The journey to becoming a homeowner may be complex, but there are plenty of resources to help you along the way. Review this list of considerations and next steps as you gear up to purchase your new home.
How To Prepare for a Home Purchase
So you made the big decision to buy a home. Now what?
1. Evaluate your readiness and estimate “how much house” you can afford.
A good benchmark is putting no more than 25–30% of your monthly gross income toward housing payments, including mortgage costs, homeowners insurance and property taxes. If you’re a first-time buyer, make sure to budget for things that may not be part of your current rental expenses, like garbage removal or landscaping.
2. Select a mortgage lender and consider applying for a conditional pre-approval letter.
Asking friends and family members for referrals can be a good way to source candidates.
Documents to prepare for pre-approval:
- Credit report
- Last year’s IRS Form W2 or 1099
- 30 days of pay stubs
- Recent bank statements and federal tax returns (or business returns if self-employed)
- Recurring debt obligations
- Employment history
3. Identify a real estate agent to help you navigate the buying process.
A professional can help provide in-depth knowledge about price trends in your desired neighborhood, highlight potential building concerns and/or determine what differentiates two seemingly similar properties. An agent can occasionally help you get access to homes that may not be available on the market yet and can help set up viewing appointments on your behalf.
4. Create a list of “must-haves” and “nice-to-haves.”
Most homebuyers have a wish list for their dream home, which might include proximity to certain schools or the downtown district, ample outdoor space or a chef’s kitchen. While in a perfect world you’ll be able to find a property that checks all the boxes, it does help to have realistic expectations and a flexible mindset. Write down what you’re willing to compromise on and what your non-negotiables are.
5. Go house hunting.
Consider the type of home you are looking for and evaluate the pros and cons of your options. Single-family homes, condominiums, townhouses and co-ops may fit different lifestyles and have different ownership requirements.
6. Find an attorney who can review and prepare any required documents.
A purchase this significant comes with a lot of paperwork. You may want to enlist a legal professional who can help you manage it all.
7. Do your due diligence.
Before you close on your new home, there are a few housekeeping items you may need to take care of:
- Conduct a home inspection. The inspector (often an engineer) will assess the building and any major infrastructural systems. An inspection is typically only conducted when buying a house, since co-op and condo buildings are inspected annually and will undergo a thorough evaluation during the attorney's due diligence process. Be sure to note whether the contract includes a "Buy As-ls" clause.
- Appraise the value of your home. This protects the lender and the buyer by identifying any needed repairs and helps ensure you're paying a fair price.
- Request a survey to verify legal property lines. This serves as a permanent record of property lines, easements, rights of way, joint driveways and utilities to help minimize potential disputes with neighbors or local officials.
- Shop around for homeowners insurance and title insurance. Most mortgage lenders require you to hold a homeowners insurance policy. Title insurance isn't always required, but it can help protect you in the event of a property dispute (for example, if previous ownership records are inaccurate and you are suddenly faced with unexpected claims to the land).
- Set up your utilities in advance. Call your utility company a couple of days before closing to transfer all services in your name. You don't want to get stuck without water or electricity on your first night in the new digs!
8. Make an offer.
Making an offer on a property can be both exciting and stressful. One of the ways to help boost your chances of having your offer accepted is to make the process as easy as possible for the seller. Try to get your paperwork and finances in order at the outset and consider the seller’s expectations and preferences throughout the process. Tip: It helps to have a “walk-away” number—the maximum price you’re willing to consider before walking away—in mind before you start the negotiations.
Here are some other factors to consider when making an offer:
- The local real estate market, including recent sales of similar homes in the neighborhood.
- The length of time the property has been on the market.
- What’s included in the total price and what’s not (e.g., refurbishments and light fixtures).
9. Sign the contract and close.
Remember, if it is not in writing, it doesn’t count—regardless of how many handshakes you’ve exchanged. If you need a loan in order to purchase the property, you may want to include a financing contingency in the contract. This can help you get out of a contract and get your deposit back in the event you cannot secure the loan.
The Bottom Line
Making the decision to purchase a home is the first of many steps on your road to having a place to call your own. With careful planning, helpful resources and the guidance of specialized professionals, you could be well on your way.
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