (PMI). PMI would be a monthly payment in addition to the mortgage to cover any lender expenses should you default. The cost of this is calculated by examining your DTI, credit score, and how much over 80% the mortgage would be.
Another benefit to a larger down payment is a lower interest rate. The more money you put down, the less risk to a lender, thereby lowering your interest rate.
Assemble Your Home Buying Team
Find professionals you can trust and who have good reviews or recommendations. Before even looking at homes, shop around to get the best mortgage lender for you. You’ll want to be preapproved before you even start looking, as they can guide you toward homes you can afford. Sellers will treat your offer with more credibility than an offer without preapproval. Get quotes from a variety of lenders to see which one is best for you.
There’s no reason not to use a real estate agent as the funds almost always come from the sale proceeds, therefore no out-of-pocket expense for you. There are also real estate agents called buyer’s agents who are legally obligated to work for your best interests, not for those of the seller. Agents can be a valuable asset to determine market conditions and a reasonable price point. Do some research here either by word of mouth or trusted sources online.
Start Looking for Your Home
Your agent will be of great use as you start looking at houses because they can search for you using the parameters you define. Ultimately, it is still your decision regardless of how good the numbers are. You should also do your own looking online with various home listing sites listed across the internet. Use your judgment and the information you have ascertained, along with the insight of the real estate agent to make the best decision for you.
Submit an Offer and Begin Negotiations
You have found your dream home and are ready to take the next step to make your initial offer. Your realtor will be an invaluable resource here as they will know many factors that can influence the acceptance of your offer, such as market conditions, time home was on the market, other interested parties, and more. They can advise you if a lowball bid is acceptable or if you should be more aggressive with your offer. They will also help you attach any provisional contingencies like repairs needed, closing date, who pays closing costs, and inspection requirements.
Another aspect of making an offer is submitting earnest money. The amount for earnest money can vary widely from 1%-3% of the purchase price to $2,000 to $3,000 flat rate, depending on the area and market. If the purchase goes through, the earnest money is applied to the sale. If the seller is responsible for the deal falling through, you will get the earnest money returned to you, and if you back out or the issue is on your end, the seller keeps the money.
Once your offer is accepted, there are a few things you need to do. The first one is optional, and that is hiring a real estate attorney. Usually, title companies and real estate agents are sufficient to ensure all legal issues are addressed sufficiently. However, having an attorney go over the paperwork might be a good idea for that extra peace of mind.
Next, you will want to schedule a home inspection and appraisal. Most real estate agencies will take care of both of these for you. The lender will require the home to appraise for a high enough value to warrant the mortgage, and the inspection should almost always be a contingency in any accepted offer.
The last step in the process is the closing. Once the inspections pass and other contingencies are met, you can begin to prepare for closing. One caveat for you is not making any significant purchases or financial commitments that can derail the closing at the last minute. Before closing day, make sure you also have homeowners insurance and you have the insurance information to provide at the closing. Bring any required documentation with you, along with any required payment, and be prepared to sign a mountain of paperwork on closing day. Finally, the best step of all, get the keys so you can move in!
Lendsmart’s Home Buying Solution
Lendsmart’s home buying solution can cut the number of steps involved in the home buying process in half. This solution utilizes real-time service providers to offer verification instantly, unifying the entire process to this single platform. It only takes 10 minutes to complete the requisite steps for pre-approval. Over 70% of the process is now automated, saving weeks of waiting time, allowing for closing in two weeks instead of 60 days. Reach out to Lendsmart today if you’re interested in learning more.