Ready to buy a new home?
For many, the idea of owning a home is awesome. But, the process of buying one? Not so much.
If you are thinking of buying your first home, or just wanting a refresher for your next home purchase – this handy checklist will get you off on the right start and help ensure your buying journey is a good one.
Checklist for New Home Buyers
1. Plan your finances
I know, I know, it’s something you may have heard dozens of times already. But getting this step right is crucial to an effective buying process – and successful outcome of finding and owning the right home.
Gather & prepare documents.
Taking care of your finances does not just involve creating a budget. You need to compile all the necessary documents such as tax returns and bank statements and get your credit card reports. These documents are necessary to help you plan your budget and will also be required for your mortgage application. Check to make sure the information you have, and that reported by the credit bureaus is correct. If not, now is the time to get the inaccuracies taken care of.
Review your financial situation.
Do you know your credit score? What about your debt-to-income ratio? Both factors are key items that impact not only how much money they will loan you for a new home – but also how high (or low) the interest rate on your mortgage will be.
You must have a credit score over 580 to qualify for most mortgages, but higher is better because it will result in a lower interest rate that could save you thousands of dollars on your mortgage payments. You can find out your credit score for free by checking a current credit card or bank statement or going to www.annualcreditreport.com to check your report once a year.
Note that you should be careful of using the so-called ‘free credit check’ services advertised as these can result in monthly subscription charges. Also, be aware that each time your credit score is checked via a ‘hard’ inquiry can negatively impact your credit score. Check out this article from the Consumer Financial Protection Bureau for more information on checking your credit.
Your debt-to-income ratio is your debt (all your monthly debt obligations) divided by your gross monthly income. The minimum for a qualified mortgage is 43% and is how the lenders measure your ability to repay the money you owe. Here’s another article that provides more detail on debt-to-income ratios for mortgage qualification.
Create a budget.
Now that you have a solid understanding of your financial situation, it’s time to create a realistic budget for how much house you can afford. Make sure you consider the down payment needed (3.5%-20% of purchase price), plus the additional monthly expenses that come with homeownership such as repairs and maintenance. You should plan on at least 1-3% of the home’s purchase price on yearly maintenance depending on the age and condition of the home you purchase. And, don’t forget to include moving and decorating costs.
Create your priority list of features.
When considering how much you can pay for your new home, it’s great to pre-plan your list of priorities and consider which features are a ‘must-have’ versus a ‘nice-to-have’. Is the neighborhood or schools the most important items? Or, size of the backyard or kitchen more essential to your needs? By listing and prioritizing these features before you start shopping, you’ll be able to stay focused on your goals.
Psst… check out these additional resources for home buyers:
2. Get a trusted real estate professional on your side
Finding and buying a home is a complicated and time-consuming process. Whether you are a first-time buyer or seasoned veteran, finding the right real estate partner is one of the most important decisions you’ll make when buying a home.
Why? Because the right real estate agent is indeed your partner, working on your behalf for the best possible outcome for you. They can help you find the right home faster – and can help save you thousands of dollars due to their expertise in negotiating a beneficial deal. And, since real estate transactions are a complicated legal process, your trusted real estate agent can also help keep you out of trouble when things don’t go as planned.
When finding and choosing a real estate agent that is right for you, ask your friends and colleagues for referrals of agents that specialize in the neighborhoods you want to live. And, check out the agents’ website for reviews and awards as this can provide some valuable insight. For more information, check out this article on how to find the best real estate agent for you.
3. Review mortgage types and get pre-approved
Before you start shopping for homes, getting pre-approved for a mortgage is a must.
Homes in the Frisco and Plano area usually don’t sit on the market long. That means that sellers often get multiple deals soon after listing. If you are bidding for a home against another potential buyer, having a pre-approved mortgage could be the deciding factor in who’s bid is accepted.
Review the different types of mortgage loans first to see which one might be best for you. Do you qualify for a VA, USDA or FHA loan which requires little or zero down payment? Or is a conventional loan your best option? Do some research on loan types before deciding on a lender as many mortgage lenders specialize in certain mortgage types.
Not sure of which lender is best for you? This is another area where your real estate agent can help you find a mortgage lender that is just right for your needs. Your realtor can help you choose a lender that may help you win an offer. A local lender who specializes in mortgages vs. a big bank is always a plus – listen to your realtor, it could make the difference in your offer being accepted.
Once you have shopped rates and selected the right lender, get a pre-approval letter to put a stamp of approval on your ability to provide the required funds. It will increase your chances of being shortlisted by the seller as a reliable buyer. Here is what you need to provide in order to get a mortgage pre-approval letter:
- Documentation for identification
- Employment verification
- Good credit score & debt-to-income ratio
- Proof of income
4. Go “Window” Shopping
Now comes the fun part of home hunting! You’re going to explore the neighborhoods!
Your agent may have shown you some off-the-market homes and some listed ones that match your needs, and in order to make a well-informed choice, you may need to find out everything about the neighborhood, the locality, and more! In case you have children, there will be more variables to consider such as parks, day care centers and school ratings.
5. Shortlist. Discuss. Negotiate. Own.
It is always the end of the finish line and the last minute of a game that packs the most action. Same is the case with home hunting. When you are done with the budgeting, documentation, hiring an agent, zoning in on relevant mortgages, now it’s time for the thrill of hunting.
Your estate agent will work with you and schedule private viewings of homes that you have shortlisted or are considering to shortlist. Discuss with your family and with your agent which house fits your budget and style the best. Once you have made your choice, brace yourself, it is time to negotiate and close the deal.
If you are new to home buying and need professional advice, or simply need to hire a trustworthy real estate agent, reach out to the best in Texas, the Judi Wright Team!
About the Judi Wright Team
Judi Wright/The Judi Wright Team is a real estate group specializing in the suburbs of Frisco, Plano, and surrounding areas. Named the “Best Realtor in Dallas,” by D Magazine twelve times and a Five Star Realtor with Texas Monthly. Judi is also a Company-Wide Top performer with Ebby Halliday and the #2 Top Group for Ebby Halliday Frisco.