Purchasing a home is one of the biggest financial decisions most people will make in their lifetimes. That’s why we understand that it’s natural to have questions about the homebuying process. No matter if you’re a first-time homebuyer or if you’re searching for a second property, there are always things you should learn about and prepare for. Try following this handy homebuyer’s checklist, with recommendations from The National Association of Realtors, to help you find and secure your dream home!
Plan out the Process
Set a Budget & Decide on a Down Payment
Knowing how much you can afford to spend on a home helps you narrow your search and shortens the process. Plus, it also helps your real estate agent know which properties to show you that meet your needs. You can get a general estimate of what homes are affordable by multiplying your annual gross income (what you earn before taxes) by 2.5. For example, if your annual gross income is $65,000, your affordable homebuying range could be anywhere between $80,000-$160,000.
Once you set that initial homebuying budget, it’s time to figure out your debt-to-income (DTI) ratio. This helps you and your lender determine your ability to manage the monthly payments required to repay the money you plan to borrow. To calculate this ratio, simply add up all your recurring monthly expenses. Make sure to include things like rent, student loan payments and minimum credit card payments, and don’t include varying monthly expenses such as utilities or groceries. Then, divide these monthly expenses by your monthly pre-tax income to determine your DTI ratio. Aim for a ratio of less than 50%, as this will improve your chances of finding a lender for a mortgage.
Tip: Most lenders recommend following the 28/36 Rule, which states that you shouldn’t spend more than 28% of your gross monthly income on your monthly mortgage payments, and no more then 36% on your total debt (including your mortgage). For example, someone with a gross monthly income of $5,400 would want to spend no more than $1,512 on their monthly mortgage payments.
Once you’ve set your budget, the next step is deciding how much of a down payment you’ll need. The size of your down payment is often determined by which type of mortgage you receive. Down payments on conventional mortgages begin around 3% to 5% of the home’s purchase price, but it’s always best to check on current rates. However, if you want to avoid private mortgage insurance (which can end up costing you more in the long term), you’ll need to put 20% down.
Find a Lender & Get Pre-Approval
During the initial shopping period, you’ll learn what is and is not important to you for a new home in your price range, which neighborhoods you prefer, and what your deal-breakers are. However, if you want sellers and their real estate agents to take you seriously, a mortgage pre-approval letter is key. Mortgage preapproval involves a thorough examination of your financial situation, and lets you know exactly the loan amount a lender is willing to approve. These lenders will likely have questions or lists of required documents relating to income and employment history.
Find Your Dream Real Estate Agent
Utilizing a qualified real estate agent is a huge help when buying a home. Not only can agents find homes for sale as soon as they’re listed, they also are intimately familiar with the housing market in your area and can provide unique insights that will help you find the best home for you. When finding a real estate agent, be sure to check with friends and family for recommendations, read online reviews, and explore your options before deciding on the agent that’s right for you.
Start Home Hunting
Now’s the time to start searching for your dream home. We recommend you start by telling your real estate agent about the top qualities you’re looking for in a home. Then, ask them to suggest properties for you to view that fit your needs. You should make sure to look at more than just the location or features of the house when you’re touring them. The little details matter, so ask the homeowner if you can test the home’s plumbing and electrical system by running water from faucets and flipping light switches.
Inspect the Home
At this stage of the homebuying process, it’s necessary to pay attention to every last detail. The New York State Association of Realtors (NYSAR) recommends inspecting these features for damages to ensure you make a wise buying decision:
- Heating systems
- Hot water system
- Electrical systems
- Appliances and fixtures
- Lot and landscaping
- Exterior walls
- Doors and windows
Make an Offer
Once you’ve found a property that checks all the boxes, you can make an offer! The guidance of your agent can be invaluable at this stage. They can compare sales data and other local property values to help you make a reasonable offer. Your agent will also draw up an offer letter and submit it to the seller or the seller’s representative.
Get Your Mortgage Approved
Once the seller has accepted your offer, you can begin the formal mortgage application process. Even though you’ve been pre-approved for a loan, you’ll still need to provide additional documentation to your loan officer as the underwriting process progresses. Your lender will inform you of which documentation is required, and your agent can always lend a helping hand as well.
Close on Your Home
Congratulations, you’ve made it to the closing process – the final step to homeownership! Your real estate agent and loan officer will take care of most of the remaining work, but you will have a few final tasks before you can settle into your new home sweet home. Expect to conduct a final walk-through on or before the closing date, and be sure to bring proper identification, homeowner’s insurance, and a certified check or scheduled wire transfer to cover your down payment and closing costs.
Get Started on Your Homebuying Journey
Get in touch with us today for more information, or search our listings below.