A First-Time Home Buyer’s To-Do List

Purchasing a first home is a significant financial milestone. This guide provides a clear overview for first-time home buyers.

Preparing Your Finances and Mortgage Pre-Approval

Before searching for a home, establish a clear financial picture. Review income, expenses, and savings to create a realistic budget. Beyond the monthly mortgage, account for property taxes (0.5-2% of assessed value annually), homeowners insurance (premiums vary, often paid via escrow), utility costs, and maintenance. Regular maintenance and unexpected repairs can add 1-4% of the home’s value annually, necessitating an emergency fund.

Saving for a down payment and closing costs is substantial. Down payments range from 3.5% for government-backed loans (like FHA) to 5% or 20% for conventional mortgages; 20% often avoids private mortgage insurance (PMI). Closing costs, covering loan and property transfer fees, generally amount to 2-5% of the loan. These include loan origination, appraisal, title insurance, and recording fees. A dedicated savings plan and reduced discretionary spending accelerate fund accumulation.

Improving your credit score is important for securing a mortgage. Lenders use credit scores (e.g., FICO, typically 300-850) to assess creditworthiness. A higher score (generally above 700) can lead to more favorable interest rates and loan terms. Obtain free annual credit reports from AnnualCreditReport.com to check for inaccuracies. Paying bills on time, reducing debt, and avoiding new credit applications improve your score.

Securing mortgage pre-approval clarifies borrowing capacity. Pre-approval differs from pre-qualification; pre-qualification estimates affordability, while pre-approval involves a thorough financial document review, resulting in a conditional lender commitment. Lenders typically request W-2 forms (past two years), recent pay stubs (30-60 days), bank statements (2-3 months), and federal tax returns (last two years). This process culminates in a pre-approval letter, stating the maximum loan amount, helping buyers understand their price range, and demonstrating seriousness to sellers.

Explore mortgage options; your lender will guide you. Common types include fixed-rate mortgages (consistent interest rate) and adjustable-rate mortgages (ARMs, rate changes after initial fixed period). Government-backed options include FHA loans (lower down payments, require mortgage insurance premiums), VA loans (eligible veterans, no down payment), and USDA loans (low-to-moderate-income rural buyers, often no down payment). Each has specific eligibility criteria and financial implications.

Searching for a Home and Submitting an Offer

After financial preparation and pre-approval, begin searching for a home and making an offer. Define clear home criteria, distinguishing between needs and wants. Consider factors like location, number of bedrooms/bathrooms, square footage, and features like a yard or garage. Also, evaluate commute, local school quality, and neighborhood amenities.

Working with a real estate agent is beneficial. A buyer’s agent acts on your behalf, providing market knowledge, MLS access, and negotiation skills. They identify properties, arrange showings, and interpret market trends. Agents are typically compensated by the seller, making their services free to the buyer. Choose an agent by seeking referrals, reviewing online testimonials, and conducting interviews for a good fit.

The home search involves various methods. Online listing platforms like Zillow or Realtor.com provide extensive databases with photos and virtual tours. Agents can also provide curated lists. Attending open houses offers an opportunity to view properties in person and assess condition, layout, and appeal. During showings, observe structural integrity, major system condition (HVAC, plumbing), and any signs of wear or necessary repairs.

Crafting a competitive purchase offer is important once a home is identified. An offer typically includes the proposed purchase price (at, above, or below asking, depending on market conditions). It outlines contingencies, conditions that must be met for the contract to be legally binding. Common contingencies include a satisfactory home inspection, buyer securing financing, and appraisal value meeting or exceeding the purchase price.

The offer specifies the earnest money deposit (1-3% of purchase price), held in escrow to demonstrate commitment. The proposed closing date, usually 30-60 days from acceptance, is also included.

Negotiation involves exchanging offers and counter-offers. After a buyer submits an offer, the seller can accept, reject, or issue a counter-offer with revised terms (e.g., price, closing date). This continues until both parties agree or one withdraws. The real estate agent plays a central role, advising on strategies, communicating offers, and ensuring legal aspects are addressed. Their expertise helps reach a mutually agreeable outcome.

Completing Due Diligence and Finalizing the Purchase

After an offer is accepted, due diligence begins to protect the buyer’s investment. A home inspection is a primary component, assessing the property’s condition. A qualified inspector (often certified by ASHI or InterNACHI) examines the home’s structure, roof, foundation, electrical, plumbing, and HVAC systems. The report details deficiencies, safety concerns, or necessary repairs, which can be used to negotiate with the seller for repairs or credits at closing, depending on inspection contingency terms.

An appraisal is a mandatory step, required by the lender to ensure the property’s value supports the loan. A licensed appraiser evaluates the home’s market value based on its condition, features, and recent comparable sales. The appraisal protects the lender by confirming they are not lending more than the home is worth. If the appraisal is lower than the purchase price, the buyer may pay the difference in cash, renegotiate, or, if a financing contingency is in place, potentially withdraw.

Securing final mortgage approval transitions the buyer from pre-approval to a full loan commitment. The lender’s underwriting department thoroughly reviews financial documents, including updated pay stubs, bank statements, and may request gift letters for down payment gifts. This process ensures the borrower meets all lending criteria and the loan is sound. Timely submission of requested documentation prevents closing delays.

A title search and title insurance are important for verifying clear property ownership. A title search examines public records to ensure no existing liens, unpaid taxes, undisclosed heirs, or other encumbrances affect ownership. Title insurance protects both the buyer (owner’s policy) and the lender (lender’s policy) against future claims from undiscovered title defects. The one-time premium is typically paid at closing.

Depending on the state, a legal review by a real estate attorney may be recommended or required. The attorney reviews the purchase agreement, title documents, and other closing paperwork to protect the buyer’s interests and ensure legal requirements are met. They clarify complex legal language and advise on potential risks. Legal counsel provides an added layer of security.

A final walkthrough of the property is conducted shortly before closing (typically 24-48 hours beforehand). This allows the buyer to ensure the property is in the agreed-upon condition, negotiated repairs are completed, and no new damage has occurred. It also confirms all fixtures included in the sale remain in place. Any discrepancies should be addressed immediately with the real estate agent and seller.

The closing process, also known as settlement, is the final stage where property ownership officially transfers. This typically occurs at a title company or attorney’s office, attended by the buyer, seller, real estate agents, and a closing agent or attorney. Buyers sign numerous documents, including the promissory note (promise to repay loan) and the mortgage or deed of trust (secures loan against property). They also review the Closing Disclosure, detailing all financial aspects (loan terms, fees, credits). Funds are transferred, and upon completion of paperwork, keys are handed over, completing the home purchase.