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First Time Home Buyer’s Mortgage Checklist

Considering buying your first home? Prepare yourself for one of life’s most demanding experiences with our first time home buyer’s mortgage checklist.

first time home buyer’s mortgage checklist

Buying a home for the first time is stressful.

Prepare yourself for one of life’s most demanding experiences.

Bereavement is the number one cause of stress, but moving home and increased financial obligations aren’t far behind.

However, you can ease the pressure by asking all the right questions via a robust first time home buyer checklist. Here’s everything you need to ask yourself before looking for your dream home.

1. Do you have enough saved up for a down payment?

Unless you have been planning for this for many years, the answer is probably no. This means that you need to start saving up your money with a goal of making an offer in a year or two.

It also helps to make sure that you have a good idea of the market and the amount of money you need to save. Make sure you have 10 percent saved for a down payment—20 percent if you want to avoid private mortgage insurance (PMI), which can run several hundred a month. If you haven’t already, take advantage of the great interest rates offered by online savings accounts.

2. Do you have a substantial budget in place?

If you don’t have enough money saved up right now, you need to create a plan to generate that cash. The sooner you start managing your money and saving, the better the chance of reaching your goal. Be disciplined and strict with your incoming and outgoing finances and make sure you are on top of everything.

Yes, home ownership makes more financial sense than renting. However, it’s better to rent than to own more house than you can afford.

We at Money Under 36 advocate for a percentage-based budget scheme, such as the 50-20-30 system. This may sound complicated at first, but our in-depth guide walks through it step-by-step so you can create a simple-to-use budget in no time.

3. Is your credit ready?

This might be the scariest part of this first time home buyer’s checklist. Once you have signed the right documents and finally moved into your new home, the mortgage stays with you. There is a good chance that the parents nagging you to buy a house still have a mortgage hanging over them.

This is where all that effort of saving and planning starts to pay off. Your mortgage advisor will take lots of factors into account before they can determine a suitable rate. These factors include the following:

  1. The amount of savings available for a down payment
  2. Any potential threats to your income, or that of your partner
  3. Your current credit score

Speaking of credit, for every point your credit score is below 800 you’re going to pay more in interest.

And while the difference between 3.9 percent and 4.9 percent may not seem like much, that one point will cost you about $32,000 on a $150,000 30-year fixed-rate mortgage.

Ouch.

Check your credit report

Make sure you know all the details about your credit report before you apply for a loan (because they will ask). You can quickly get a free copy of your credit report and/or score in about ten minutes. We recommend using Credit Sesame, a service that offers your free credit score and analysis.

Your target should be 700 or above. Though you can buy a house with lesser credit, you won’t qualify for competitive mortgage rates.

Pay off debt

You can increase your credit score by paying off fixed-term loans, correcting any erroneous information, and reducing your credit card balances.

If possible, don’t open or close any credit accounts two years before applying for a mortgage. Closing credit cards can actually hurt your credit.

Consider mortgage points

You may also want to ask them about mortgage points. There are pros and cons to both origination and discount points. Talk with mortgage providers about the availability of these systems and ways they can help you save a little money in the future.

Don’t worry, lenders ask for other information besides your credit

And though your credit may be in order, it’s not the only factor in qualifying for a mortgage.

Lenders are also going to scrutinize:

  • Your income and monthly expenses.
  • Bank statements.

The bottom line?

The best-prepared first time home buyers will have very few fixed monthly expenses other than rent.

4. Where do you want to live, and what can you afford?

So far we have spent a lot of time discussing the financial side of buying a home.

Ideally, a bank wouldn’t write a loan you couldn’t afford. Realistically, they can, and they will.

You are the only one who can prevent this.

Your mortgage payment, including all insurance, taxes, and fees, should not exceed 30 percent of your take-home pay. Understand that local tax rates, condo fees, and whether you’ll need PMI will all eat away at how much house you can actually buy.

Work backward to determine the price range you can afford. Then be prepared to do battle. Real estate agents will show you houses above your range and more than likely, you will be approved for a loan that is well above your range. Stick to how much house you can afford, and you won’t live to regret it later.

After that, figure out where you want to live and start scouting out some excellent properties. There are two key factors to keep in mind here:

  1. The property itself. Create a little home buyer checklist of all the things you want from a new home—the number of bedrooms, outdoor space, man-cave capabilities, etc. You can then use this list to start narrowing down your searches on realty websites.
  2. The neighborhood. Don’t overlook the surrounding area for the sake of a dream property. The last thing you want is to find that street is actually right in the heart of the city’s seedy underbelly, or some creepy neighborhood association. Research crime stats, transport links, amenities, and more.

Also, consider the time of year you want to buy. For instance, did you know that house prices tend to drop around fall, just as the kids go back to school? Deborah Kearns from CNBC talks about the potential benefits for home buyers. This trend means that it might be a good idea to hold off that search until later in the year.

5. Have you compared rates?

If your finances are in order and you’re ready to begin home shopping, do an application blitz. That is, apply for loans from as many lenders as you can find, all within a day or so.

This will give you the most options and the best chance of getting a great rate. By applying for several loans at once, the multiple inquiries to your credit report will have less of an impact on your score.

Two of our favorite places to go rate-hunting are LendingTree and Even Financial. Both providers aggregate multiple lenders who compete for your business—so you’ll get a variety of offers to choose from.

6. Finally, are you doing this for the right reasons?

This is a question that will catch quite a few people off-guard. What exactly are the “right” reasons to buy your first home? There are some clear positive and negative approaches here.

  • The positive reasonsIf you a looking to provide a stable home for your family and have found a perfect property then that is a good start. You have to want to be a homeowner to put yourself through all this stress and planning. The problem is that many people aren’t buying a home for the right reasons.
  • The negative reasons—Some people rush into home ownership because they are under pressure to be a “proper adult.” They hit thirty, realize they are in a long-term relationship and rush into this commitment. Others think that the smartest thing to do is escape the rental system, even though this may not be true.

Take the time to make sure that this is what you want to d0—not what your family says you should have done by now. This is a big decision with significant financial implications. Figure out what you really want, work through this first-time buyer checklist and seal the perfect deal.

Summary

Once you have several financing options, it’s time to go find your house. Only after you have your loan lined up should you go out and house hunt. Why? Sooner or later you’re going to fall in love with a house, and your real estate agent will be there to tell you that you deserve to live there, even if it’s way above your price range. Stick to your well-planned house buying strategy, and live wealthfully ever after.

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About Chris Muller

Chris Muller is the founder of Money Mozart, where he blogs about personal finance, frugality, and living below your means. He's currently on the pursuit of early retirement while trying to figure out how to be a dad for the first time. You can connect with Chris on Twitter, Pinterest, and Google+.

Comments

We invite readers to respond with questions or comments. Comments may be held for moderation and will be published according to our comment policy. Comments are the opinions of their authors; they do not represent the views or opinions of Money Under 36.

  1. First Time Home Buying Guide says:

    […] First Time Home Buyer’s Mortgage Checklist […]

  2. nick says:

    This would have been great to read before we bought our house, but luckily we pretty much checked em all off.

  3. Sam says:

    Very Useful post and thanks.

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