Ready to start looking for your first home? Househunting, offering, and closing can seem intimidating. Here are 8 steps to help you get started on this exciting journey.
Congratulations on starting your journey towards becoming a homeowner!
This is a big step in your life, and we know that navigating the process can easily feel overwhelming. That’s why we’ve put together this checklist of 8 steps to help you hunt down and close on your perfect first home.
Each section starts with clear action items that you can use to keep track of your progress over time. Then we explain each item to help you understand what it means and why it matters in your home buying journey.
Remember, there’s no need to feel overwhelmed. Just take it one step at a time.
Just so you know, this checklist will be most helpful for you if you’ve already gone through the process of applying for financing and know how much home you can afford.
If you haven’t gotten there yet, don’t worry! You can find our checklist of steps to preparing and applying for a mortgage here.
Now let’s find you a home!
SEARCHING FOR YOUR HOME
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Set a budget and stick to it
Action Items:
- Calculate your pre-tax income
- Multiply your pre-tax income by 30% to figure out your maximum monthly payment
- Work with your lender to figure out what your maximum purchase price is, based on your maximum monthly payment
One of the most important things you will do when beginning your home search is set your budget.
Your budget will include two numbers:
- How much you can afford to pay each month for your mortgage
- The maximum price you can pay for your home
A good rule of thumb is that your monthly payment should be no more than 30% of your pre-tax monthly income.
Your pre-tax monthly income will be the total income that you and your co-borrower (if you have one) earn across all of your income sources each month.
Once you have that number, multiply it by 0.3 (30%) to figure out your maximum monthly payment. For example, if your total monthly income is $5,000 then your maximum monthly payment will be $1,500 ($5,000 x 0.3 = $1,500).
Keep in mind that 30% is just a commonly suggested cap. You should not set your maximum monthly payment higher than the amount you feel comfortable paying considering all of your financial obligations.
If using 30% of your pre-tax monthly income as a mortgage payment will prevent you from paying for all your other necessities, then you should lower your maximum monthly payment to a number that will allow you to do that.
Once you’ve calculated your maximum monthly payment, let the lender(s) you’ve been working with know what that maximum is and ask them what you can set your home budget at with that in mind.
Congratulations! Once you’ve completed this step and have a firm budget set, it’s time to start home shopping.
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Work with a qualified agent
Action Items:
- Reach out to multiple real estate agents who are familiar with the neighborhoods you want to live in
- Read their online reviews and ask for testimonials from satisfied customers
- Just like with your lender, make sure that the agent that you choose to work with is patient with you and answers all your questions
When looking for a real estate agent, a good place to start is by finding out which agents are active in the neighborhoods that you’re interested in.
If you know anyone who owns a home in a neighborhood you like, ask them if they would recommend the real estate agent they worked with to buy their home.
Searching online for real estate agents in your desired neighborhood will also help you find prominent agents in those areas. Look for agents who have the most positive reviews that are easy to find. There are many agents out there, and you want to make sure you’re talking to the ones who have a history of satisfied customers.
Once you’ve found at least 2-3 agents in the areas you like who have positive reviews, reach out to them by phone, email, or social media and set up a time to get to know them.
Take at least an hour either over the phone or, preferably, in-person with them to share your needs and ask them about their experience in the neighborhoods you like.
At this point, be looking for them to listen patiently as you share your situation and then give you a good idea of what type of home you can expect based on that. You want to feel confident that the agent both understands your needs and knows the market.
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Make a list of pros & cons for each house
Action Items:
- Start touring homes!
- Make a pros & cons list for each house you look at
Home shopping can be a lot of fun. You’ll get to picture your future in every house you see.
But, once you’ve looked at a few houses, it’s easy to start forgetting what you liked and disliked most about each one. That’s where pros & cons lists can help.
Making pros & cons lists will go a long way in helping you imagine what life would be like in each home when you tour it.
As you look at different homes, write down what you did and didn’t like about each one.
Picture yourself making dinner, watching TV, working from home, or listening to music. Are the walls thin? Is the couch facing away from the TV? These are all things you want to be aware of before you buy the home and move in!
Then, once you’re ready to start making offers, your pros & cons lists will make it quick and easy for you to remember what you’ve liked and disliked about each one.
MAKING OFFERS
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Offer strategically
Action Items:
- Decide which of the homes you’ve seen so far best fits your needs
- Have your agent get as much information as possible on the seller’s situation
- Work with your agent to make a reasonable and competitive offer
Once you’ve found a home that you’re excited about, it’s time to start offering. Strategy is key.
Understanding the seller’s situation and needs will substantially increase your odds of making an offer that gets accepted. While price tends to be what people think first about when offering, it’s likely only one of multiple factors in the sellers’ decision.
It may be more important for them to sell as quickly as possible, or to find a buyer who they believe will treat their home well in the future.
There are many things the seller may be taking into account, and your agent should get as much information from the seller’s agent as possible.
Once you understand the seller’s situation, work with your agent to figure out what price and terms to offer. You’ll want to consider how competitive the market is and if you’ll be competing against other offers.
Keep in mind that it’s easy to get caught up in your excitement when you’re offering on a home. You may feel motivated to make an offer that’s more aggressive than it needs to be.
Make sure to remember that this is likely one of the largest emotional and financial decisions you’ll make in your life. The terms of the offer you make today will have a big impact on your future, so make sure you don’t offer more than you absolutely need to given the situation.
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Know when to counter offer
Action Items:
- If the seller makes you a counter offer, choose the best response based on your needs
- If you choose to make your own counter offer to the seller, work with your agent to understand why the seller is countering and how you can best meet them in the middle
Sometimes, when you make an offer, the seller will respond with a counter offer. A counter offer means that the seller agrees to accept your offer if you choose to accept the new terms they are proposing.
A seller’s counter offer will often ask for a higher purchase price or a shorter escrow, but could include changes to any of the terms of the offer you originally made.
You can either accept the seller’s new terms, make your own counter offer, or move on to offering on other homes.
If you choose to make your own counter offer, work with your agent to figure out the new terms. Your agent will need to approach the seller’s agent to best understand why the seller made a counter offer and how you might best come to a compromise with them.
GOING UNDER CONTRACT
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Plan your home inspection ASAP
Action Items:
- Find a reputable home inspector in your area
- Have your agent coordinate a time for inspection with the seller
- Review the inspection report with your agent
- Consider negotiating a lower price if unexpected repairs are needed based on the inspection report
Once your offer is accepted, you are officially under contract to buy your new home.
There will be a “due diligence” period that usually lasts 2-3 weeks depending on what you and your agent specify when making your offer.
Organizing a home inspection is one of your most important tasks once the due diligence period begins.
You’ll need a reputable home inspector to perform a complete inspection of the home’s physical condition and mechanical systems, like the roof, heating and air conditioning systems, plumbing, and more.
Your agent will likely have multiple inspectors they’ve worked with in the past that they can recommend. You can also search online for home inspectors in your area.
When considering a home inspector, make sure they have positive reviews online. There are also multiple certifications available to home inspectors that you can look for, such as membership in the American Society of Home Inspectors (ASHI) or the International Association of Certified Home Inspectors (InterNACHI).
Once you’ve chosen an inspector, have your agent coordinate a time to have the inspection done with the inspector and the seller. Once the inspection is complete, your inspector will generate a full report for you and your agent to review.
Read the inspector’s report carefully and have your agent do the same. Note any observations of disrepair or malfunctioning systems. Then, work with your agent to decide whether to try negotiating a lower price based on the repairs that need to be made.
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Understand the importance of the appraisal
Action Items:
- Understand how the appraisal will affect the purchase process
- Have your agent keep you informed of the appraisal process
- Work with your agent to strategize if the appraisal comes in lower than expected
Another important part of the due diligence period is the appraisal.
The appraisal is the lender’s way of ensuring that your home is worth what you’re paying for it (and what they’re lending on it). When a home is appraised, a licensed appraiser performs a physical inspection of the home and then analyzes recent sales of homes in the area to determine the home’s fair market value.
Because the appraisal is primarily to protect your lender’s investment, the lender will usually be the one to choose the appraiser. Your agent will then coordinate with the appraiser and the seller to schedule the appraisal.
Your agent can also support the appraisal by gathering data on recent sales that justify the price you’ve offered, as well as talk to the listing agents of other homes in escrow nearby to find out what those are selling for. This is information that may be useful in influencing the final value of the appraisal.
If the appraisal comes in lower than the agreed upon price, your lender will require you to make a decision about how to compensate for the difference between the two.
Your options will likely be to negotiate a lower purchase price, put up more cash, or back out of the deal.
One final option you can consider in the case of a low appraisal is an appeal. Request a copy of the appraisal and review it with your agent. In some cases, the appraisal may be so low that it is worth appealing. Work with your agent to determine whether this is the case and how to proceed with an appeal if necessary.
Let’s do an example to help you understand how a low appraisal can affect your purchase: you are under contract to buy a $200,000 house and plan to put $20,000 down (10%). This means that your lender is expecting to issue you a mortgage of $180,000 (the purchase price of $200,000 minus your down payment).
But, the appraisal ultimately determines that the house is worth only $190,000. This means that your lender will only be willing to give you a mortgage of $170,000 ($190,000 minus your $20,000 down payment).
You’ll need to get the seller to lower the purchase price to $190,000, or you’ll need to increase your down payment to $30,000 in order to fund the full $200,000 purchase price.
If neither of these options end up being possible, you will likely need to back out of the deal.
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Become a homeowner!
Action Items:
- Close on your new home
Once the inspection and appraisal have been taken care of, you will likely have cleared all the hurdles in becoming a homeowner.
Your agent will walk you through the specifics of closing based on your contract and local laws.
Once you’ve closed escrow and taken title, you are officially a homeowner!
Your agent will get keys from the sellers once they have moved out (that date will have been specified in your contract).
And now the real fun begins: living life in your very own home.
Download the printable PDF checklist by clicking the image below:
The 8 Steps to Finding and Buying Your First Home – Checklist