Home buying checklist: Everything you need to know

Buying a home is a big investment — not just of money, but time as well. Careful planning can help you avoid mistakes while navigating the complicated process of buying a house.

A home buying checklist is a great way to track your progress toward your new home. Here’s a step-by-step checklist to get you started.

1. Get your finances in order

Owning and maintaining a home takes money and organization. Getting your finances in order will help you learn where you stand financially before you put in an offer. And it will set you up to manage the costs of homeownership once you’ve closed on a house.

First, add up your current total monthly expenses and consider whether you’re easily managing them. If you don’t already have a budget, it’s a good time to start one.

Next, check your credit report. Mortgage lenders will review your credit report and credit score when determining if you can qualify for a home loan and what interest rate to give you if you do qualify.

Reviewing your credit can help you know where your credit stands and if you need to correct any mistakes. You can get a copy of your credit report from each of the three major credit-reporting companies — Equifax, Experian and TransUnion — once a year for free at www.annualcreditreport.com.

2. Determine how much house you can afford

You need to estimate how much of a monthly principal and interest payment you can afford to make each month. You should also budget for monthly property tax and homeowner’s insurance costs, as well as the general cost of utilities and maintaining the home.

Remember to consider the costs of buying a house and moving into it as well. You’ll need money for a down payment, closing costs, moving costs, furniture and possibly renovations.

Using an online mortgage calculator can help you understand how much your monthly mortgage payment will be, based on your principal and interest on the expected home price, interest rate and loan term. You can also seek mortgage prequalification, which can help you understand how much you might be able to borrow.

3. Save for a down payment

Generally, having a down payment that is 20% of your home’s purchase price is best because this is the minimum down payment amount needed to avoid private mortgage insurance. Making a 20% down payment can also help you avoid higher interest and fees.

It’s possible to get a mortgage with a smaller down payment. For example, buyers who meet credit score requirements may be able to put as little as 3.5% down for some FHA loans. But a smaller down payment often means you’ll pay higher interest rates or closing costs in addition to PMI.

If you need to boost your savings to achieve a 20% down payment, here are some savings tips to keep in mind.

• Reduce spending. Setting a saving goal can help you feel more motivated to reduce excess spending.
• Automate your savings. Setting up automatic transfers from your checking account to a savings account is a great way to prioritize saving. You can opt for a high-yield savings account (more commonly found with online lenders) that will give you more interest than a typical savings account but won’t have risk associated with it like investments do.
• Consider accepting gifts. Both conventional and government loans allow for gift funds, so be open to accepting cash gifts from family members, such as your parents, that can help increase your down payment.

4. Get pre-approved for a mortgage

Mortgage prequalification involves getting an estimate of what you might be able to borrow, based on a credit check and your personal financial information.

Mortgage pre-approval, on the other hand, involves actually completing a full application that includes verifying your credit score and income. Once you’re pre-approved, you’ll get a pre-approval letter from the lender. This is not a commitment from the lender to give you a loan but it does give a pretty strong idea of how much home you can afford.

A pre-approval letter can help you stand out among other buyers, and may make sellers more confident about accepting your offer.

5. Find a real estate agent

It's important to find the right real estate agent to fit your needs when looking for a home to buy, especially if you’re buying in an area you’re unfamiliar with. Hiring a buyer’s agent doesn’t cost you anything and comes with a lot of benefits. Your agent can help you research properties, learn more about prospective neighborhoods, negotiate the final selling price and arrange mortgage pre-approval.

To make sure you find the right agent for you, speak with multiple agents before making a decision. That way, you can find an agent that has the right experience, communication style and personality to make the process as positive as possible for you.

6. Shop for homes

As you're shopping for a home, it’s important to keep your budget in mind. It can be helpful to start your search online so you can quickly get up to speed with how much homes in your area are selling for. Nearly half of all homebuyers start the home buying process by looking at houses online, according to the National Association of Realtors. You can check out websites like Realtor.com, Zillow.com and Redfin.com to view available homes in your area. Don’t forget, you can also look in local newspaper ads for home listings in your area.

Spending some time on the weekends driving through neighborhoods you’re interested in is another great way to get the lay of the land and to come across homes with for-sale signs.

Again, working with a buyer’s agent can also make this task easier because they’ll do the searching for you and narrow down your options to those that meet your specific qualifications and budget.

7. Make a great offer

When you do finally find a home you want to buy, you’ll submit an offer letter to the seller. This one-page note will indicate how much you want to pay for the home and what your proposed closing timeline is. Your real estate agent can help you make this offer and determine what timeline is required for closing, as this can be subject to state or local laws.

Your agent will also help guide you so you can make the strongest offer possible for the seller, while still balancing your needs. To make a strong offer, keep these aspects in mind:

• Commit to a competitive offer amount
• Have a solid down payment
• Match the seller’s desired closing date
• Minimize contingencies
• Share your pre-approval letter
• Add a personal note about your interest in the home

8. Find a real estate attorney

Some states require you to involve a real estate attorney when buying a home, others don’t. Even if this isn’t a legal requirement where you live, hiring an attorney to help with the process can make it go smoother. An attorney with experience in real estate law and local property ordinances can help review offers and sales contracts prior to closing to make sure everything looks good legally. Your attorney will be focused on your best interests during the course of the sale and will make sure you don’t run into any legal trouble down the road or get taken advantage of by the sellers.

9. Get mortgage approval

Once your offer is accepted, it’s time to officially apply for your mortgage loan. You don’t have to apply with the same lender that gave you a pre-approval letter, but you can. Generally, it takes about a week to get a mortgage approval but this timeline can vary depending on the lender.

To apply for a mortgage, you’ll select a lender, begin the application process and provide them with information about yourself and any co-borrower (like a spouse) who’ll be listed on the mortgage. You’ll generally need to provide the lender with the following types of information and documentation:

• Social Security numbers and IDs
• Pay stubs from the past 30 days
• W-2s or I-9s from the last two years
• Proof of all sources of income
• Federal tax returns
• Recent bank statements
• Details on long-term debts
• Existing real estate property information

10. Get an inspection and appraisal

Once your offer is accepted and the home is under contract, your lender may require you to have the home reviewed by a licensed home inspector. Even if your lender doesn’t require it, getting the home inspected is well worth the investment.

An inspector makes sure all parties are aware of any major problems with the home, such as insect damage, as well as any electrical and plumbing work that is necessary. An inspection will give you a better idea of any problems with the home that need addressing.

Lenders also typically require an appraisal, which ensures the house you’re buying isn’t worthless — or more — than you’re borrowing. The process also documents that the home's resale value equates to other similar homes in the area. That way, the lender can feel confident that if you don’t make your mortgage payments, they can foreclose on the home and sell it to recoup their money.

11. Negotiate repairs with the seller

Based on the outcome of your home inspection, you may have things you’d like the seller to repair. You can work with your agent — who will in turn work with the seller’s agent — to address repairs.

When it comes to deciding who will cover the cost of the repairs, it’s important to pick your battles, especially in a competitive market. For example, it may be worth it to ask a seller to take care of a water-damaged ceiling but it’s probably not worth it to ask them to replace a damaged set of blinds.

12. Close on your new home

When closing day finally comes around, you may meet with the seller and representatives of the mortgage lender (as well as your attorney if you have one) at a neutral location to close on the transaction. It’s important to budget for closing costs, as they usually equal 2% to 5% of the home sale price. You’ll pay these costs when signing these final documents.

You’ll need to bring the following documents to this meeting:

• A cashier's check for your down payment and any fees
• Proof of insurance on the home
• Reports from building inspectors or other professionals

After submitting all the required documents, you’ll sign the sales contract and walk through any disclosures or expectations surrounding the sale. Once you’ve finished signing, you’ll get the keys to your house and officially be a homeowner.