What Do You Need to Buy a House? A Comprehensive Checklist

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|10 min read

Buying your first home is a significant life decision. Not only is this one of the largest purchases you have likely ever made, but it is also an investment in your future. You are going to make countless new memories in your home and reach other major life milestones.

However, buying a house might seem difficult if you are a first-time buyer. Even people shopping in a favorable buyer’s market have to do extensive preparation and research before they are ready to make an offer. Fortunately, you can streamline the process by knowing what to expect and preparing the right documents. 

What do you need to buy a house? This guide will cover everything from preparing the right documentation to estimating how much house you can afford. Follow these steps so you feel better prepared for the entire process.

1. Qualifying Credit

The first step before you start looking at houses is to check your credit score. Most lenders require a minimum credit score of 620 to approve a loan. Some lenders might accept credit scores in the 500s, depending on the program you are applying for. 

Your credit score reflects how reliable of a borrower you are. A high credit score in the 700s or 800s shows that you are a low-risk borrower and very likely to make payments your payments. You may have a lower credit score if you frequently miss payments on your debt or utilize a high percentage of your credit.

Generally, borrowers with higher credit scores receive lower interest rates. This leads to lower monthly payments because the cost of the loan is lower.

Make sure your credit score falls within an acceptable loan range and decide whether you want to take steps to increase it before you start the mortgage application process.

2. Proof of Income and Finances

While your credit score is a good starting point to show your mortgage lender that you are a trustworthy borrower, you will also need to show other financial documents to secure a home loan. U

nderwriters who work for mortgage lenders often review these documents to confirm that your income is stable and enough to afford the loan payments. A borrower with a stable income is less likely to miss payments. 

Here are a few documents you can gather that your lender might ask for. Saving these files digitally will allow you to easily send them to the bank or credit union that you are working with. 

  • Bank statements that report the amount of cash you have in each account. 
  • Tax returns that reflect how much you earned each year. You will need to file your taxes for the current year and your lender might ask for the previous years as well. You can preemptively request copies of your tax records from the IRS before you start the home-buying process. 
  • Copies of your W-2 forms from your employer – or W-9 forms if you are a contractor – reflect your gross monthly income. This will be used to prove that you’re currently employed while helping your lender calculate your debt-to-income ratio. 

Your lender might ask for other financial documents related to your savings, investments, and other monetary assets. By keeping as many financial documents as possible organized and accessible, you can easily fulfill any requests your lender has so the loan approval process isn’t delayed. 

3. Cash Needed to Close On Your Home

The next step is to identify the amount of cash on hand you’re going to put down to buy a house. This includes both your down payment and the closing costs associated with buying the property. Most buyers pay between 2% to 6% of the loan amount in closing costs. Many lenders will build the closing costs into the mortgage loan, so you can focus on your down payment instead.

Currently, the average down payment is 14.4% of the home’s value. If you are applying for FHA loans through the Federal Housing Administration, you might be able to purchase a house with a down payment as low as 3.5%. 

There is a strong incentive to save for a larger down payment if possible. If your down payment is higher than 20% of the home’s value then you won’t have to pay an extra fee called private mortgage insurance (PMI).

This fee ranges from 0.2% to 2% of the loan’s value. You will continue to pay PMI until you have at least 20% equity in the house. Lenders charge PMI to borrowers with small down payments because the loan is a higher risk. If the house is foreclosed on, the bank has to recoup a larger percentage of the home’s value.  

That said, it is often unadvisable to put all of your savings into your down payment. You will want to set aside a nest egg for emergency expenses like home repairs. Lenders often ask borrowers to set aside a little money instead of putting it all into the house. Know how much you have for a down payment before you start talking to lenders.

4. Home Buying Budget

Gathering financial information like your W-2 forms and ideal down payment can help you set a home-buying budget. You can understand what you can afford in terms of monthly payments and then decide how much home you can afford. 

Lenders always start with debt-to-income ratio calculations when considering mortgage pre-approval. On average, the loan payment cannot exceed 36% of your monthly income if you don’t have other debts like car payments and student loans. If you have a monthly pre-tax income of $10,000, and no other debts, then your maximum mortgage payment would be $3,600.

The loan size isn’t the only factor to consider when estimating your monthly payments. Lenders will also consider the interest rate they are charging, PMI if your down payment is less than 20% of the home’s value, and other costs like property taxes and home insurance. If you want to estimate what your monthly payments will be, turn to online mortgage calculators.

Running these calculations on your own can help you estimate what your purchase budget should be. You can then set realistic parameters based on where you want to live and how much you want to pay each month.

5. Mortgage Loan

With all of this information on hand, you can start researching different mortgage loans. Lenders will ask for this documentation and will guide you through their proposed terms. There are multiple different types of mortgage loans you can apply for when you want to buy a house.

First-time home =buyers can look into FHA loans while veterans can seek out loans from the VA. If you’re moving to a rural part of the United States, you can research USDA loans which provide favorable terms even if you have a small down payment. 

The majority of home buyers will apply for conventional loans from banks, credit unions, or private lenders. These organizations will review your finances and complete an underwriting process to confirm that the documents you provide are accurate. It takes between 30 to 60 days for mortgage loans to be approved on average. Be patient and respond quickly to any requests for paperwork that your lender requires. 

Many people don’t realize that they can shop around to different mortgage lenders to find the best possible loans. Review FastExpert’s recommended questions for mortgage brokers and speak to at least three lenders before choosing the best one.

Interviewing multiple lenders will increase your chances of getting favorable mortgage loan terms, which means you will save money in the long run while enjoying lower monthly payments in the short run.

6. Mortgage Pre-Approval

The best time to secure a mortgage pre-approval is before you meet with real estate agents and start looking at houses. This can give you confidence that the home-buying process is possible while helping you set a realistic budget.

If you aren’t already working with a lender when you start looking at homes, you risk touring properties that are out of your budget. The timeline to buy a house could also be longer because you need to interview brokers and provide your financial documents to their underwriting teams. 

There is often confusion between getting pre-qualified for a loan vs. being pre-approved. Pre-qualification occurs when you self-report your finances. A lender might ask high-level questions like your monthly income and the amount you have in your savings.

They will then estimate your maximum loan size. Pre-approval is when the lender reviews the documents you submit and provides a concrete amount for how much you can borrow. 

You will likely go through the pre-qualification process when you first decide to buy a house. you will then need to be pre-approved if you are serious about making offers.

7. Real Estate Agent

The final step before you start touring homes is to hire a real estate agent. A qualified Realtor will help you set showing appointments, make offers, and negotiate terms with sellers. Your real estate agent is your expert who can help you overcome roadblocks and move forward with your dream to buy a house.

In the same way that it is important to interview multiple mortgage brokers, you will also want to interview multiple real estate professionals. Meet with at least three Realtors and ask them about their expertise, target neighborhoods, and strategies to make your offer stand out.

Not only do you want to confirm that the real estate agent has the experience you need to complete this transaction, but you also want to make sure they are a good personality fit. You will be talking with your Realtor almost every day throughout the buying process. 

As the buyer, you are not responsible for paying your Realtor’s commission. The seller usually pays the commission of the listing agent and the buyer’s agent when they close on the house. This means you do not need to factor commission costs into your offer.

Steps to Buy a House

Gathering documentation to apply for conventional loans and estimating your mortgage payments are the pre-steps that come with buying a house. Completing the pre-approval tasks can make the bidding and loan approval process easier.

Once you feel like you’re in a good place financially, you can move forward with your plan to buy a house. Here’s what you need to do.

Talk to a Real Estate Agent

Create a plan with your real estate agent to look at homes and make offers. Be clear about your timeline, expectations, and goals. You may want to review your financial documents with them, including your down payment and debt-to-income ratio.

This will give them an idea of your ideal budget. You don’t want to hire a Realtor who shows you houses you cannot afford.

Determine Your Needs and Wants

Everyone wants to buy their dream house, but that might not be a reality right now. You can’t guarantee that your ideal home is on the market or within your budget. A good exercise before you start touring homes is to identify your needs vs. your wants. 

  • Your needs include the minimum number of bedrooms and bathrooms along with potential essential features like a garage. 
  • Your wants include bonus features that would be nice and would make living in the home more comfortable. Examples of wants include a fireplace, a pool, an extra bathroom, or a home office. 

Your wants are features that you are willing to compromise on, while your needs are essential to any home you consider buying. Some buyers even make physical lists of their wants and needs before they start touring homes.

Start House Hunting

Finally, you can start touring homes. Look for houses that you are interested in seeing or attend open houses to get a feel for the properties in the local market. Your agent will schedule it showing times that work for your schedule and the schedule of the seller.

If you really like a house, you can schedule a second showing to tour it in depth and decide if you are ready to make an offer.

Make an Offer

Your Realtor will help you submit a bid on the property you’re interested in. They will go over relevant information like your down payment, the window to apply for a mortgage, and the closing date.

Your offer can also include information like the number of days you have to complete the home inspection process and any other contingencies you have. 

The seller will either accept the bid or provide a counteroffer. Both parties will negotiate back and forth until they reach a deal or one person walks away.

Home Inspection and Appraisal

Once your offer is accepted, you can move forward with the home inspection and appraisal process. This is often required by lenders before they will approve loans. The inspection highlights any potential issues with the home and essential repairs that need to be addressed before the closing date. The appraisal estimates the value of the home and ensures the sale price is fair. 

If the home has an excessive number of repairs or issues, you can renegotiate with the seller. If the appraisal comes in much lower than the listing price, you can also return to the negotiating table.

Close the Deal

The final step is to close the deal. The closing appointment is when you will transfer any necessary paperwork into your name and take complete ownership of the house.

Closing occurs after the bank or credit union approves your loan and submits it to the title company. Your Realtor will let you know when you are cleared to close.

Know What You Need to Buy a House

Homeownership can be a fulfilling experience and a smart financial investment. However, the steps required to buy a house can be exhausting and at times overwhelming. If you understand the process before you start meeting with brokers and looking at homes, then you can take steps to streamline the purchase process.

Gather as many financial documents as you have so you can easily send them to your mortgage lender. Understand what your ideal monthly mortgage payments would be so you can set a realistic budget. Finally, make sure you have a trusted real estate agent by your side to help you overcome unexpected obstacles.

To find a real estate agent in your area, turn to FastExpert. this is your source for top real estate professionals in your area. You can read Realtor profiles and get to know the different people who are eager to help you. Try FastExpert today and take the first steps toward buying a house.

Amanda Dodge

Amanda Dodge is a real estate writer and expert. She has worked in the field for more than eight years. She spends her time writing and researching trends in real estate, finance, and business. She graduated with a bachelor's degree in Communications from Florida State University.

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