MCU’s 10-Step Home-Buying Checklist
Dreaming of the day you can stop renting? The path to homeownership can be a long and confusing one. The key to start early and plan ahead! Get started today check out our 10-step home-buying checklist below.
1. Save for a Down Payment
While a mortgage may be able to cover up to 97 percent of your new home’s price, you will still need to plan and save for a down payment. In addition, the more you can save, the better – having a larger down payment will not just reduce your monthly mortgage bill but will make a more competitive offer on a home. Putting down a 20 percent down payment will even help you to avoid paying the monthly expense of private mortgage insurance (PMI).
2. Get Preapproved for a Mortgage
To start saving, potential homebuyers will need to sort out their finances and are encouraged to pay off any outstanding credit card debts, boost savings and look into special down payment assistance programs (these are especially helpful to first-time homebuyers).
A mortgage preapproval from a lender is a formal estimation of how much you, as a potential homebuyer, are qualified to borrow. This preapproval, which will come in the form of a letter, can speed up the home-buying process by helping you to pinpoint your price range, secure a real estate agent, narrow down potential neighborhoods and motivate sellers.
3. Narrow your Search
Once you know approximately how much house you can afford, it’s time to look at the details of where to live and the type of home that can best fit your lifestyle and budget. To get the best idea of what you need, buyers can browse real estate websites, visit potential communities and take advantage of open house events.
4. Shop with a Real Estate Agent
By taking time to prioritize your needs and identify the specifics of how you’d like to live in your new home, you’ll be able to set realistic expectations and narrow down the neighborhoods you’d like to start your search.
You’ve done your homework and determined the types of homes and locations best suited for you and your budget. Now, it’s time to hire a real estate agent!
5. Make an Offer
While it isn’t always necessary to hire a real estate agent, they can be a huge help. An agent will understand the real estate market and will save you time and frustration by working in your best interest to prescreen properties, ask tough questions about a home’s condition and help with negotiations. Your agent should also be someone who listens and has no problem answering any questions that are asked of him or her.
Despite working with a real estate agent, it is important to know that should you never feel pressured to rush into a decision.
Making an official offer on a home is more complicated than calling up the seller and naming a price you’re willing to pay. This is also a time when having an agent will really come in handy. Because an offer is legally binding, it must be written down and include the details of what you’re willing to pay and the terms of the offer. These terms may include the target date for move in, your down payment, the type of deed that will be granted to the buyer and the method by which real estate taxes, rents, fuel, and utilities are to be adjusted or probated between the buyer and seller.
6. Complete a Home Inspection
Most sellers respond within 24 hours to accept, reject or counter your offer. If a counteroffer is proposed, your agent will recommend a plan and then start negotiations with the listing agent. Once an offer is accepted, you and the seller will be in what’s known as mutual acceptance and will proceed to closing.
Completing a home inspection should always be a contingency to any offer made on a home, as it is an easy and relatively inexpensive way to know the reality of your potential purpose.
7. Secure your mortgage
A home may look move-in ready, but an inspector will cover features of the house such as electrical wiring, plumbing, roofing, insulation, as well as structural features of the home and may unveil issues that are not noticeable to the buyer’s eye. Once the inspection is completed, the home inspector will provide you with a report suggesting any improvements or repairs deemed necessary to bring the home up to current standards.
If potentially expensive flaws or damages are uncovered in the home, you’ll have the opportunity to renegotiate with the sellers for a better price or to back out of the deal.
While being preapproved for a mortgage will speed up the process, you’ll still need to apply for your mortgage. Even if you have been preapproved, you as a borrower should always shop around for the best rates and terms.
8. Home Appraisal
To secure your mortgage, a lender will need to feel confident that know you’ll be able to repay the loan. At minimum you’ll need to show proof of steady income and provide last year’s W-2 form, approximately two months of recent pay stubs, and your tax returns from the past year. Depending on your income history and the size of the loan, you may also have to show additional paperwork including your earnings outside of your primary employments, debts, assets and recent monetary gifts.
A home appraisal is an important part of securing your mortgage because it assures you and your lender of the property’s value. Unlike a home inspection, a home appraisal does not solely focus on the structure and condition of the home. Instead, a home appraisal estimates the property's approximate value by considering the location of the home, its proximity to desirable schools, the size of the lot, the size and condition of the home itself and recent sales prices of comparable properties, among other factors. This is completed by MCU during the mortgage process.
9. Obtain Home Insurance
Because your lender holds a lien on your house until you've paid off your mortgage, they will want to ensure that their (and your) investment is protected. This means that in most cases, you'll need to prove to your lender that you've prepaid one year's worth of home insurance coverage on the home before you can close.
10. Close on your home
Among other things, a standard homeowner’s insurance policy will generally protect you against hazards like fire, hail, theft smoke damage, falling objects (like branches) and frozen plumbing. And while the requirements may vary depending on the lender, it’s recommended that you carry enough coverage to pay for the cost of rebuilding your home from the ground up in the event of a disaster.
You’re almost there!
A closing meeting is the final step to becoming a homeowner. During this meeting, you and the seller will gather your attorneys, real estate agents, closing agent, lender representative and a notary public to complete the necessary paperwork and final steps.
As the buyer, you’ll first do a final walkthrough of the home to ensure everything is in order. The seller will then sign certain documents transferring property ownership. You’ll review and sign all your loan documents, provide documentation on homeowner’s insurance and inspections and provide a certified check to cover the down payment, closing costs, prepaid interest, taxes and insurance. Depending on your loan terms, you may also be required to set up an escrow account to cover property taxes and homeowners insurance.
This is also when your lender will distribute the funds covering your home loan amount to the closing agent.