Buying a home is a rewarding process made up of a series of small steps that lead to the biggest purchase most people make in their lifetime. It involves balancing your finances, emotions, and desired lifestyle.
However, you’ll need to have specific knowledge about neighborhoods, homes, negotiation, legal and financial matters that can make anyone feel overwhelmed.
You have to confidently be able to answer questions like how to make the right offer, how to negotiate a good mortgage, is the neighborhood good enough, and everything in between.
But there is good news… you can do it and score a win!
Let me show you how. I have broken down the entire home buying process into the most comprehensive home buying checklist.
The Ultimate Buying a Home Checklist
This buying a home checklist will walk you through each of the steps in the home-buying journey; you’ll also learn what questions to ask and what to expect at each step of the way.
This is the most
Comprehensive Home Buyers Step by Step Workbook and Checklist detailing everything you need to know about the home-buying process.
1. Get Your Finances in Order
If you want to buy a house, chances are you’ll need a mortgage. Your ability to qualify for a mortgage will depend on the following four things:
- Credit report – Do you have good credit?
- Your income – Do you have reliable income for at least two years.
- Debts – How much debt do you owe?
- Savings – You must have savings to pay for the down payment and closing costs.
Check Your Credit Report And Credit Score.
To qualify for the best mortgage rates, you need to have a credit score of at least 680 points. Some lenders may approve you at 650 points depending on your specific situation – but those may be B-type lenders with higher interest rates.
I want you to get the best interest rates, but to get there, you’ll need to achieve a credit score of at least 680, and preferably, over 700. It’s actually easier than you think.
The higher your credit score, the lower your interest rate, and the more you’ll save in interest and fees over the life of the mortgage. So, make it your goal to achieve a credit score that’s higher than 700.
If you’re currently below 650, don’t worry. Check out my article Repair Your Credit Score in 8 Easy Steps to learn how to increase your credit score fast.
Your Annual Income
To prove you can pay for the mortgage, you’ll need to show a consistent income stream for at least the last two years.
The income may come from employment, from a business, a side hustle, or a combination of all, but it needs to be traceable, which means you have a paper record to prove it.
Your Outstanding Debts
The less debt you have, the more mortgage you can afford. To test this, lenders use the debt-to-income ratio (aka DITI). it determines how much debt you are carrying as a percentage of your income.
It’s a simple calculation.
Take your total debt payments per month (including the potential mortgage payment) and divide it by your monthly income. The result is your debt-to-income ratio.
So, if you have a monthly car payment of $400, plus credit card payments of $300 per month, and a potential monthly mortgage payment of $2,000, your monthly debt obligations would total $2,700.
Assuming your monthly income is $7,000, your debt-to-income ratio would be 39% ($2,700 / $7,000 = 39%). Most lenders would decline a mortgage application where the debt-to-income ratio works out to more than 43%.
Pay off as much debt as possible first to get ready for homeownership.
Read More: How to Pay Off Debt Fast.
Savings money to pay for the down payment and closing fees
The ideal down payment is 20% of the purchase price, which helps you avoid paying the all-expensive mortgage insurance fee.
However, you don’t have to wait for years until you save a huge down payment. A down payment of % or less is sufficient, but you should start saving as soon as possible.
Use this calculator to find out how long it will take you to save for your down payment.
Depending on the property’s price, it might take you about 2 – 5 years to save for the down payment.
The sooner you start, the faster you’ll be able to achieve your homeownership dreams.
If you’re not sure how to start, here are some money-saving ideas:
- Set up automatic savings: Call your bank to get them to deduct a monthly amount and automatically deposit it into a saving account.
- Get a side gig: Check out my article, 21 Simple Ways to Make Extra Money.
- Start a budget: Identify areas where you can cut back on overspending and allocate those amounts to boost your savings.
Another great way to help you save money to buy a home is using the 50/20/30 budget rule, which states you should spend no more than:
50% of your income on needs – this includes housing and food.
30% on wants, including entertainment, vacations, and shopping
20% on savings to pay off debt and achieve long-term goals like buying a house.
Homebuying Checklist Tip
Think about how your finances can change.
- Can you generate any additional income?
- What happens if you lose your job?
- How can you cut down on expenses and save more?
- Find out how long it will take you to save for the down payment.
2. Find Out How Much House You Can Afford
To calculate how much house you can afford, use the 28%/36% rule.
The 28%/36% rule states that you should spend no more than 28% of your gross income on housing costs. Your total debt payments (including the mortgage) should not be more than 36% of your gross income.
For example, if you earn $6,500 per month (household income) and you have $500 in monthly debt payments (such as a car loan, plus a line of credit), it means you can afford no more than $1,820 in housing expenses per month.
You may think that you can afford more, and while that may be true, your lender will perform mortgage affordability tests like the 28/36 rule.
Some lenders may use slightly higher ratios, but using the 28/36 rule will give a good indication of what you can afford.
When finding out how much house you can afford, you need to have a clear idea of what you’ll pay in monthly housing costs.
Use a Home Affordability Calculator
The easiest and quickest way to find out how much house you can afford is using a home affordability calculator.
Simply, enter your desired home price, your income, and specific situation.
Home Affordability Calculator
Find an estimate of how much house you can afford by entering your desired home price and your specific living situation.
Keep in mind that in addition to paying for the down payment and closing fees, you’ll also need to pay home-buying costs, including:
- Land transfer tax
- Real estate lawyer fees
- Home inspection fees
- Moving costs
- Potentially higher utility costs if you’re moving to a large home.
- New furniture or redecorating the new home.
- Other expenses including changing the locks, carpet cleaning, home services connection fees, and urgent repairs.
Homebuying Checklist Tip
Use a home affordability calculator
3. Set Your Budget
Set up a budget that allows you to start the Homebuying process while avoiding the risk of becoming house-poor.
Too much house has the power to turn your world upside-down, financially.
Here is how to budget for a house in 3 easy steps:
Step 1: Add up after-tax monthly income. Not your gross salary, but your take-home pay.
Step 2: Break down your monthly living expenses, excluding housing expenses(rent or mortgage). Your monthly payments should include the following:
- Food (groceries, lunches, and dining out)
- Eating out (dining out, lunches, and daily coffee or latte)
- Transportation (car payment, fuel, train, and bus fares)
- Insurance costs (car insurance, health insurance, and life insurance)
- Medical costs, including dental costs
- Debt payments
- Personal, recreational, and entertainment costs
- Emergency fund savings
- Taxes and donation contributions
- Miscellaneous and other expenses
Leave out what you pay for rent or mortgage.
Step 3: Deduct your monthly spending from your take-home pay from step 1.
For example, if your monthly take-home pay is $5,000, and your total monthly spending (excluding housing costs) is $2,000, you’ll have $3,000 remaining to spend on housing costs.
However, don’t spend it all in one place; that’s what living house-poor means. At the end of each month, you should have money left to save for emergencies.
Convert the mortgage payment into a maximum mortgage loan amount.
Once you figured out how much you can spend on a monthly mortgage payment, convert it into a maximum mortgage loan amount.
You can easily do that by checking out this mortgage calculator here. Simply enter your mortgage payment amount, your down payment, and confirm the terms.
Homebuying Checklist Tip
Examine how you spend your money by assigning a
name to every dollar you spend – for example, food,
transportation, or housing.
Your housing costs, including the mortgage payment, should not exceed more than one-third of your monthly income.
Avoid trying to overanalyze your expenses –You’ll get bored a quit. The important part is to assign a name or category to understand where your money is going.
4. Get Pre-Approved For A Mortgage
Getting pre-approved for a mortgage is an essential step because it gives you a firm idea of what you can spend on a house.
You’ll be able to lock in that rate while you search for the perfect home.
You don’t want to make an offer on a home and then run against the clock to apply for the mortgage approval. With the clock running against you, you’ll have fewer options and might end up accepting whatever rate the lender offers you.
Lastly, once you’ve made an offer on a home, you are not obligated to sign with the same lender that gave you a pre-approval. You can still search for a better mortgage deal.
Read More: What is the Mortgage Application Process?
A mortgage pre-approval is not mandatory to start your home buying journey, but it will make the process a lot easier for you.
Also, sellers tend to accept offers from buyers who are mortgage pre-approved, which means you stand a better chance of getting the house you want.
So, while you don’t need to get a mortgage pre-approval, getting one will help you experience a smooth home-buying process.
Gather supporting documents for your mortgage application
Start collecting the documents that support your mortgage application. The lender will ask for those documents to show proof of your job, income, savings, debts, and other financial commitments that apply to you.
Here is a brief list of the most common documents lenders ask for:
- Pay stubs – two copies
- Letter of employment stating your income
- Bank statements for the last 90 days
- Credit card statements or outstanding loan statements
- Proof of fund to pay for the down payment and closing fees
- Two pieces of government ID (for example, a driver’s license and passport)
For a complete list of mortgage documents, check out my blog post Mortgage Documents You Will Need When You Apply for a Mortgage and download the below checklist.
Mortgage Document Checklist
Download this nifty checklist to find out the key documents ask for to support the mortgage application.
Homebuying Checklist Tip
The following steps will help you prepare for the
mortgage pre-approval and the final approval process:
- Know your credit score to ensure it is over 680 points
- Gather monthly statements showing your debts
- Enquire whether you qualify for any home buyer grants.
- Have enough money saved to cover the down payment and closing costs.
- Google “best mortgage rate.” Then ask your lender to match or offer a better rate and terms than what you find online.
5. Create A Home Buying Wish List
Buying a home will be a lot easier if you have a clear idea of the must-have features the property should have. Must-haves are the things you notice first when viewing homes. They are the deal-breakers.
Here are some property key features that can help you create your wish list:
- Type: Are you looking for a semi-detached, detached, or condo home?
- Price range: Based on the maximum you can afford and comfort zone.
- Property taxes: What is the maximum you are comfortable with?
- Location: Top neighborhoods of your choice.
- Square footage: Based on your needs.
- The number of bedrooms and bathrooms: Based on your needs.
- Condition: Fixer-upper or move-in condition?
- Distance: How far from work, schools, shopping centers.
- Public transportation: Proximity to subway, trains, and bus routes.
- Outdoor space: Pool, size of backyard, garden, deck?
- Amenities: parks, tennis court, community venues.
Homebuying Checklist Tip
Make a favorite neighborhoods list before making the home features wish list. Check it twice!
6. Hire a Real Estate Agent
To find the right real estate agent, you should interview several of the best realtors you can find in the area where you want to buy. No less than 3 – 5.
Ask them questions.
You have to hire a pro. Experienced agents are the most active in the area, and they specialized in a particular area, type of property, and price range. On the contrary, the newbies would work with anyone, anywhere.
Here are some questions to consider asking the realtor:
- How well do you know the neighborhood?
- What do you think about the community?
- How many properties have you helped clients buy in this area?
- How long have you been a real estate agent in this area?
- Are you a good negotiator? (get them to give you examples)
Aim to hire a real estate agent who understands what you’re looking for and who intimately knows the area and properties where you’re looking to buy
The right agent should be able to provide you with advice on things you may not be aware of, such as the suitability of a school district, crime rates, or your chances of scoring a win as it relates to a property.
Here are five qualities to look for when selecting a real estate agent:
- Neighborhood experience
- Market knowledge
- Great negotiation skills
- Good communicator
- Resourceful and hard-working
Choose a real estate agent who has enough neighborhood experience to help you size up the pros and cons of homes, their investment potential and ties those things to the suitability of your goals and lifestyle.
Homebuying Checklist Tip
Hire only real estate agents that specialize in the area where you want to buy.
7. Start House-Hunting
It’s time for the fun part, the house hunt!
House-hunting is no common shopping experience. This is going to be a big investment, so you better put your inquisitive hat on as you embark on this fun journey.
Know where you want to live (the neighborhood)
When shopping for a home, most home buyers first tour a property; if they like it, they then see if the neighbors seem alright. That’s wrong.
The right process is to choose about 3 – 5 of your preferred neighborhoods and then look for available homes there and only there.
The neighborhood determines where your kids go to school, the stores where you shop, and your lifestyle.
Ask your realtor the following questions:
- What are the home values in the area?
- What are the neighborhood demographics?
- Are properties near shops, restaurants, schools, or public transportation?
- Are there any planned future developments in the neighborhood?
- What is the area’s crime rate?
Negative neighborhood features you should avoid.
- Proximity to a jail, waste disposal, high-power hydro lines, and train tracks will negatively impact home prices.
- Noisy neighbors
- Badly kept nearby homes.
- Over 50% of homes are rented.
Familiarize yourself with the local housing market
Don’t rely 100% on your real estate agent for information – do your research instead. The more you research, the more knowledgeable a home buyer you will become.
Start researching for homes available in the areas that are within your price range. Then visit some homes in person so that you can compare how different homes measure up.
Remember that it might take you two months or more to find the right property.
For instance, according to the National Association of Realtors (NAR), homebuyers typically search for eight weeks at a median before deciding on a house.
That means, if you spend two months looking for a home, there will be plenty of other people searching for even longer. Don’t rush it!
Use a house-hunting checklist.
A home-hunting checklist will give you a structure to follow so that you don’t miss important must-have features the property should have; this will also help you avoid home buyer’s remorse.
Whether you’re dreaming about starting the process or already house-hunting, this checklist will help you find the right house.
House Hunting Checklist
This checklist helps you in the house-hunting process, so that you can get the most for your money, avoid expensive mistakes, and find the right home.
Put your investigative hat on.
Tour the property more than once. The first time you view a property you like, you become interested. For the second visit, the objective should be to find deficiencies. No matter how perfect properties may look, they all have deficiencies. Find them!
All too often, homebuyers are swayed by the décor; they fall in love with a home and make irrational decisions such as offering more money than what the property is worth, all because the house looks perfect. It is not.
All homes have deficiencies, and it is your job to find those deficiencies to improve your leverage position when negotiating with the seller.
Stay optimistic but remaining flexible.
After viewing several homes, you should remain flexible to adjust your plan according to what the market has to offer.
Focus on the big picture. For example, after viewing a few homes, you might need to choose between a home that looks perfect and another similar home with outdated floors, but it has a $20,000 lower price tag.
You can consider choosing the lower-priced home and change the floor yourself and save some money in the process. However, when buying a property that requires upgrades, overestimate the cost of the upgrade.
Homebuying Checklist Tip
Use a house hunting checklist when touring homes. View the home you want to buy at least three times, and don’t allow emotions or home décor to drive your buying decision.
Focus on the fundamentals aspects like location, size, condition, and value, but don’t lose sight of small repairs that can add up to more than you bargained for.
8. Make an Offer and Negotiate
Before making an offer on a home, you need to figure out how much the property is worth regardless of what the list price says. It’ll take some haggling to land at the right spot.
Ask your real estate agent to provide you a list of what similar nearby properties sold for within the last three months. This will give you a sense of the right offer, plus or minus key differences between one property and the other.
That process is called a Comparative Market Analysis (CMA).
When comparing property prices, pay particular attention to the following five factors to ensure you’re making the right offer.
The number of bedrooms and bathrooms: The more bedrooms and bathrooms a property has, the more valuable it is to prospective buyers.
Square footage: Even if properties look the same from the outside, one might be bigger than the other. For example, if a 2,300 sq. ft. property sold for $800,000 but you’re looking at a 2,000 sq. ft. home, your offer should be lower than $800,000 to account for the 300 sq. ft. difference.
Condition of the property: If you’re buying a home that requires upgrades, you should lower your offer to account for additional expenses to complete the upgrades.
Land size: Adjust for the difference in the land size. A home with a larger backyard might sell for a higher price.
Location: To be comparable, properties must be located within the same distance away from amenities like parks, shopping malls, or public transportation.
As you get ready to make an offer, consider the following:
- Make the offer conditional upon a home inspection.
- Don’t fall in love with the property or make irrational decisions.
- Start the negotiation lower than what the home is worth.
- Ask the seller or the seller’s agent their reasoning for the asking price.
- Never offer more than the maximum in your budget.
Show proof that you’re a serious buyer
The amount of earnest money deposit shows the seller you’re a serious buyer. Some buyers offer an earnest money deposit of 1%, while others offer 5%.
If the sale does not go through, the deposit is refunded back to the buyer, as long as the offer includes contingencies such as a home inspection, obtaining mortgage financing, or a home appraisal.
Compliment the seller and say you’re committed to a smooth closing.
Everyone loves a compliment. Think about some of the home’s best features; then explain to the seller why you like those features, and offer a compliment about how well the seller has maintained the property.
Also, keep in mind that sellers want to sell to a buyer who won’t have problems with the closing, so assure them you’re committed to the purchase while you try to negotiate the best possible price.
Trust your gut, but ask your realtor for advice.
Negotiating the best possible purchase price will require a strategy. Ask your agent whether the home is overpriced or correctly priced, and plan out how much your initial offers and counteroffers will be.
Keep a cool head!
Before making the offer, think of your plan B. If the seller does not agree to your offer and tries to push you too far, you’ll need a plan B.
Having a plan B means you don’t have to overpay or accept the seller’s demands. You’ll have the peace of mind of knowing you can walk away because there is another option at hand.
Questions to ask before making an offer on a home
1. How long has the property been on the market?
2. Have there so far been any offers on the home?
3. Why is the seller selling the property?
4. How fast are you looking to move out, and why?
5. How was the sale price determined?
6. What price did similar nearby properties sold for in the past three months?
7. What is the age of the AC, furnace, roof, and home appliances?
8. Is anything broken, or are there home deficiencies you’re aware of?
9. Are you aware of any planned developments in the neighborhood?
10. What is the neighborhood’s crime rate?
Homebuying Checklist Tip
When determining how much a property is worth, don’t rely on list prices. It is sold prices of similar, nearby homes that will determine what a comparable home sells for.
9. Include a Home Inspection Contingency
According to the American Society of Home Inspectors, a home inspection is a visual examination of a property’s physical structure and systems.
It can save you thousands and prevent you from making an expensive mistake. The fee you’ll pays like buying an inexpensive insurance policy against the risk of buying a money pit.
The home inspection will most probably reveal fixable problems that you can then use as leverage to get seller concessions or even a better purchase price.
However, if the home inspection reveals a major home deficiency, walk away from the deal.
Here are the main areas examined during a home inspection:
The structural condition of the home and foundation problems:
Foundation problems are costly to repair, so it is a strong reason for you to walk away from the deal. If you see more than 1/16 inch crack, wider at the top than at the bottom, that’s a sign of a broken foundation.
Cracks due to foundation issues are likely to appear or worsen during freezing periods when the ground contracts. Another sign of foundation issues is if doors and windows don’t close properly.
Appliances: Some appliances have a short lifespan, so appliances are some of the main things a home inspector will check.
Exterior Walls: Check for cracks in the exterior walls.
Roof: Look for loose or peeling shingles and sloping roof frames.
Interior Structures, Doors, Windows, and Floors: If there are stains in the ceilings, that’s a sign of water leakage in the attic, which can create mold and damage the ceiling material. Floors should be even. Place a marble on the floor and see if the marble rolls in a specific direction.
Mold and Dampness: If you step into a room and there is a musky smell, likely there is mold in there. Many homeowners don’t realize how serious mold can be. A home inspector will look for signs of moisture, such as in bathrooms, kitchens, and the basement.
Other Key things a home inspection will include:
- Electrical systems
- Interior plumbing
- Heating and AC system
- Windows and doors shutting/opening correctly.
- Water pressure working properly
Depending on the cost of the needed repairs, you can request that the seller make the repairs or agree on reducing the sale price.
Home Inspection Checklist
Take this checklist with you when taking a closer look at the home before making an offer.
Homebuying Checklist Tip
Make sure your offer includes a home inspection contingency. This will ensure you’re not surprised later on with hidden structural issues in the property or expensive repairs.
10. Include a Home Appraisal Contingency
Whenever you apply for a mortgage, the lender will order an appraisal done on the home.
In some cases, the appraisal will be done remotely (online); however, in other cases, a licensed home appraiser will come to the property to make a thorough examination and determine the home’s value.
The risk with home appraisals is that if the property’s value is appraised lower than the amount you offered, you’ll have to cover the difference in cash, or the lender will not approve the loan.
That’s a big risk!
To protect your interest, don’t pay more than what the home is worth. This is best done by including a home appraisal condition; if the property is appraised lower than your offer, you can negotiate a price reduction or walk away from the deal.
Homebuying Checklist Tip
Consider including a home appraisal condition in your offer. It is the appraised value, and not the purchase price that your lender will use to determine the maximum amount of your mortgage loan.
With an appraisal contingency, if the home is appraised at a lower value than the purchase price, you’ll have the option to ask for a price reduction or walk away from the deal andget your deposit back.
11. The Closing
You’re almost there. You negotiated a good deal, the home inspection was completed, contingencies were met, and you have sent all the paperwork to the mortgage lender. You’re close to the finish line but don’t celebrate just yet.
The lender will check out your credit score and your employment status only days and sometimes hours before transferring the mortgage funds.
So, you want to avoid moving jobs or making any expensive purchases that can affect your credit score.
For instance, the National Association of Realtors surveyed 2,600 realtors and found that nearly a third of real estate transactions encounter issues at closing. The three biggest causes for delays are:
1. Buyer financing setbacks
2. Home inspection issues
3. The appraised value is lower than the purchase price.
At closing, you’ll have to sign a bunch of documents and pay the closing fees, which can amount to 2 percent to 5percent of the purchase price.
- Land transfer tax
- Lawyer fees
- Home insurance
- Mortgage interest
- until the first payment due date
- Unpaid debts and Government taxes
- Appraisal fees
Also, you’ll have to keep enough funds to pay for moving costs and have an emergency fund that covers at least a month of the mortgage plus living expenses.
Homebuying Checklist Tip
Until you’ve moved in the home, don’t change jobs,
and don’t make any significant purchases that could
affect your credit score.
The Bottom Line
Buying a home requires a well-thought-out plan or a list of steps to check off as you go through the process. Unfortunately, many homebuyers take the plunge, hoping just to wing it, only to be later disappointed.
It is easy to get caught up in the moment and let emotions drive your home-buying decisions. That’s why you need a plan. I hope you find this home buying checklist serves as your go-to resource on the path to homeownership.