Coaching Blog About

First-Time Homebuying Checklist

first-time homebuying Dec 18, 2024

The majority of wealth most individuals have amassed during their lifetime has historically been through the purchase of a home. It was previously considered a given that virtually any citizen who budgeted, planned, and worked diligently to get on the housing ladder would be rewarded with a significantly increased net worth after eventually paying off their home. However, there is a growing sentiment that factors such as rising interest rates, record high home prices, and competition from large private equity companies are making this avenue for wealth acquisition unattainable for a growing number of demographic groups. According to some estimates, U.S. home prices rose by almost half during the pandemic alone (The housing market is so tight that home prices are 44% higher than before the pandemic - Business Insider). Other reliable indicators, such as the home price-to-income ratio, support this narrative as well:

"As home prices have risen, they have grown to many multiples of household income. In 2022, the median sales price for existing single-family homes rose to 5.1 times the median household income, up from 4.1 in 2019 and the 3.2 price-to-income ratio averaged in the 1990s. Though this ratio dipped slightly to 4.9 in 2023 as home price growth slowed, it nonetheless means that homeownership is unaffordable for many households." (The State of the Nation's Housing 2024, Joint Center for Housing Studies of Harvard University)

Source: Longtermtrends

For these reasons, whether or not the goal of homeownership has become less attainable now than it was for previous generations is an understandably controversial topic amongst incumbents and those looking to enter the housing market for the first time. Even for those new entrants who are lucky enough to purchase their first home, there is a growing list of difficulties which add an additional layer of complexity to the debate (82% of millennial first-time homeowners have regrets - CNBC). While these types of gloomy trends evoke a sense of confusion and despair regarding the subject all together, I'd like to propose a more nuanced and hopeful view which underscores the importance of fully arming yourself with the unadulterated facts in these undoubtedly challenging times. I've attempted to parse through the misinformation and, in some cases, blatant gaslighting on the topic to provide a cogent analysis that seeks to equip individuals with an accurate guide for navigating the home-buying process and craft the best plan for their specific financial situation. I truly still believe that the dream of homeownership, and the resulting financial benefits, is alive and well today for those who are clever enough, and I've incorporated hours of research in addition to my own experience in order to create this comprehensive checklist for prospective first-time homebuyers. I hope you find it useful!

 

First-Time Homebuying Checklist:

  1. Make sure you're as ready as possible...
    • You have a stable source of income(s)
    • You can see yourself living in the same area for the next 5-10 years
    • You're prepared for the extra costs and work which come with homeownership
  2. Prepare your finances for a mortgage...
    • Improve your credit...
      • Request your credit report from all three credit bureaus (Equifax, Experian and TransUnion) and dispute any inaccuracies
      • Address credit utilization rate (Optimally below 30%)
      • Avoid opening new accounts
      • Get to at least a 620 FICO score to get approved for most conventional loans (The higher your score, the lower your mortgage interest rate may be)
    • Aggressively pay down debt...
    • If you are planning to use "Gift Funds" from an third party, ensure that they qualify as seasoned money (Possessed for a certain period of time, commonly 60 days)
  3. Save a realistic amount...
    • Down Payment (At least 3% of your home's purchase price)...
      • A larger down payment will likely result in...
        • Smaller monthly mortgage payments (This could positively influence future borrowing power)
        • Avoiding the need to pay for Private Mortgage Insurance (If you put down more than 20%)
        • A lower interest rate since a lower loan-to-value ratio decreases the lender’s risk when approving a mortgage (Results in less interest a borrower will pay over the life of the loan which can potentially save them thousands of dollars) 
    • Earnest Money (Approximately 1% of your home's purchase price) - Deposit that a buyer pays to a seller to show their commitment to purchasing a property (Usually applied to the down payment if the sale goes through)
    • Option Fee (Approximately $150-$500) - Payment made by a buyer to a seller that gives the buyer the right to terminate a contract within a set period of time
    • Inspection Fee (Approximately $300-$500) - Cost you pay to a professional home inspector to thoroughly examine a property before purchasing it
    • Appraisal Fee (Approximately $300-$500) - Cost to have a professional appraiser create a report on a property's value
    • Closing Costs (Approximately 2-5% of your home's purchase price)...
      • Mortgage Application Costs
      • Attorney Fees
      • Appraisal Fees
      • Title Insurance
      • Real Estate Commissions
      • Taxes
      • Insurance
      • Record Filing
    • Emergency Fund (3-6 months of projected monthly expenses) - You can calculate this by creating a budget which includes your average monthly expenses for the previous 6 months plus your expected monthly expenses related to your potential new home
  4. Assemble your network of trusted professionals...
    • Find a trustworthy real estate agent you can communicate with about...
      • Finding the up-and-coming neighborhoods
      • Comparing the pros and cons of various homes
      • Navigating the preapproval process
      • Whether an asking price is appropriate
      • Negotiating with sellers and handling potential bidding wars
      • Submitting paperwork and preparing for closing
    • Inquire about a preferred mortgage company that the agent has worked with and trusts
    • Consider hiring a real estate lawyer (They are not required in every state, but they can be useful if you end up in a complex legal situation)
  5. Estimate how much you can afford...
    • Use a Home Affordability Calculator (How much house can I afford? - Nerdwallet)
    • Consider your monthly payments using the 28/36 Rule...
      • Monthly mortgage payment and all other housing costs (Property Taxes, Insurance, HOA Fees, etc.) shouldn't exceed 28% of your gross monthly income
      • Total debt payments (Mortgage, Car Loan, Credit Cards, etc.) shouldn't exceed 36% of your gross monthly income
    • Leave room in your budget for non-mortgage expenses such as utilities, HOA fees, maintenance and repair costs, etc.
  6. Explore your mortgage options & Get preapproved...
    • Gather the necessary documentation...
      • Previous addresses and current landlord’s contact information
      • Bank and investment account statements from the past 90 days
      • Proof of employment (Including previous 2 pay stubs and tax returns) 
    • Request and compare quotes from multiple lenders...
      • Compare them based on aspects like interest rate, monthly payment, and closing costs
      • Don't worry about multiple applications negatively effecting your credit score as any mortgage applications you make will only count as one inquiry if done within a 45-day period
      • You may qualify for a variety of first-time homebuyer loans that offer low or 0% down payment options including those from the...
        • Federal Housing Administration
        • Department of Veterans Affairs
        • Department of Agriculture
    • Look into assistance programs that offer down payment and closing cost funds you don't have to pay back
  7. Create your "Homebuying Wishlist"...
    • Research different markets, neighborhoods, and home styles using homebuying tools such as the Multiple Listing Service (MLS)
    • Identify your non-negotiables versus your wants...
      • Location (Clear of flood zones, near public transportation, proximity to main roads, etc.)
      • Number of bathrooms/bedrooms
      • Community amenities
      • Appliance quality
      • Square footage 
      • Natural light
      • Yard size
      • Parking
    • If you intend on "House Hacking" to help make the costs of homeownership more affordable, you should consider additional factors such as...
      • Areas without restrictions (HOA's can sometimes deny non-owner occupancy or short-term rentals)
      • Multiple bedrooms (Or areas which can be easily converted)
      • Municipal and state zoning laws 
      • Septic/sewer limitations
      • Overall square footage
      • Secondary entrances
      • Extra utility hookups 
      • Finished basements  
  8. Make an offer (Be prepared to renegotiate if necessary)...
    • Consider factors such as...
      • Whether offers have already been made on the house
      • The state of the housing market (Nationally & Locally)
      • How long the house has been on the market
      • Appliances to be included
      • Repairs needed
    • Your offer should include specific contingencies such as ...
      • How soon you need to be in the house
      • Whether you need to sell your current home to buy this one 
    • Be ready with your...
      • Earnest Money
      • Option Fee
      • Inspection Fee
      • Appraisal Fee 
  9. Schedule your home inspection (You should expect to pay for an inspection within 3-5 days of an accepted offer, and before the mortgage company schedules an appraisal)...
    • You will get a list of items that are damaged or need a safety upgrade (Decoding a home inspection report - Bankrate)
    • This could affect whether you want to move forward or change your offer so it can be used as a negotiating tool
    • You should go through the home walk-through with the inspector while taking notes and pictures of the major systems...
      • Plumbing
      • Electrical
      • HVAC
      • Foundation
      • Roof
  10. Order a home appraisal (Mortgage lender does this after accepting an offer on a home)...
    • A third-party appraiser will determine the home's fair market value based on the characteristics of the home and the market
    • If the appraisal comes in at or above the offer you made, you can move forward to closing
    • If the appraisal comes in at less than the offer you made, you'll face a problem with your lender as they won't approve a loan for more than the house is worth, and there will be 3 potential options to be negotiated...
      • The buyer pays the difference
      • The buyer and seller split the difference
      • The seller comes down in price
  11. Prepare for closing...
    • Get homeowners insurance (You will need to show proof of coverage at closing if you finance your home with a mortgage)
    • Perform a final walk-through of the home...
      • To ensure the negotiated repairs have been performed and that everything is in working order
      • If you plan to make renovations after closing, request the current owner’s permission to shop around for contractors, painters, carpenters and other trade workers to consult with about future repairs
    • Bring the following items to the closing table (Your lender may request additional financial information and documentation as a part of the underwriting process)...
      • Proof of homeowners insurance
      • Money for your down payment and closing costs (Sent via wire transfer from your bank to the office of the attorney who’s handling your closing. As an alternative, you may be able to present a cashier’s check at closing)
      • Identification (Driver’s license or Social Security card)
      • Loan documents (Closing Disclosure, etc.)
  12.  Complete post-purchase tasks...
    • Budget and plan for moving...
      • Create an organized packing system (Unpack room by room, etc.)
      • Take inventory of your belongings
      • Clear out unnecessary items 
      • Hire a moving company
      • Schedule time off from work
    • Secure your new home...
      • Change the locks & garage codes (You don't want the previous homeowners to still have access to your home) 
      • Check your carbon monoxide alarms, natural gas alarms, and smoke detectors
      • Get familiar with your new home and neighborhood
      • Set up safety measures for kids and pets
      • Install a security system if necessary
    • Update your documents, key accounts and contact information...
      • File a change of address form with the Postal Service (You can have mail forward to your new address for up to 3 months)
      • Update your information with entities such as...
        • IRS (IRS)
        • Department of Motor Vehicles (DMV) (Get a new license and register your car)
        • Social Security Administration (SSA)
        • Banks and credit card companies
        • Insurance companies
        • Health care providers (Transfer your medical records after identifying a new provider)
        • Voter registration
        • Employers
      • Locate a safe space to store your important documents...
        • Closing documents (Make copies)
        • Social Security Cards
        • Birth Certificates
        • Passports
    • Plan for maintenance and repairs...
    • Other important tasks...
      • Familiarize yourself with your new utility service providers, and schedule your start dates (Water/sewer, electricity and/or gas, trash collection) 
      • Set up cable & internet service
      • Deep clean your new house 

 

Utilizing a qualified financial coaching service, such as Spartan Financial Coaching, is becoming increasingly necessary in a rapidly evolving financial landscape.

If you would like to see if we can work together to tailor a plan to conquer your unique financial situation, click the link below to contact me for a FREE 30-minute introductory session.

Looking forward to meeting you!

30-Minute Introductory Session

 

Sources:

https://www.jchs.harvard.edu/sites/default/files/reports/files/Harvard_JCHS_State_Nations_Housing_2022.pdf

https://www.jchs.harvard.edu/sites/default/files/reports/files/Harvard_JCHS_The_State_of_the_Nations_Housing_2024.pdf

https://www.experian.com/blogs/ask-experian/what-is-seasoned-money-for-down-payment/

https://www.rocketmortgage.com/learn/best-home-buying-checklist

https://www.zillow.com/agent-resources/agent-toolkit/first-time-home-buyers-checklist/

https://money.usnews.com/loans/mortgages/articles/a-checklist-for-first-time-homebuyers

 https://www.rocketmortgage.com/learn/what-to-do-when-you-move-into-a-new-home

https://www.bankrate.com/real-estate/things-to-do-when-moving-into-a-home/

https://www.redfin.com/blog/things-to-do-after-buying-a-home/ 

Close

50% Complete

Two Step

Lorem ipsum dolor sit amet, consectetur adipiscing elit, sed do eiusmod tempor incididunt ut labore et dolore magna aliqua.