A new home is the biggest purchase many people will make in a lifetime. With so much at stake, it helps to create a checklist before buying a house to help guide your journey. Read on to learn five fundamental steps to take before you start shopping for a new home.
1. Determine what you can afford.
Before you start looking at available homes, figure out a budget. Start by determining your debt-to-income ratio (monthly expenses versus your monthly income). To attain a qualified mortgage from a lender, your DTI will usually need to be no higher than 43%.
Bear in mind you don’t have to spend your entire budget just because you can afford it. Too many new home buyers fall in love with a home outside their price range and end up “house poor.” This means they invested too much money in the property and don’t have enough cash left over for eating out, traveling or furnishing the home the way they’d like.
Even the most detailed home buyers guide checklist can’t save you from overspending on a property. It can help to play around with an affordability calculator to get a clearer notion of how much you can (and should) spend on your new home purchase.
2. Find an Agent Your Can Trust
An experienced, reputable real estate agent can streamline the home buying process and help you avoid costly pitfalls. In addition to helping you scout out prospective properties, they can provide expert insight into the local market.
The right agent can also help you with other important details such as:
- Determining whether an asking price is fair
- Sizing up the advantages and disadvantages of specific homes
- Identifying up-and-coming neighborhoods
- Taking the headache out of the mortgage and pre-approval process
- Negotiating favorable terms and dealing with bidding wars
- Handling all the paperwork and complex closing processes
A good real estate agent is someone who works with your best interests at heart. This allows you to shop for your dream home without getting bogged down with all stress and confusion associated with the complicated home buying process.
3. Get Pre-approved
You should meet with lenders to determine what types of mortgages you may qualify for. You can ask questions about possible interest rates, terms and specific requirements for DTI and credit scores. You’ll also have an opportunity to apply for a mortgage pre-approval. This will include a maximum loan amount, which provides a firm idea of how much you can spend while also showing sellers you are a serious, qualified buyer.
4. Gather Documentation
At some point, your lender will want to see accurate financial documentation. This will usually include:
- Two years of tax returns
- Pay stubs for the last two months
- Bank statements, plus investment and brokerage account statements, for the last 24 months
- Proof of funds for closing and down payment
- ID (preferably a passport or driver’s license)
Specific lenders will often have their own documentation requests, but these are the basics to help get you started.
5. Arrange Inspections and Appraisals
You should never complete a home purchase without an inspection. Likewise, you should never sign a contract without a contingency clause demanding that the home pass inspection. Not sure how to handle this critical step? Don’t worry. A good real estate agent will be able to handle all of this for you.
The home buying process can be exciting, complex and overwhelming. Create a checklist to help guide your journey and be sure to get expert guidance from a knowledgeable real estate professional.