The Definitive Home Buying Checklist
What you need to know. Why you need to know. When you need to know it.
It doesn’t matter if you’re a first-time buyer or a seasoned investor, our Definitive Home Buying Checklist can help speed the process, save you money and reduce your stress.
HOME BUYING CHECK LIST STEP 1
Know Your Debt to Income Ratio.
Write down all of your monthly expenses like student loans, car payments, child support, insurance, utilities, grocery, clothing and entertainment costs. These costs are not likely to go away. Be realistic.
You’ll want to gather you tax returns (1 or 2 years unless you’re self-employed and then you’ll likely need 5 years), investments, bank statements and W-2’s. Scan them into a PDF file as your lender is going to ask for them.
It is a good exercise to do a debt to income ratio yourself before talking with a lender.
- Figure out your gross income.This is your provable take-home pay for the last two years, whether it’s salaried or hourly. Unfortunately, additions like bonuses or overtime pay won’t be countable toward this number.
- Add up your monthly payments. Skip your housing payments (for now) but take into account all the things listed above.
- Look at your projected housing costs. You can use what is call a PITI calculator to come up with your monthly mortgage payment which is Principal Interest, Taxes Insurance (PITI). You can try different home prices to see the differences in the total mortgage expense.
Once you have these numbers, it’s time to calculate your ratio.
- Find your total debt by adding together your monthly payments and projected housing costs.
- Divide by your gross income.This number will give you a percentage, which is your debt-to-income ratio
Ideally, banks are looking for this ratio to be less than 36%. And you have a really good idea of what your comfort zone will be for a mortgage.
HOME BUYING CHECK LIST STEP 2
Identify a Great Lender.
You start this process by interviewing several lenders. This can be done via phone, email or in person. Are they communicative after your talk with them?
How do their rates compare to other lenders? What are their closing cost? On average how long does it take for them to close the loan? Do you qualify for any special loans or down payment assistance programs? These are all important questions and it’s a great way to identify potential money saving loans for which you may qualify.
After you’ve identified a lender, they will pull your credit history and give you a preliminary or conditional approval for a home purchase. They will then ask for additional information such as W-2s, tax records, loan documentation and bank statements. The lender will then calculate a formal debt-to-income ratio. Once completed, the lender will give you a pre-approval letter and you’re ready to start shopping for your new home.
HOME BUYING CHECK LIST STEP 3
Choosing a Realtor. Setting Your Budget. Know Your “Must Haves”.
If you have already identified a Realtor, great! If not check out our Tips for Choosing a Realtor. Be honest with your agent. S/he has a fiduciary responsibility to hold all your information in confidence. They work for you! Your agent will be paid by the seller, so you should have no Realtor fees.
You’ll also want to discuss in detail the maximum you want to spend. Just because you’re pre-approved for say $300,000, your max may be $250,000. You’ll also want to discuss with your agent that you’d like to negotiate for having the seller pay some of yourclosing expense . Every situation and market area is different so be sure you have this discussion with your agent.
THE FUN STUFF
Tell your agent your “must have” list of features in a home and your wish list too. Sometimes you get it all. Other times you’ll need to compromise.
Your agent will set up a home search based on your “must have” parameters, locations/neighborhoods and your budget. This home search will be sent right to your phone as properties come on the market. There are other websites to do searches like Realtor or Zillow. You’ll likely get the most up-to date home listings from your agent.
HOME BUYING CHECK LIST STEP 4
Have Fun And Do Your Homework
You’ll likely be going to a lot of open houses. Make it fun and don’t stress if you don’t find your dream home in the first month. It will happen and when it does you’ll know.
This is a great time to be checking out neighborhoods. TIP: Check out neighborhoods on weekends and at night. You’ll get a sense for the vibe of a particular neighborhood.
If the neighborhood you’re focusing on has a Home Owners Association (HOA), check out the bi-laws of what is allowed, dues, and amenities.
HOME BUYING CHECK LIST STEP 5
What to do While House Shopping.
While shopping for a new home and all the way through closing, do not make any major purchases, save for your down payment, pay down or off any credit cards or other bills you may have. And if at all possible do not quit or change jobs.
HOME BUYING CHECK LIST STEP 6
Making An Offer.
When you are ready to make an offer, your agent will provide market data to help you make an informed decision. This information generally is a list of comparable homes that have sold in the last six months within the neighborhood or further out if it is a rural setting.
Do the comparable homes have the same number of bedrooms, bathrooms, above grade finished square feet, garage, finished basement, etc.? You’ll also want to know if the sellers of the comparable homes paid any money toward the buyers closing and pre-paid expenses. What is the cost per square foot. Your agent will help you navigate this information.
If you’re not sure about a home, schedule a second and if necessary, a third showing.
When you do make your offer, you’ll want to negotiate for a seller paid home warranty. Be sure to give yourself enough time in the contract to have the home inspected. Generally, a 10-14-day period is a normal inspection timeframe. Your home inspection should include a general inspection, termite, radon inspection and perhaps a survey. If you’re not familiar with radon you can read more about the effects of this naturally occurring gas. If the property has a pool, spa, workshop or other unique features you’ll want those inspected too.
You’ll also want to negotiate the closing date of the purchase. There are a lot of variables so discuss with your agent. Currently in Louisville we see many closings occurring in 30-45 days.
Once your offer is accepted you’ll need to provide good faith money, sometimes referred to as earnest money. The amount varies. Discuss with your agent an appropriate amount. This money comes back to you at closing.
HOME BUYING CHECK LIST STEP 7
Planning Your Move.
- Schedule your movers as far out as possible.
- Start collecting used boxes from other people who have just moved. It saves $$.
- Color code and label your packing boxes so that you can match the contents in the boxes with the room they’ll go into.
- Contact the utility companies just prior to closing. You don’t want to move into your new home in the dark.
- Keep one box for all the last minute items, like remotes, jewelry, toiletries, phone charges, medications. This will be your last box packed and the first box you’ll need.
- If you have a dog(s) take them to the house and let them get familiar with yard and surroundings.
Home Buying Check List Bonus Tip
Our Best Advice?
- Enjoy the experience.
- Don’t compromise on your “must have” list.
- Be patient.
It will be nerve racking at times but good communication by your agent and lender will keep the stress level to a minimum. In the end you’ll find a home where memories will be made and laughs and good times will be plentiful.