Home Buying Checklist: Essential Steps In The Home Buying Process

You’ve decided to buy a house – congratulations! Buying real estate is exciting. It’s not every day that you decide to buy a new home, so you can’t be expected to know every step of the process. With so many things to consider, a home buying checklist can help you prepare.

Buying A House: Essential Checklist 

We’ve done the research and broken down the home buying process into seven steps to keep you on track as you prepare to hit the ground running looking for your new home.

1. Determine What You Can Afford
2. Get Preapproved For A Mortgage With A Lender
3. Find A Real Estate Agent
4. Go House Hunting
5. Make An Offer
6. Schedule A Home Inspection And Appraisal
7. Close On The House

1. Determine What You Can Afford

Getting an idea of what you can realistically afford is important before you step foot in an open house. Knowing how much house you can afford will help determine which homes you should make an effort to see in person.

Set A Budget

The first step in purchasing a new home is figuring out how much you and your family can afford. Start by creating a simple home budget based on your current income and expenses to help determine what you’re comfortable spending on housing.

There are upfront costs to owning a home, such as closing costs and your down payment, but there are also ongoing costs that you’ll be responsible for. Here are common homeownership costs to budget for:

• Maintenance, repairs and upkeep: Being a homeowner means you’ll need to regularly maintain and repair your home’s exterior, appliances and major systems to prevent breakdowns and keep your home looking its best. That means you’ll need to know how to budget for them. One rule of thumb is to set aside 1% – 4% of your home's value each year for maintenance or consider saving $1 for every square foot of living space every year.
• Mortgage, taxes and insurance: Your monthly mortgage payment includes more than the principal and interest. The monthly amount typically includes property taxes and homeowners insurance. Generally, your monthly mortgage payment stays the same if you have a fixed-rate loan, but if property taxes go up in your area, then your monthly payment may increase.
• Utilities: Home utilities, such as internet, sewage, electricity, water, natural gas and more, are basic amenities necessary to keep your home comfortable. The cost of utilities varies widely depending on your usage, the size of your home and where you live, but the average American spends $562 – $637 per month, according to Move.org. To help you budget for utility expenses, consider putting aside 5% – 10% of your monthly income.

Save For A Down Payment

If you don’t have a down payment savings already, you’ll need to start saving for a down payment on a house.

A down payment is the lump sum of money you pay upfront when you close on your home. The amount of your down payment is a percentage of your home’s final purchase price and reduces the amount you’ll need to borrow from your lender. The amount of a down payment is determined by your credit score and the type of mortgage you’ve been approved for. The higher the credit score, the more favorable loan terms that are offered. Lower interest rates can save a lot of money over the life of the loan so take your time when considering your options.

Prepare For One-Time Fees

In addition to the down payment, there are other one-time fees you will likely need to pay during the home purchase process.

Some of the most common one-time fees include:

• Home inspection fee: $280 – $400
• Home appraisal fee: $300 – $420
• Credit report fee: $20 – $30
• Title search fee: $75 – $200
• Moving company fees: $2,400 – $6,800 for a long-distance move

Consider Homeowners Association Fees

If a home is in a neighborhood under a homeowners association, the homeowner will need to pay fees as a member. These fees cover the upkeep of community amenities and common area maintenance. Fees are set by each individual association. According to the latest data from the U.S. Census Bureau, the average HOA fee is $191 per month.

All of these expenses can be overwhelming, but you’re starting now and giving yourself a good head start by preparing and saving.

Here are a few tips to make step one of buying a new home a breeze:

• Find areas you can save in your budget. If you like to eat out, try cooking at home more to save money. Look at your bank statement and get rid of subscriptions that you’re not using or downgrade your plan to save.
• Postpone large discretionary purchases. If you plan a big vacation every year, consider a staycation and putting those funds toward your down payment savings.
• Make more income. Talk to your employer and let them know you’re available for special projects or overtime. You can also consider a side hustle. Additional streams of income are a great way to expedite your savings goals.
• Automate deposits. Most banks can automatically deposit a set amount of money into a savings account of your choosing. With automatic deposits, you can ensure you’re making saving a priority.

Choose The Right Mortgage For You

There are many different types of home loans available to home buyers with different requirements. Some loans cater to a specific type of buyer and may have more lenient guidelines than others.

Here are the most common types of mortgage loans, including conventional loans and government-backed loans.

• Federal Housing Administration (FHA) loan: An FHA loan is backed by the Federal Housing Administration. FHA loans typically come with lower interest rates and lenders may consider applicants with a lower credit score. If your credit score is 580 or higher, you may qualify for a minimum down payment of 3.5%. Some lenders accept a credit score as low as 500 but expect to put at least 10% down.
• Conventional loan: A conventional loan is considered a standard home loan and isn’t backed by the federal government. You will need a minimum credit score of 620 or higher, a minimum of 3% down and a debt-to-income (DTI) ratio of 50% or lower.
• U.S. Department of Agriculture (USDA) loan: A USDA loan is backed by the U.S. Department of Agriculture. USDA loans were designed for low- and moderate-income earners to encourage development in low-populated areas. There’s no down payment requirement, but you will need to meet the county’s loan, income and property eligibility requirements. Your income cannot exceed 115% of the median income in the area, and you’ll need a credit score of 640 or higher.
• U.S. Department of Veterans Affairs (VA) loan: VA loans are backed by the U.S. Department of Veterans Affairs for active members of the military, veterans and eligible surviving spouses. Lenders require a credit score between 580 – 650, and most VA loans typically don’t require a down payment or private mortgage insurance (PMI). However, you may need to pay the VA funding fee, which helps support the program.

2. Get Preapproved For A Mortgage With A Lender

Now that you have a snapshot of your finances, you’re ready to get preapproved for a mortgage from a lender. Mortgage preapproval is the process of determining how much money you can borrow from a lender to buy a home. A mortgage lender is a financial institution or mortgage bank that offers and underwrites home loans. It’s important to note that some lenders use the terms preapproved and prequalified interchangeably, but preapproval is different from prequalification.

Most lenders will require a simple application online or over the phone to apply for a mortgage prequalification. The applicant's credit report is pulled and the information reviewed. They may ask for written or verbal estimates of the applicant’s income and assets. This information is self-reported and unverified.

A mortgage preapproval will require an application to be completed, and the applicant’s credit report pulled and reviewed. The lender will then verify income and assets through documents like W-2s, tax returns, pay stubs, bank and other financial statements. A mortgage preapproval has verified information.

Staying organized through the home buying process will keep things moving along smoothly. The following is a list of documents you should have on hand when applying for verified preapproval:

• Personal information like Social Security number and identification
• Employment and income verification
• Ownership documents for assets like cars and property
• Property details
• Credit and liabilities
• Homeowners insurance

You have a choice in lenders, and it's in your best interest to shop around for the best deal for your circumstances. Start your search with local banks, credit unions and online lenders.

Make sure to note each lender’s offerings, including loan terms, current rates, down payment requirements, mortgage insurance, closing costs, etc., so you can compare all of your loan options.

3. Find A Real Estate Agent

Real estate agents are licensed professionals who organize real estate transactions between buyers and sellers. Agents who represent sellers are called listing agents. Buyer’s agents are real estate agents who represent buyers.

Your agent will show you properties, write an offer letter on your behalf and assist in negotiations. Real estate agents are local market experts and can also advise you on how much to offer for each property. Talk to your family and friends and ask for referrals to agents they’ve had a good experience with. It's important to find an agent who is aligned with your home goals, finds homes in your price range and most of all is trustworthy.

4. Go House Hunting

Many sellers have open houses for their properties where anyone can walk inside and take a tour of the home. You can also arrange personal viewings with your real estate agent.

When viewing a home, you’ll need to know what to look for as a buyer. Don’t be afraid to be a little nosy. Test outlets, showers, toilets and kitchen appliances to make sure they work. Make a mental note of repairs or replacements you might want to ask the seller to complete if you decide to buy the home. As you tour more homes and check out each neighborhood, you’ll get a better idea of the right home and community for you.

List Your Dream House Must-Haves

Before you jump in a car and head to the nearest open house, take some time to think about what you’re looking for in a new home and create a dream house wish list. Figure out your wants versus needs and any nonnegotiables you’ll require in your new home. If you’re close enough, drive around the areas you’re interested in and take note of the features you’d like to have in your own home.

To help avoid getting overwhelmed with options, make a list of those wants and needs and reference them when you’re considering a home.

To help narrow down the search, here are a few criteria to get your list started:

• Type of home
• Number of rooms
• Energy-efficient features
• Location preference (school district and neighborhood)

5. Make An Offer

When you decide to make an offer on a home, you must submit an offer letter in writing. Your offer letter includes details about yourself (like your name and current address), the price you’re willing to pay and how you intend to pay for the home. It will also include a deadline for the seller to respond to your offer. Your agent will almost always write the offer letter on your behalf, but you can write it yourself if you choose.

Your agent will then get in contact with the seller or the seller’s agent to submit the offer. If you have a preapproval letter from a lender, your agent will likely include that letter as proof you’re ready to purchase a home. Being preapproved early in the process will give you and your real estate agent the confidence you need to make a competitive offer that will get noticed by sellers.

Negotiations may go on for some time after you submit your offer. Let your real estate agent help you manage negotiations – don’t be afraid to walk away if you can’t reach an agreement. Once you and the seller agree to an offer, it’s time to move on to the appraisal and inspection.

6. Schedule A Home Inspection And Appraisal

Home inspections and appraisals are an essential part of the home buying process. While inspections are optional, appraisals are required by the mortgage lender.

Home Inspection

During a home inspection, an inspector will go through the home and specifically look for problems. They will test electrical systems, make sure the roofing is safe, make sure appliances are working and much more. Once the inspection is complete, the inspector will give you a list of problems they found in the home. This helps determine how much work may need to be completed before the home is up to your standard.

Home Appraisal

The home must get a home appraisal before you buy a home with a mortgage loan. A home appraisal is a review that gives the current value of the property you want to buy. Lenders require appraisals because they can’t lend out more money than a home is worth. If the appraised value comes back lower than your offer, you might have trouble getting financing. Be thoughtful about your offer, your real estate agent can give you market insight to make sure you’re making an informed and competitive offer.

7. Close On The House

Your lender is required to give you your Closing Disclosure, which tells you what you need to pay at closing and summarizes your loan details. Read through your Closing Disclosure and make sure the numbers don’t vary too much from your loan estimate. Once you’ve reviewed your Closing Disclosure, it’s time to attend your closing meeting.

Here’s a list of items you may need to bring to your closing:

• Personal identification
• Proof of home insurance
• Bank statements
• Copy of Closing Disclosures

You’ll sign a settlement statement, which lists all costs related to the home sale. This is when you pay your down payment and closing costs. You’ll also sign the mortgage note, which states that you promise to repay the loan. Finally, you’ll sign the mortgage or deed of trust to secure the mortgage note. Once all documents are signed, you’re a homeowner!

The Bottom Line: A Home Buying Checklist Can Easily Set You Up With Your Dream Home

Buying a new home is a huge step, but a home buying checklist can help you navigate it gracefully by keeping you prepared and on task. When you’re ready to get out there and tour homes, bring your list of must-haves with you so you don’t stray too far from your home buying goals. When your real estate agent and lender start asking rapid-fire questions, you’ll have all your information ready to get the deal done because you’ve prepared yourself for the process.

When you’re ready to start house hunting, start the approval process with Rocket Mortgage^® today!