Have you been thinking about buying your first home but don’t know where to begin? It’s easy to get overwhelmed when you start hunting . You are in luck because we are here to help you get into that first home!
We’ve put together this buying your first home checklist to help guide you through the entire home buying process. This article includes topics such as saving for your downpayment, finding a realtor, documents needed to get a loan, finding the right loan type, and much more.
Steps To Buying Your First Home – Getting Started
Buying your first home can be exciting and stressful at the same time. This home buying checklist will give you all of the information you need to get started and purchase that first home.
1. Understand If Being A Home Owner Is Right For You
There are many benefits to becoming a first-time homeowner. Along with the benefits, there are a few things that you need to be aware of. Things will break and you will be responsible for fixing it or hiring someone to fix it for you. You will need to save money back to help when these sudden costs come knocking on your door. Property taxes and home insurance will be a few new costs that you will need to account for.
Owning your home comes with many benefits though. In my opinion, the benefits of homeownership highly outway the cons. You can make the home yours and renovate or decorate it exactly to your liking. You will more than like gain equity in the home over time. Some areas appreciate faster than others. By paying your mortgage every month, you will be adding to your net worth by paying down the principal of the loan.
2. Know Your Credit Score
Knowing your credit score is important when you begin the home buying process. If you have a super low credit score, you might want to focus on raising that before purchasing a home. Having a good or great credit score can save you money when you begin shopping for loans.
You should be able to purchase a home with a score of 580 or above, but you will need to work with a lender to get pre-approved. Credit scores in the 700’s will allow you to get the best rates available.
3. Research First Time Homebuyer Programs
knowing all of your options before jumping into a loan is a good idea. Do a quick google search for “first-time homebuyer” in your state. Check out the qualifications to see if this might be an option for you. Some of these programs require that you attend classes and meetings. It may take some time to complete but it can potentially help you with your down payment.
4. Save For Down Payment And Closing Costs
It’s a good idea to have all or most of your down payment and closing costs saved up before you start house hunting. Your lender will require proof of funds so you won’t be able to get very far into the process without showing the lender that you have all of the necessary funds to close on the loan.
Work with your lender and real estate agent to help you figure out how much downpayment and closing costs you will need to bring to the closing table. It’s easy to want to start house hunting before you have a downpayment, but you’ll just be giving yourself false hope when you find a home that you love and don’t have the funds available to purchase.
5. Find A Realtor
Connect with family members or friends to find someone that you trust. I found my realtor through a good friend and he is a rockstar! You can also just do a google search for realtors in your area and call a few of the top-rated realtors that show up in the search.
Try to find a realtor that has experience working with first-time home buyers. They will be more likely to help you through the entire home buying experience.
Make sure that you are clear and quick to communicate with your realtor. They are super busy with all of their clients! You might need to be a little patient but If your realtor isn’t working for you, you might want to move on and find a new one.
6. Find A Lender
You can also do a google search in your area to find a lender. It’s a good idea to ask your agent if they have a preferred lender. They usually work with professionals that can close your loan quickly.
Contact at least 3 lenders and shop interest rates. By getting a lower rate, you will save money and have a lower mortgage payment. Try to do this in a short period of time as each lender will pull your credit and possibly cause your credit score to drop temporarily.
7. Get Pre-Approved
After you’ve found a lender, they will run your information and let you know what amount you are pre-approved for. This will give you a better idea of how much home you can afford and will allow you to start shopping.
I’m a fan of trying to find a home that’s less than the pre-approval amount. If you can find a great home and spend less money, you will be able to save more every month. Consider finding a home that you can put some sweat equity into and add more equity with your hard work.
8. Know How Points Work
Points allow you to buy a better rate. This can save you thousands of dollars over the life of the loan. Essentially, 1 point equals 1% of the loan amount. If your loan is $100,000, 1 point would be $1000. Work with your lender to see if using points is a good option for you. Consider how long you plan on staying in the home when making decisions on utilizing points.
9. Understand PMI
PMI or Private mortgage insurance is required on any home purchases when the buyer puts down less than 20%. The banks require this because they view your loan as riskier due to a smaller down payment. The PMI payment will be added to your monthly mortgage payment.
The added PMI payment can be a few hundred dollars or less depending on the amount of your loan and the down payment. Check out this calculator to get a better idea of what your PMI payment might look like.
Here are a few ways to get out of your PMI after you have over 20% in equity in the home.
- Refinance to new loan without the PMI.
- Get a new appraisal that shows that you have over 20% in equity.
- Some loans will automatically drop the PMI once your principal is less than 80% of the value of the home.
Buying Your First Home – The Purchasing Process
Now that you’ve done all of the research and have a realtor, a lender, and are pre-approved, you can begin house hunting! This is the most fun part of the entire process. It can also be stressful if you live in a hot market. Be sure to work with your agent to get to showings quickly and put that offer in!
Consider having your agent look at the property for you if you can’t get to a showing right away. We’ve done this with our agent and we actually made an offer from our car because we trust him 100%! You need to be flexible in certain markets and get the process started as quickly as possible.
10. Get An Automated Search Setup
Your real estate agent can take all of your criteria for your new home and create an automated search. Once this is set up, you will automatically get emails on homes that fit within your criteria as soon as they hit the MLS. This is the best way to find homes as some of the data on popular home search sites and apps can be a bit outdated. Your agent will have access to the most up-to-date listings.
These are some of the things that you should provide to your agent to help you set up a search.
- Type of home – Are you looking for a single-family home, condo, apartment, duplex, etc.
- Price range
- Number of bedrooms
- Number of bathrooms
- Square footage
- Neighborhood and city
- Size of lot/yard
- Garage or storage
- Central AC & Heat
- Desired amount of parking
11. Go House Hunting
Check out your ideal neighborhoods and home types to get an idea of your future home. Utilize the homes found in your automated search to view homes that fit your criteria and look awesome.
It’s easy to get caught up in finding homes that are over your price range. Try not to do this as you might waste time looking at homes that you can’t actually afford. If you do find the perfect home that is just a bit over your maximum, contact your lender to see if you could potentially get approved for the higher amount.
Work with your agent to set up showings to view the homes that fit your criteria that you are interested in viewing. Be fast to try and view it before others get an opportunity.
12. Gather Necessary Documents For Your Lender
It helps immensely to start getting the documents together before you actually need them. That way you can quickly send them over to your lender when you submit an offer and get it accepted. You don’t want to slow down the loan approval process.
Here’s a list of a few things that your lender might ask for.
- Drivers License
- Last 2 months statements from all banking accounts
- Last 2 years tax returns or income statement
- Company that will be providing home insurance policy
- Last 2 paycheck stubs
- Statements for additional income outside of your job
13. Know Your Loan Options
There are many different types of loans available when purchasing a home. Knowing your options can help you find the best fit. For instance, if you don’t have much saved up for a down payment, you could leverage an FHA loan to put down as little as 3.5%. Your lender should be able to help you find what types of loans you can qualify for,
- FHA – Great for those that have less money to put towards a downpayment. You will need to pay PMI and will end up with a higher monthly payment due to putting less money down. This is a great option for first-time homebuyers.
- Conventional – You can utilize a conventional loan if you put down 5% or higher. Conventional loans can be more attractive to sellers so this is a good option in a hot market. You will still be required to pay PMI if you put down less than 20%.
- USDA – You might be able to use a USDA loan to put down no money on a home. USDA loans can be applied in rural areas that qualify. Check out the USDA website to get more information.
- VA – VA loans can be an option if you or your spouse has served in the US military. You might be able to purchase a home with no down payment with a VA loan.
- 203k – This loan allows you to purchase a home and include the cost of the rehab within the loan. There is a very detailed process that has to be followed with the renovations so it might be a bit more tricky for a first-time homebuyer.
14. Submit Offer
After you’ve found a home that you love you will need to submit an offer. Your real estate agent will handle this for you but there will be a few things that you need to know and sign to submit the offer. This is where it pays to have a good agent. They should walk you through every step in the process to make the offer process crystal clear.
Only submit offers on homes that you want to move forward with. It can be a ton of work for your agent to submit numerous offers. Remember that you aren’t their only client!
After you get an approved offer you will be under contract! Continue to work closely with your agent and lender for the next steps in the first-time home buying process.
The home will need to be appraised to get the current market value. The lender needs this information to approve the loan. You may have to pay for the appraisal out of your own pocket. It’s good to factor in at least $500 for the appraisal cost. The appraisal might be higher or lower depending on the price of appraisals in your market.
Be aware that if an appraisal comes in lower than you offer, you will need to make up the difference to buy the home. This can become an issue in a highly competitive market. I live in the Denver metro and it’s not unusual for an appraisal to come in $20k – $50K under the offer.
You can work with your agent to dispute the appraisal if you think it’s lower than other comparable homes that have recently sold in your market. If you are successful, the appraisal will be adjusted.
16. Earnest Money
You will be required to make an earnest money payment. This is also known as a good faith deposit. Essentially, it shows the seller that you are serious about closing on the home. The earnest money deposit will go towards your down payment when you do close on the home.
You can potentially lose your earnest money if you are unable to close. You should be 100% sure that you want to purchase the home and have all of the necessary funds to close before submitting your earnest money. Work with your agent to find out how much you should submit for your earnest money deposit. You might be able to leverage a higher earnest money deposit to make your offer more attractive to a seller than your competition.
It’s your agent’s job to help you understand what your earnest money does and how to protect it. There should be clauses in the contract that allow you to get out and keep your earnest money if the seller or home doesn’t meet certain standards. Work with your agent and possibly an attorney if needed.
Home inspections aren’t necessary but are highly recommended for first-time home buyers. The inspector will give you a report on any issues that need to be addressed on the home. Your agent can use this to knock down the price of the home or have the seller address the issues themselves.
You may also have to pay out of pocket for the inspections. I like to budget another $500 to cover inspections, but the cost may differ in your market.
It’s also recommended to have a sewer scope down during the inspection phase. There will be an additional cost for this inspection but will let you know if there are any issues with the mainline on the sewer. It can cost thousands of dollars to fix these types of issues. We’ve saved $6000 by having a sewer scope on our current home. The seller of the home had to incur those costs and fix an issue with the mainline before we would purchase the home.
You should be present during the inspections to understand what the inspectors find and also bring up any issues that you are concerned about.
18. Get Homeowners Insurance
Contact at least 3 insurance companies to get quotes for a new homeowners insurance policy. You might be able to bundle your policy with the same insurance company that you use for your auto insurance. You might need to make a payment to get the policy started.
Make sure to take care of this before you close on the home. You will need to provide your copy of your home insurance to close on your first home.
19. Do A Final Walkthrough
Before you close on your first home, do a final walkthrough to make sure the home is exactly how you expect it. For instance, if the previous owner has left trash or things that you don’t want, be sure to communicate this to your agent. Double-check that anything that should have been fixed by the owner has been addressed.
We’ve had a previous owner leave the screens off of the windows and all of the closet doors were in the garage. We didn’t think it was an issue and that we would deal with it ourselves. We came to find that we were missing 2 closet doors and none of the screens fit the windows.
20. Close On Your First Home
Congratulations, you are ready to close on your first home! You will meet with your agent, lender, and the seller’s agent at a title company to close on the home. Get ready to sign a crazy amount of paperwork. You will also need to bring a few documents with you to finish the closing. Make sure to communicate with your lender and agent to bring all of the documentation needed to close.
Here’s a list of things that you might need to bring.
- Photo ID
- Copy of Purchase Agreement
- Proof of Homeowners insurance
- Certified or Cashiers Check for the remainder of downpayment and closing costs
You Are Now A First Time Homebuyer!
Once again, congratulations on buying your first home! It’s quite the process from starting your home search to closing on a new home. It’s important to remember that there are still a few things that you need to account for when owning a home.
21. Have An Emergency Fund
If you’ve never owned a home and always rented then you aren’t accustomed to paying out of pocket for home repairs. It’s a good idea to save some money back for when something suddenly breaks in your home.
My wife and I had to take a personal loan out for $7000 on our first home because we didn’t have a savings fund. Don’t be like us!
Wrapping Up Buying Your First Home
We hope that these home buying tips will help you become a first-time home buyer and find the perfect house! Remember to effectively communicate with your real estate agent and lender to maintain a smooth home buying process. Take action and provide all documents necessary to close on your loan.
Good luck house hunting and please let us know if we’ve left any of your first-time homebuyers tips off of this article.
Hi, I’m Richard. I’m passionate about figuring out how to make my money work for me and getting outdoors into mother nature.