Written by Rebecca Graham | Last Updated January 6th, 2020Rebecca Graham manages the mortgages blog at BestCompany.com and writes to empower readers to make sound financial decisions based on thorough research. She loves sushi, bluegrass music, and hiking.
Buying your first home is one of those milestones that can take years to build up to. There are many questions to ask before making such a big commitment: Am I ready? How do I start the process? Do I have enough money saved? There are a lot of i’s to dot and t’s to cross. And, unfortunately, watching HGTV isn’t enough to fully prepare you.
Luckily, with the assistance of other real estate experts, we have created a house hunting checklist for you to consult before you begin house hunting — and eventually you’ll be ready to fully pursue and complete the home buying process!
Read on for detailed insights about house hunting preparation from real estate experts who have experience with all aspects of house hunting and buying.
1. Get financially fit
This is an obvious one, but not everyone knows how much money is enough for a decent down payment and a nice head start on paying off their home. And there are misconceptions about the importance of credit scores as well as income requirements for a loan approval.
Consistently save for your home
Regardless of how soon you plan to purchase a house, it is beneficial to put aside a certain percent of your income to ensure that saving money becomes a consistent habit.
Saving at least 20 percent of your income is a good place to start. Depending on the housing market and your income, you could potentially be ready to purchase a home in the next 12 to 16 months. If a 20 percent savings goal is unrealistic in your current situation, you can put aside a smaller amount for a longer period of time.
When saving money to buy a house, it is also important to factor in closing costs in addition to the down payment. This is going to call for more money out of pocket, so further planning and budgeting is essential. Closing costs usually account for about two to five percent of the purchase amount on the house you are closing on.
Work on your credit score
Your credit score plays a significant role in the loan process. Although credit score requirements vary based on the type of loan and loan agency, anything below a 620 is most often considered poor. Having a credit score above that number is going to make getting a loan much easier. Being aware of your credit score and keeping it as high as possible will save you significant stress in the home-buying process.
Senior Loan Officer Kim Hankins advises prospective homebuyers on specific ways to protect and improve their credit score:
Budget, work consistently, treat your credit score like your adult GPA, and be organized and conservative with your finances — that’s all a lender could ever dream. First-time homebuyers often overlook the importance of a strong credit score. An 800 credit score is more valuable than $100,000 in the bank.
To strengthen your credit score, open credit ASAP — just two cards — then use them but don’t abuse them. Don’t charge more than 30 percent of the high limit, pay monthly to 10 percent of the high limit and do that again and again and again. Avoid late payments and treat the threat of a collection account like an attack on your life.
Determine how much home you can realistically afford
Utilizing financial calculators, running numbers on your own, and consulting with lenders about your financial situation, you can determine a reasonable loan amount and price cap for the homes you will consider.
John Bodrozic, Co-Founder of HomeZada, recommends doing thorough research of the costs associated with homeownership:
Buyers should get a handle on their finances before they start house shopping. This means getting an understanding over how much money you have for a down payment, determine how big of a mortgage loan you will qualify for, and estimating your total income against the annual cost of homeownership plus all your other life expenses.
Use mortgage calculators to estimate your monthly payments and estimate the annual household expenses such as utilities, property taxes, and preventative and normal repair costs. Once you have these numbers, then you will know what price range of a home your finances will support.
This method makes sure you are looking for house that is within your budget, versus getting emotionally attached to homes you really love but financially you cannot afford them. It also helps you be a more competitive and ready buyer because once you have the financial aspects down, you are ready to move quickly when you find a home that works for you. Other competing buyers for the same home may not have their financial house in order so you can move quicker with your offer.
Agent Tim Bartkowiak suggests prospective home buyers set up a separate account in which to deposit a monthly “pretend” mortgage payment to make sure budget calculations are sound:
What I always recommend to first time home buyers is to start by figuring out what they can afford, and determine what the mortgage payments would be. I tell them to have a separate account, where they can deposit the expected mortgage payments each and every month (minus current rent expenses).
By doing this, they can gauge if the current mortgage is affordable with their desired lifestyle, or if a smaller home, with a smaller mortgage, would be more feasible. This also helps them put away a little extra money for their future down payment, should they require it.
2. Build a strong real estate team
Shop around before committing to a lender
Doing research, talking to loan companies, and getting quotes is going to be the best way to discover what lender and loan type is best for you. You can consult our list of top-rated lenders to learn more about specific lenders and what they offer prospective borrowers.
There are also several loan types, so it is important to find the one that best fits your individual situation. Determining factors on loan choice include loan length, payment choices, credit score, and interest rates. Keep in mind that not all lenders offer all loan types.
Kendra Barnes, Founder of The Key Resource, offers three suggestions for lender shopping:
- Shop around. Most buyers go with the first lender they call because they aren’t aware that they can shop around! Just because a bank gives you a pre-approval letter does not mean you have to stick with them!
- Ask about incentives. Ask the lender if they have any incentives such as lender credit at closing or fee waivers.
- Make them compete for your business. As you’re shopping around, be sure to tell each lender you call what the other lender is offering. Ask them if they are able to match or beat that lenders terms.
Realtor Jennifer Okhovat also mentions the importance of incentives as well as rates:
Take the time to shop rates and see where you can get the lowest rates and the best benefits.
Do your research and ask your realtor and mortgage broker if they know about any homebuyer incentives offered in the neighborhoods you are looking in. Or, perhaps there are incentives such as first time homebuyer credits, less closing costs, or discounts that may apply when you are purchasing.
Find a realtor who is on top of their game (and a good fit)
Looking for a house is demanding enough, and adding the stress of actually finding choices that suit you can be even more difficult. Consider using a real estate agent to guide you through this taxing process.
They can take a lot of the pressure off of you as the buyer by helping you find houses that are in your price range and meet your expectations. They also have extensive experience in the process as a whole, so they are invaluable resources for questions and advice.
But every realtor is not a good fit for every buyer, and there are practical considerations to keep in mind.
Shawn Breyer, Owner of Breyer Home Buyers, describes what buyers can do to maximize efficiency and success within the realtor-client relationship in a high-speed market:
A lot of buyers will find a home online, reach out to their realtor, and schedule a time to view the property when everyone's schedule aligns. What's worse, sometimes buyers will wait to tour homes until they can fit two to three showings into one day to save time.
This is a faulty approach in two ways; you may be wasting your time looking at properties you don't like and you may be touring the home too late.
You should be finding properties online and then doing a drive-by the property and the neighborhood as soon as possible before reaching out to your realtor. When you do this, you will quickly weed out homes that don’t match your criteria. Imagine that you're trying to find a home in a well-maintained neighborhood and a couple of the neighbors have cars parked in the yard that they are working on. These are things that Google Maps or the listing may not show. You will weed out properties much quicker with this approach while respecting your realtor's time by not making them meet you at houses that you instantly realize you don't want to buy when you pull up.
In a competitive market, speed is king. Maybe your schedule, your realtor's, and the seller's don't line up to see the home for a week. In the meantime, other buyers are getting in to see the property and make offers. You're at a serious disadvantage by waiting to check out the property ahead of the showing with the realtor.
Find a highly recommended property inspector
Alex Romanov, iwillbuyhouse.com Co-Founder, emphasizes the importance of an oft-overlooked aspect of house hunting:
Prior to house-hunting, every buyer should find a highly recommended property inspector. A careful property inspection done by an expert can save you tens of thousands of dollars of costly repairs. Therefore, the top inspectors are highly sought after and are often booked for weeks in advance, so it helps to get one on your team as soon as possible.
3. Get a full pre-approval
Prepare paperwork and complete a loan application
Senior Loan Officer Amy Tierce describes why it’s smart for prospective buyers to work with a lender from the very beginning:
Speak with a competent mortgage lender if the borrower is not looking to purchase for as long as a year out. Why? Because there are many items that can impact qualification, starting with credit. If there is a error on the credit, getting it corrected can take weeks, which is often too late if you have an accepted offer on a home.
Self employed (Schedule C) buyers need to look at year over year income and may want to change the way they file to maximize income. Multiple asset accounts or complicated down payment strategies may also need to be addressed. For example, if a borrower is getting a gift, or has money in a trust or other financial vehicle, some adjustments may need to be addressed prior to buying.
Imrad Poladi, Vice President of NextHome, describes what the ideal pre-approval process looks like:
It's been said before, but having a complete pre-approval process with a reputable lender is critical in the early stages of a home search. Buyers should aim to have as deep of an approval as possible.
Do your best to get what is known as underwriting approval, which basically means that the buyer has been vetted to buy a home up to a certain purchase price and all that is left to do is find the right home. The lender sees no current red flags on providing the buyer a home loan.
Talk to your lender about buying down your rate
Poladi also suggests buyers look into buying down the interest rate on their loan:
Depending on the type of loan, every $1,000 negotiated down only saves the buyer a few dollars per month. But if the buyer buys down the rate, the savings could be far more significant on a monthly basis. I suggest that a buyer talk to an agent and/or lender for further clarification on how this would work.
4. Decide on renovation and maintenance limits
Before deciding what you want and need in a home, it’s a good idea to start by asking yourself what you can handle when it comes to preparing a home to be lived in and maintaining the home and yard once you’re in it.
Compare the benefits of a turn-key home or fixer upper
John Bodrozic, Co-Founder of HomeZada, explains how buyers can compare the implications of the choice between a turn-key home or a fixer upper:
The financial aspects of this choice should be explored in detail to see what each type of home will cost both up front and over the long run.
Here is an example of this financial analysis. With a turn-key, everything is perfect and the home will command a premium purchase price. So as an example, with a $400,000 house with a 20 percent down payment of $80,000, your mortgage would be $320,000. At current market rates, with a 30-year fixed-rate loan of 4.5 percent, the buyer’s monthly mortgage payment would be $1,620 and you would pay approximately $263,000 in total interest over the 30-year loan.
A fixer-upper type of home usually would sell for less, so let’s assume the same size home might sell for $325,000. A 20 percent down payment would be $65,000, which would be upfront cash savings of $15,000. The mortgage would be $260,000, which at the same 4.5 percent interest rate would be a $1,317 monthly payment, which is a savings of $303 every month. The total interest on this loan would be $214,000, which is an overall $49,000 savings from the other scenario.
With the fixer-upper scenario, now the buyer must determine per house what renovations are required and get accurate estimates based on the design, products, and brands they choose. The ability to pay for those renovations could come from the savings in down payment along with the savings over time of having a lower monthly mortgage payment.
Realtor Tania Isacoff Friedland of Warburg Realty weighs in on the question of how much capital and time is realistic to invest in a property:
Some first-time buyers think they'll like the excitement of a renovation, but it's important to take into consideration the realistic cost and time involved to complete the work. In addition, renovating to your taste level or specifications is not always what someone else will want, so I caution first-time buyers doing a renovation not to "over-renovate" and to keep things simple. When it comes time to re-sell, no one wants to overpay for someone else's renovation.
Many first-time buyers don't have the time or energy to endure a renovation and will pay up for modern conveniences in a new development. Don't be misled, as there's still work to be done in new construction aside from decorating. For example, you will most likely have to outfit the closets and wire for audio-visual technology.
Determine what home and yard maintenance you can handle
Realtor, Broker, and GRI Frances Dawson reminds first-time home buyers to consider yard maintenance:
One common pitfall for first time homebuyers is not considering the maintenance of properties compared to the time they want to spend. A condo or townhome has a monthly fee for maintenance, but frees the homeowner's time for other pursuits. A property with a big yard or acreage, while appealing, can quickly become an overwhelming drudge or an expensive chore to hire out.
PHR Timothy G. Wiedman explains yard maintenance involves costs as well as time:
Maintaining a home's lawn and landscaping and doing routine exterior chores (like cleaning gutters and downspouts, for example) cannot be avoided. So if a home buyer is moving from an apartment and doesn't own a lawn mower, weed-whacker, hedge trimmer, various lawn and garden implements, a couple of ladders, a 50-foot garden hose, and possibly even a small snow-blower depending on the region, he or she will start spending a fair amount of time at Home Depot with credit cards in hand, while making new friends among the sales staff.
So before going house-hunting, a prudent first-time home-buyer might want to spend some time in the lawn and garden department of a big-box retailer pricing the items that will have to be purchased — and then budget accordingly.
5. Determine your priorities and deal breakers
Dream up what you want (and what you don’t)!
Knowing what you want may sound like the easiest task of them all, but this can be difficult to decide, especially if you are buying a house with someone else. If that is the case, you have to find a house that matches both of your tastes.
- Do you want a quaint, petite house? A large, sprawling one?
- How many bedrooms are you looking for?
- Where do you want the house to be located?
- Do you want a big yard?
- Do you want to live in a populated neighborhood or a secluded area?
- And underlying all of these important questions: do your wants match your price range?
If you know what you want ahead of time, the process of buying a house is going to be less grueling.
And if you are buying the house with someone, make sure you communicate with each other. Decide together what you can and can’t live with to create a vision of your future home.
Realtor Tracey Hampson recommends the whole family participate in this process:
I always recommend doing a want list and a need list with the whole family. It helps so much! I wish my previous buyers had listened to me and done this. We had been looking for homes for about six months and they finally decided on a gorgeous home, but when they told their children they burst into tears because they did not want a swimming pool! I know, what kid doesn't want a swimming pool? So including the whole family is always a good idea!
Tania Friedland advises homebuyers to be thoughtful and flexible:
Educating yourself on the market early on is critical as it helps you to prioritize your wish list and understand where you can unlock value in your search. Be flexible as you learn more about yourself throughout the process. There might have been something on your wishlist that you thought you could not live without at the beginning of your search. However, as you see more properties you might come to realize that this particular feature is less important than you previously anticipated.
Aside from the essentials (i.e., number of bedrooms, bathrooms, square footage), some home features to consider when you're making your wish list are ceiling height, closet space, versatility of the space, in-home laundry, a doorman, outdoor space, as well as additional storage in the building.
Study cities and neighborhoods in-depth
Suburban Jungle Founder and CEO Alison Bernstein shares three recommendations for town and neighborhood hunting:
- Don’t prioritize the house itself over the town in which it resides because selecting the right town is critical to your life and family development. The goal is to find you and your brood in a place where the culture and values of the town match yours. You can always trade up or down for a new home, add a third bathroom, or renovate a basement.
- Don’t excessively limit your search area by your commute. Just 10 more minutes on the train or bus could perhaps score you a lot more for your money. Be flexible about a train station. Though a town may not technically have a train in town you may be just 5-10 minutes via car to one or many neighboring stations.
- Don’t over romanticize walkability. Often, buyers coming from more urban centers feel they need a house as close to the shops and restaurants as possible. The reality is that schooling, sporting events, and other activities often take place out of the town center, limiting the use of this feature which once appeared most important.
From a purely non-subjective standpoint, House Heroes Co-Founder Earl White recommends looking into neighborhoods that are most likely to hold value over time:
Nobody wants to buy property in the process of depreciating. Sales comparison prices and online estimates look back in time, not forward.
The clearest sign that a neighborhood will continue to hold its value is average days on the market. The days on market part of a listing tells you how long properties take to sell — it is an objective measure of neighborhood demand. If properties are sitting around for long periods of time at a certain list price, market values will fall below that price.
When houses are “flying off the shelf,” it’s a good sign values will be stable or even appreciate. Similarly, regardless of sales comps, if houses are sitting on the market and not moving, it’s a sign prices are on the way down from those list prices.
Kendra Barnes takes neighborhood shopping a step further, suggesting buyers research the future plans for a particular area to avoid unpleasant surprises:
When scouting out a home, research future plans for the neighborhood and surrounding area. Go to the Office of Planning website for your city or attend city planning meetings.
6. Take a deep breath
Are you feeling overwhelmed? Second-guessing your pursuit of buying a home?
Focus on the benefits of homeownership
It’s a big deal to buy a home and there’s a lot to consider and prepare for. But if you follow these steps and are in a financial position to purchase, you can do this!
Real Living Reserve Realtors Associate Broker Christine Allocca brings attention to the fact that paying a mortgage has some benefits over paying rent:
Remember that comparing a rent payment to a mortgage payment is not apples to apples. New home buyers can deduct mortgage interest on up to $375,000 of debt for individuals and up to $750,000 for married couples. Additionally, rents always go up in the long term while mortgages don't.
Steve DiMarco, President of Key Mortgage Services, reminds first-time buyers of the long-term benefits and achievability of homeownership:
While it's a seemingly large investment at the time of purchase, this is an investment in your future and your overall wealth. The investment goes beyond the physical home. You're not just purchasing a piece of real estate, you are building wealth. Homeownership is the first very important step toward that wealth creation.
I tell first-time buyers that they are overlooking how achievable homeownership is. There are so many programs for first-time buyers — programs that require as little as three percent down. That's a few months of savings right there to get you into your home.
Mentally prepare for unexpected surprises
House hunting brings unparalleled excitement as well as the potential for disappointment. As you prepare for the journey of house hunting, keep Tania Friedland’s advice in mind:
Things always work out the way they're supposed to be. It's always disappointing to lose a property that seems "perfect," but when you close on a home that's meant to be yours, you won't look back.