Buying a home is a big decision and a complex process. To make sure you cover all your bases, it's important to understand the many steps involved in the homebuying process. This homebuying checklist helps turn the complicated process of homeownership into easy to understand steps. First, determine your debt-to-income ratio (DTI).
This is your monthly expenses compared to your cash income or the bills you pay, divided by your monthly gross income. Debts include recurring bills, such as car payments, daycare payments, and student loans. Most lenders require your DTI not to exceed 43%. The safest rule of thumb dictates that your mortgage loan payment should not exceed 28% of your monthly gross income.
Your lender will use this number as an initial reference point in their calculations to determine the loan amount you may qualify for. When you can pay 20% of the purchase price of a home as a down payment, you're in a good position with your mortgage lender, often resulting in a lower interest rate and can save you thousands of dollars in the future. You'll also find that your monthly mortgage payments are smaller because you owe less for the house. A 20% down payment also eliminates the additional monthly payment for private mortgage insurance, or PMI, a type of insurance that is often required if you make a down payment of less than 20% of the home purchase price.
PMI becomes part of your mortgage payment to protect the lender, not you, if you stop paying your loan. Depending on your circumstances, loans are available with much lower down payment requirements, ranging from 3.5% to 10%. If you're a veteran, you may qualify for a no-down mortgage known as a VA loan. Whatever your situation, you'll want to start saving each month for your down payment.
Be sure to see if you are eligible for down payment assistance programs that can help reduce the amount of money you spend on a home. Fortunately, the money-saving tactics mentioned in the second step of the homebuying checklist can also help you increase your credit score. The next step is to find a real estate agent you can trust. Make sure you're comfortable with the person you choose; the home buying process can be stressful and it's imperative to have an expert on your side who takes your interests into account.
They will guide you through many of the later steps of the home buying checklist. Once you've selected a lender you want to use and before you start looking for homes, get a mortgage pre-approval. A pre-approval includes a maximum loan amount and puts the agent in a position to negotiate with confidence on your behalf. It also strengthens your offer to the seller because a bank is already willing to lend you the money, which increases the likelihood of closing the sale.
This is an essential step on the homebuying checklist. You'll also want to decide how many bedrooms and bathrooms you prefer and the total area of your ideal home. Don't worry about every corner of the house, but understand that an average two-bedroom house in the U. S.
UU. A “Tiny House” Is Less Than 1,000 Square Feet. Whereas a “big house” reaches 3,000 square feet or more. Arguably, the most pleasant step on the homebuying checklist is attending open days and visitation.
See open house announcements and start visiting homes that fit your criteria. If they are in the chosen location, it is ideal but not essential. Open houses outside your desired location can be great opportunities to get ideas about what kind of house fits best with your lifestyle and budget.