The ripple effects of the pandemic have found their way into all aspects of life, including the homebuying experience. Buying a home may seem particularly daunting in a masked, socially distant world, but it needn’t be. That’s why it’s important to find guidance you can trust.
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The new guide to homebuying
A step-by-step checklist, according to members of the National Association of REALTORS®
A REALTOR® is a member of the National Association of REALTORS®, and these agents can safely guide you through the process.
Below is a step-by-step homebuying checklist, according to members of the National Association of REALTORS®.
1. Team up with the experts.
You need an expert and an ally in your homebuying journey. When you work with a REALTOR®, you’re working with a professional who has committed to abide by a strict Code of Ethics, which ensures honest and fair dealings with clients, other real estate professionals, and the public.
- Gather referrals from friends, family, and colleagues, or find a REALTOR® online.
- Interview two or three real estate professionals, and be sure to ask if they’re REALTORS®.
- Sign a buyer’s representation agreement.The agreement details the services you’re entitled to and what the real estate professional will provide in return.
- Gather names of others to add to your team. Along with your real estate agent, you’ll likely be working with a lender or mortgage broker, a real estate attorney, a home inspector, and a title or escrow company.
2. Figure out your finances.
Interest rates are still at historic lows, so your monthly mortgage payment may be less than you expect. But even if you feel confident that you’re ready for mortgage payments, you’ll need to get your finances in order to include all potential costs associated with the home purchase.
- Research your credit score. Generally, lenders require a minimum score of 620, though borrowers may be able to get approved for a Federal Housing Administration (FHA)-insured loan with a score in the 500-580 range.
- Know your debt-to-income ratio (DTI) – that is, what you owe each month as a percentage of what you earn. Most lenders recommend your DTI should be no higher than 43%.
- Work with your real estate professional to establish a realistic budget that matches your housing expectations. An agent who is also a REALTOR® has access to resources that will help you understand the price realities of your market before you start searching for homes.
- Determine your down payment. Putting down 20% of the home’s price will exempt you from having to pay an extra monthly fee for private mortgage insurance (PMI). There are many loan options that allow for a smaller down payment, and you may find that you’re eligible for special lending programs as low as 0% down.
- Use an online housing affordability calculator, which takes into account your annual income, monthly debt, down payment, credit score, location, and more.
- Remember to factor in the extra costs of homeownership, too, like estimated property taxes, maintenance costs, homeowners association or condo fees, homeowner’s insurance, and closing costs.
3. Establish your property needs.
Carefully consider what you want in your new home. An agent who’s a REALTOR® can help you narrow your search and find the home that’s right for you.
- Determine your ideal location and neighborhood. Your real estate agent can help by providing objective data and resources about the communities you are considering.
- Make a list of home features that are non-negotiable, as well as a wish list. Share these with your agent upfront so they can help guide you through important considerations, such as compromises you may need to make, so you can get the features or lifestyle amenities that are most important to you.
- Rank your wants and needs in order of importance. Housing inventories are low in many parts of the country, so be prepared to stay flexible and keep an open mind.
4. Get a mortgage pre-approval.
Unlike pre-qualification, which gives you an idea of the mortgage amount you’ll likely qualify for, a mortgage pre-approval is a conditional commitment to actually grant you the mortgage. Since the start of the pandemic, sellers have wanted to avoid unnecessary showings. Some seller’s agents are requiring pre-approval as a way to weed out people who aren’t serious buyers.
- Shop around for mortgage lenders. Your agent can suggest some lenders if you need a place to start. Talk to at least two or three to compare and contrast terms and offerings.
- Choose a loan type. Do you want a fixed-rate mortgage or an adjustable-rate mortgage? The Federal Housing Administration (FHA) offers loans with down payments as low as 3.5%. Other loans, including those guaranteed by the Department of Veterans Affairs, allow for down payments as low as 0%. And many states have down payment assistance programs for qualifying first-time buyers. Explore the options with your real estate agent or mortgage lender.
- Collect the paperwork needed for pre-approval. A lender will run a credit check and request documents to verify your income, employment, assets, and debts.
5. Conduct your house hunt.
Now for the fun part! With all of the technology available, you have more options today than ever when it comes to viewing homes, whether that’s in-person or virtually.
- Review online listings that match your criteria. Talk with your agent about what you liked and disliked, and what you might want to view in-person.
- Take tours of your favorite properties, either in-person or virtually. Be sure your agent is a REALTOR®, a member of the National Association of REALTORS®, since they have exclusive access to tools to expertly guide you through any of your questions and concerns.
- Gather essential information about the property. Ask your agent to compile extra details about the costs of the home you’re interested in (such as the utility costs, homeowners association rules, and condo fees) so that you can factor them into your decision. Most states also require home sellers to complete a disclosure statement that reveals known material facts about the property, such as a foundation issue or past water damage. Generally, buyers receive the statement after they’ve made an offer so they can factor any issues into the negotiation.
6. Make an offer.
Once you’re ready to commit to a house, you’ll need to be prompt in submitting an offer. Work with your agent to discuss the best strategy for placing a competitive bid. Here are the steps you will take with the expertise and guidance of a REALTOR®.
- Review comparable properties, recent home sales, and average price per square foot, so you can put forward an offer that’s competitive and in line with the market.
- Be prepared to negotiate on other aspects beyond just price, such as closing costs, mortgage points, home warranty, repairs, and cosmetic updates or furnishings.
- Determine your earnest money, which is the money you plan to put down when you make an offer. Earnest money typically ranges from 1% to 3% of the purchase price, and it goes into an escrow account. Later, if your offer is accepted, your escrow deposit can be used toward your mortgage down payment or closing costs. Ask your agent about any provisions in the contract that might make it difficult for you to reclaim these funds if the transaction falls through.
- Decide upfront how you’ll handle any contingencies, such as those based on the home inspection results or appraisal. Talk with your agent about the pros and cons of any contingencies you want to include in your offer. Remember: the fewer contingencies you have, the more attractive your offer will appear to a seller.
- Be ready for a counteroffer. It’s common for sellers to counter the price and other requests, such as closing dates. Agents who are REALTORS® have the expertise to guide you through negotiations and address any questions you have at this crucial stage.
7. Go under contract.
The seller just accepted your offer and you’re officially under contract! Now, it’s time to think about inspections, closing, and moving day.
- Arrange for a home inspection. It’s essential to hire a qualified home inspector and schedule an appointment as soon as possible. An inspector will do a thorough review of the structure and mechanicals of the house. Depending on the area you’re moving to, you may need to schedule additional inspections, such as a termite inspection. Your real estate agent can explain what’s typical for your area and can recommend several qualified inspectors.
- Review inspection reports with your agent to determine if you’ll want to negotiate with the seller for any repairs.
- Obtain a homeowner’s insurance policy. Your lender will require it before you can close. Also, check whether you need any supplemental insurance not covered by standard policies, such as flood insurance.
- Your lender will arrange an appraisal to value the home and ensure that your loan size is accurate. If the appraisal comes in lower than the price you agreed to pay, be prepared to head back to the negotiating table.
8. Close the deal.
You’re almost at the finish line – it’s closing day! Buying a home in a pandemic means that some of the administrative work may take place online. Your agent should have the expertise to get you through to a worry-free closing.
- Check in with your lender and your agent several days before closing to go over any questions and review paperwork. Confirm the closing date with all parties involved.
- Make sure your funds are ready to transfer – but remember to use caution. Wire fraud is real. Never wire funds based on an email from any party (including one that appears to be from your agent) without confirming the arrangements in a telephone call to a known number. The National Association of REALTORS® and the American Land Title Association offer tips on how to avoid mortgage closing scams.
- Change your address. Contact the USPS to have your mail forwarded to your new home.
- Set up your utilities. Your agent can get a list from the seller’s agent of the current providers. You will need to arrange for service to be turned over to you on closing day.
- Ensure you have all of the required documents for closing day. Typically, you’ll need identification (usually two forms of it), proof of insurance, and a check, cashier’s check, or proof of wired funds.
- Sign all closing documents. Be sure to keep your copies in a safe place.
- Take the keys. You did it! It’s time to begin a new chapter in your new home.
Want to find a REALTOR®, a member of the National Association of REALTORS®? Click here.
Click below to watch a video on the Future of Homebuying