Home Buying Checklist: 9 Steps to Buying a Home

Are you ready to take that big leap in life and start searching for your first home? We understand that no matter how exciting it is to search for a home, it can be confusing and overwhelming, too. That’s why we’ve created this step by step guide to help you navigate the home buying process. Take a look to become more knowledgeable about the process and gain confidence in your decisions. Happy house hunting!

We’ll walk you through each step of the home buying process, but feel free to jump around to areas you want to learn more about.

1. Assess Your Finances

Your lender will look at a number of factors when deciding if they should give you a loan or not. Income, debt, savings and your credit report are all assessed by your lender when making mortgage decisions. So understanding where you stand financially helps you set realistic goals for your house buying endeavor.

Check your credit score. Among everything that’s looked at, your credit score is the biggest factor in determining if you’ll get approved or rejected for financing. Your credit score is a statistical number that represents your creditworthiness, and your lender uses your score to evaluate the probability that you’ll repay your debts. Learn more about what’s included in your credit report.

Find out how much you can afford. Now that you’ve taken a good look at your finances, determine how much you can afford to spend and how much you’re willing to spend. Try a mortgage affordability calculator to determine how much house you can actually afford. Don’t forget to take into account any homeowner’s association fees, property taxes, homeowners insurance and utility costs — all of which will affect your monthly expenses beyond your mortgage payment.

Set a budget and save for a down payment. Now that you have a number in mind, it’s time to crack down and start saving! Saving for a home is a dream many people have — and it’s definitely achievable. But to make it happen, you’ll need to set a budget that’ll help you get there. Take a look at ten ways to save for your first home.

How much do you need for a down payment on a home? If you want a low interest rate and to avoid private mortgage insurance, your best bet is to at least have a down payment of 20 percent. Some mortgage lenders do allow down payments of 5 percent or lower, but your interest rates will be much higher and you’ll be required to buy mortgage insurance.

2. Find a Mortgage That’s Right for You

A mortgage is a loan that you borrow from a bank or private lending institution in order to purchase a home. You agree to pay back this loan, plus interest, in a set amount of time (known as a term).

You may have heard of a “fixed rate” and “adjustable rate” when researching info about mortgages. But what do they mean and how do they differ? Let’s take a look.

Fixed rate mortgage. A fixed-rate home loan is when the interest rate is locked in for the term of your loan. A 30-year fixed rate is the most popular choice for a mortgage, because the borrower will pay a fixed interest rate for 30 years.

Adjustable rate mortgage. An adjustable rate is the opposite of fixed — your interest has the ability to go up or down. So, your rate will depend on predetermined intervals that reflect the current market. The benefit of this type of mortgage is it often starts with lower interest rates. Typically, for the first three to seven years, your rate stays “fixed” and then is adjusted annually for the remainder of the loan.

Just like you shop around for the best price and services for your insurance, you’ll want to do the same for your mortgage. You’ll want to choose a reliable, reputable lender, so do diligent research before committing to any unbelievably cheap rates. Take a look at some more info about mortgage and home loan basics.

3. Get Pre-Qualified and Pre-Approved for a Mortgage

Now that you’ve done some frontend work, it’s time to see what you can actually spend on a home. The best way to do this? Get prequalified for a mortgage. It’s actually pretty simple to get prequalified — you’ll work with your mortgage banker and provide your income, amount of savings and any investments you have. They’ll assess your information and provide a rough estimate of how much they can lend you.

A mortgage preapproval goes one step further and is key to bringing your home-buying pursuit to life. You’ll provide some more financial information to your lender, and when you get preapproved for a mortgage, you’ll receive a preapproval letter. This letter shows real estate agents and sellers that you have financial credibility and you have the ability to go through with a sale.

Find out more about the prequalification and preapproval process to get you in the know.

4. Start Shopping for a Home

Now for the fun part — shopping for the home of your dreams! Or at least something close to it. Take a look at some important tips for shopping for a home.

Choose a real estate agent. One of the most important steps when shopping for a home is finding a real estate agent — this person will be your lifeline! A good real estate agent knows everything about the housing market, neighborhoods and homes you tour, and their negotiating expertise will be valuable come time to put in an offer. The best part? An agent won’t cost you anything for their service, since they’re compensated from the commission paid by the seller of the house. Thinking of going it alone? Be sure to check out the pros and cons of buying a house without a realtor before making a decision.

Make a list of ‘wants’ and ‘needs.’ As you head out on your search, you’re going to view some really exciting homes and some homes that don’t match what you’re looking for. But, what’s important is first understanding what you actually want versus what you need from your home. A want is something you’d like to have but you can change over time. Make a list of what’s most important. Here are some things to think about when creating your list:

• Is it located near things that interest you? School district, parks, restaurants, shopping centers, etc.
• Is the home located on a busy street or in a quieter neighborhood?
• How many bedrooms and bathrooms do you need?
• Is garage and storage space important?
• Do you plan on having a home office?
• You can always add new paint, carpet or floors — don’t be thrown off by vanity issues that can easily be fixed later.

This is just a short list to help guide you in the right direction, but your list will be unique to your own wants and needs. Take the time to write one out and bring it along when you meet with your real estate agent so they can better understand what you’re looking for and get you as close to your ‘dream home’ as possible.

Visit properties. Now that you have your list in hand, you can set out and start touring some properties! You’ll probably see a lot of houses, so it’ll be helpful to take notes on all the homes you visit. Take your time walking through homes and don’t rush any of the process — your home will be one of your most valuable investments!

5. Make an Offer

Did you pick a winner and are ready to put in an offer on a house? That’s exciting! Now it’s time to work with your real estate agent and negotiate a fair price. Here are some important things to remember when negotiating an offer:

• Know the value of comparable homes in the same neighborhood and base your offer on that information.
• What’s the most you’re willing to pay? Don’t start with that as your offer. Work back from a final price to determine your first offer. Your agent will help you evaluate the sellers’ motivation and help you choose an appropriate offer.
• Be prepared for a yes! It’s great news to hear your offer has been accepted, so go ahead and celebrate. But keep in mind that the purchase isn’t set in stone until you and the seller sign the contract. There are still a number of steps to be taken after getting that exciting phone call.
• Don’t seal the deal until you’ve had an inspection. Sure, you want the house, but don’t waive the inspection in order to get your offer approved. An appraisal contingency allows you to back out of the deal if the lender determines the appraised value is less than the sale price.

6. Shop for Homeowners Insurance

Now that you’ve gotten your offer approved, you’ll want to start searching for home insurance. Homeowners insurance is typically only required if you have a mortgage, but even if you don’t have a mortgage, home insurance is critical for protecting your investment. If you already own a home, you can call up your insurance agent to let them know a new home is in the works. They’ll help you write a new policy.

If this is your first time buying home insurance or you’re looking to switch providers, do some digging and research among a variety of companies. When it comes to homeowners insurance, working with an agent is the best way to get the coverage specific to your needs. Our advice? Connect with an American Family Insurance agent — they’ll help you navigate the home insurance buying process and help build you personalized protection to give you confidence in your coverage.

7. Review Sale and Complete Mortgage Application

Review contract details and clauses. Your real estate agent can help your review your contract or you can hire a lawyer (this option might cost you a fee). Your contract will list several conditions that must be met before the closing actually takes place. These conditions are known as “contingencies.” Here are a few common contingencies you’ll want to make sure are included in your contract:

• A financing contingency, where you’ll need to secure a loan or other financing to purchase the house. This is where that mortgage preapproval is so important, because getting preapproved shows your credibility and the likelihood you’ll be approved for an actual mortgage.
• A home inspection that finds no significant damages or defects.
• A guarantee that you’re allowed to conduct a walk-through inspection 24 hours before closing.

Order a home inspection. Your real estate agent typically helps you rearrange an inspection to be conducted within a few days of your offer being accepted by the seller. A home inspector will walk through the property and check for any structural damage or anything that might need fixing. Depending on the findings, you might renegotiate your offer or withdraw it without penalty given the inspection revealed significant damage.

Submit your mortgage application. You’ve already gotten preapproved for a loan, but now it’s time to complete your mortgage application. This is when you’ll decide on whether to go with a fixed rate or adjustable rate mortgage.

Your bank will also order that a home appraisal needs to be conducted. An appraisal is similar to a home inspection, but its purpose is to protect your lender by ensuring that the home is “as-described” and matches the purchase price of market values in the area. Once the appraisal is conducted, the bank uses this information to determine if the loan they’re willing to give you aligns with the price of the home.

8. Closing Day

Finally! The closing is the last step in the process and the day you’ve been waiting for. Here’s what you’ll need:

Bring ID, payments and paperwork to closing. You’ll want to gather all the paperwork you’ve received throughout the process, including your loan estimate, contract, proof of insurance, proof of mortgage insurance (if necessary), home appraisal and inspection reports, and closing disclosures. There are also a number of fees you’ll pay at closing, which your real estate agent will inform you of before closing day.

Do a final walkthrough of the house. You’ve probably seen the house more times than you can count at this point, but a final walk through of the house gives you an opportunity to guarantee the seller has completely vacated the property and left it in the condition specified in your sale contract.

Sign the paperwork. Here’s where it becomes officially official! You’ll sign any legal documents, such as the agreement between you and your lender regarding the terms and conditions of the mortgage, as well as the agreement between you and the seller to transfer the ownership of the property.

9. Get the Keys and Move In!

Congratulations! The home is now 100% yours (well, and your banks if you have a mortgage). Your sale contract lets you know when you can move in — sometimes it’s the day you sign the closing papers and sometimes you’ll be able to move in a few days after closing. Either way, you’ve just completed the home buying process and can now begin the great adventure of being a home owner!

At American Family Insurance, we support and care about homeowners. That’s why we have a vast arsenal of insurance resources to better help you understand your coverages and how insurance works. Start with our home insurance overview to get in the know.