The Home Buying Checklist for Every First Time Home Buyer

Homeownership By Noah - January 26, 2022

The First-Time Home Buyer’s Home Buying Checklist

So you’ve settled down in an area you love, crunched the numbers a few (thousand) times, and are exhausted enough that you’re finally ready to leap into homeownership. 

First of all, congratulations! Deciding to buy your first home is an exciting move (sorry, bad pun) that many people devote serious time and effort to reaching. However, once the honeymoon phase of deciding to purchase a home wears off, you may find yourself unsure how to even get started.

Purchasing a home can be a more complex process than reality TV series might portray, and first-time homebuyers may find their home buying experience more stressful than they imagined. 

We believe homeownership should be an exciting and enjoyable process from the day you start looking to the day you sign on the dotted line and make your dream house a reality. So we’ve put together a checklist of do's-and-don'ts to help first-time buyers successfully navigate the home buying process. 

So without further ado, we give you...

The First-Time Home Buyer’s Home Buying Checklist:

Below are the most important steps in the initial home buying process. Read on to see our complete guide to checking out and checking off each step. 

1. Calculate How Much Home You Can Afford 

3. Plan and Prepare For Your Down Payment 

4. Understand Your Mortgage Options

5. Get Pre-Approved for A Mortgage

6. Find a Realtor

7. Make Your Dream Home Checklist 

8. Prepare to Make an Offer 

9. Get Ready for Next Steps

Breaking Down The Home Buying Checklist: FAQs

1.     How Much Home Can I Afford?

Determining how much you can afford to spend on buying your first home is a crucial decision that should never be made lightly. 

To calculate how much home you can afford, you’ll need to review your household monthly income and debts and then decide how much you can afford to use for a down payment.

You’ll also want to consider your current and projected debt-to-income ratio (DTI) before purchasing a home. Experts recommend the DTI ratio for first-time home buyers max out at 28%. 

You can also work with a financial advisor to review your finances and make an educated decision on the size of your home buying budget.

2.     How To Plan for a Down Payment

Determining the size of your down payment is a crucial step to buying a house and will depend on a variety of factors, including your saving power and your local housing market. The traditional down payment for purchasing a home is 20%, but rising housing costs and flexible lending practices have led many homeowners to opt for smaller down payments, which can drop as low as 3.5%.This saves homeowners a significant amount of money upfront but requires them to pay monthly private mortgage insurance (PMI) that can carry interest rates that currently average between 0.22 and 2.25% of the loan-to-value rate of your mortgage.

Speaking of lien-to-value (LTV) rates, you should keep in mind that larger down payments positively impact your lien-to-value assessment. That’s because LTV ratios are determined by dividing the amount borrowed by the appraised value of the home, so increasing the size of your down payment decreases your LTV ratio. Lower LTV ratios are more attractive to lenders, and first-time buyers can expect easier mortgage approval and lower interest rates with LTVs of 80% or less.  

Let’s consider first-time buyers interested in a $100,000 home that has saved $20k for their down payment. The formula to calculate LTV is (Mortgage Amount / Appraised Value = LTV). So with a $20,000 down payment, these first-time home buyers would calculate their LTV using this formula: ($80,000 / $100,000 = 0.80, or 80%) an ideal LTV ratio. Increasing the size of your down payment can also significantly reduce monthly payments and increase the amount of home equity available should you be interested in accessing it through a HELOC or home equity loan, so be sure to consider the long-term implications of your down payment before making a final decision. 

3.     What is Down Payment Assistance? 

Down payment assistance is a fantastic option for first-time buyers offered by over 2,000 programs across the country. DPA programs are ideal for buyers who want to make a 20% down payment but lack the means to do so for various reasons. 

Partnering with a DPA program to make a larger down payment when buying your first home can allow you to qualify for better mortgage rates, avoid expensive PMI, and make competitive offers in hot real estate markets. 

Today, Noah’s DPA program requires zero monthly payments or additional interest, making it an extremely attractive option for any first-time buyer. In addition, the program can help borrowers meet a 20% down payment requirement, even if they only have the means to put 5% down right now. Noah will simply partner with lenders to bolster homebuyers’ initial down payment up to 15% of the purchase price and can make purchasing homes in competitive markets much easier. 

4.     Understand Your Mortgage Options 

When it comes time to select a mortgage, it’s important to understand your mortgage options. While there are a variety of niche opportunities to take advantage of, every homebuyer should be familiar with at least the four most common types of mortgages: Conventional, Jumbo, Fixed-Rate, and Adjustable-Rate Mortgages. Below, we’ll quickly break down the pros and cons of each type of mortgage, but for a complete overview, check out our full article on the 5 Most Popular Types of Mortgage Loans

Conventional Mortgages 

Conventional mortgages are extremely popular and can be used to purchase nearly any type of property. By definition, conventional loans are mortgage loans that are not insured by a government agency and include two distinct types of mortgages: conforming and non-conforming loans. 

Pros & Cons of Conventional Mortgages: Conventional loans can require applicants to put as little as 3% down when they're purchasing a primary residence. However, home-buyers who make a lower down payment may then have to pay Private Mortgage Insurance on top of their monthly mortgage payments. 

Jumbo Mortgages 

Jumbo mortgages are considered non-conforming loans because they can be used to purchase more expensive homes than homebuyers would normally qualify for with standard, government-backed, conforming loans. 

Pros & Cons of Jumbo Mortgages: The main advantage of jumbo mortgages is they can be used to purchase homes in high-cost areas and may come with very competitive interest rates. That said, jumbo loans can be extremely difficult to qualify for. 

Fixed-Rate Mortgages 

Fixed-Rate mortgages are often appealing because their interest rates will remain the same for the loan’s entire lifetime. Fixed-Rate mortgages are also available in a wide range of terms (the number of years over which the borrower is expected to repay their loan), with the most common terms spanning 15 or 30 years. 

Pros & Cons of Fixed-Rate Mortgages: While a fixed-rate mortgage allows borrowers to predict and plan for steady monthly payments, longer-term mortgages may require higher interest rates, which may result in borrowers paying a higher total cost for their home. 

Adjustable-Rate Mortgages 

Adjustable-Rate mortgages begin with an introductory period, during which they often offer extremely competitive interest rates. However, after this period ends, the interest rate will adjust to the current market rate. 

Pros & Cons of Adjustable-Rate Mortgages: Beyond the introductory period, there is a chance that borrowers’ interest rates will drop to an even lower rate, but more often, these interest rates will rise. This makes adjustable-rate mortgages riskier, especially because borrowers may face a penalty for selling or refinancing their home before the mortgage is paid off. 

5.     Get Pre-Approved for a Mortgage

After you’ve finalized your budget and down payment amount, you’re ready to begin seeking pre-approval for a mortgage. Getting pre-approved for a mortgage is a significant step on your journey towards becoming a homeowner and equips you with the information you need to confidently establish budgetary parameters for your search. There are many mortgage lenders for first-time buyers to choose from, so take some time to research interest rates, mortgage origination fees, and other lending costs before committing to a lender. 

It’s also important for first-time buyers to know the difference between being prequalified for a loan and being pre-approved. Pre-qualification is typically a less rigorous lending assessment used to inform potential buyers of their creditworthiness and likelihood of approval. Pre-approval, on the other hand, requires a more intensive review of your finances, which is generally carried out by a loan officer who analyzes your income, assets, debts, and credit history to determine your mortgage eligibility. 

Pre-approved mortgages may also provide more accurate lending parameters than pre-qualification, including the expected interest rate and maximum principal amount.

6.     How Do I Choose a Realtor?

After you finish celebrating receiving your pre-approval letter, you’ll want to start searching for a realtor to help with your search. This is one of the most important steps to buying a house.

The best method for finding a realtor varies from place to place. However, first-time buyers can browse local and national realty websites, check local advertisements or turn to their network of friends and family for help finding the right realtor for their search.

What are the Pros & Cons of Buying a Home Without a Realtor? 

Pros: Buying a home without a realtor may save you money. Typical commissions charged by realtors fall between 5-6% of the sale price of a home, which can quickly add up when shopping in the competitive housing markets found in urban or coastal regions.

Cons: Paperwork, paperwork, and more paperwork. If you opt-out of retaining a realtor, you can expect to do a boatload of paperwork and due diligence before signing on the dotted line. You’ll also want to retain a real estate attorney to draft and review sales contracts to ensure nothing is out of the ordinary, which can cut into your savings from foregoing a realtor.

You’ll also lose out on the experience, connections, and listings offered by skilled realtors, potentially shrinking your pool of potential properties when buying your first home. 

What are the Pros & Cons of Buying a Home With a Realtor?

Pros: Working with a realtor during the home buying process can significantly reduce stress and hands-on obligations. Realtors will use your budget and wishlist to find properties in their network, organize tours with sellers, and handle all the necessary paperwork from start to finish. Not to mention they can help negotiate prices and contingencies that go into typical offers.

Cons: The primary drawback to working with a realtor is their commission fee. Busy schedules and heavy client workloads can also mean working with a talented realtor drags out your home buying experience longer than you’d like. 

7.     Making Your Dream Home Wishlist

Whether you decide to work with a realtor or buy your home solo, creating a dream home wish list is an essential first-time home buying strategy. A wish list helps narrow the scope of your search, saving time and increasing your chances of finding the perfect home. 

Homeowners-to-be should ensure their wish list includes more than aesthetic factors. Additionally, every first-time buyer should also consider what kind of neighborhood they want to live in, the surrounding school districts they’d prefer, and what nearby amenities they’d require. Finally, deciding the amount of work you’re willing to put into your new home after buying is also important when making your wish list.

If you’re looking for a budget-friendly starter home that you can make your own, a fixer-upper that leaves room in the budget for a new roof and interior renovations may check all boxes. But if you’re looking for something ready to go, you’ll want to focus your search on turn-key properties that have everything but your toothbrush pre-installed and waiting on the other side of the front door. 

8.     How to Make an Offer When Buying Your First Home

After you’ve found the perfect home, all that’s left is making an offer! To make an offer, you’ll need to work with your realtor to decide how much to offer. Then, look at comparable properties and recent sales to come up with a fair but competitive offer to increase your odds of closing the deal.

After you’ve figured out your offer, decide on contingencies to include in your offer, such as appraisal, inspection, or financing contingencies, and decide how much earnest money you’ll offer. Earnest money is a form of “good faith” deposit that goes into an escrow account. Earnest money is typically 1-2% of the total cost of the home, although a larger deposit can make your offer stand out from the crowd. After that’s been decided, you can submit your offer letter to the seller or seller’s agent and begin the hardest step yet –– waiting for their response.

9.     What Are the Final Steps to Buying a House?

Hopefully, your offer has been accepted (maybe with a bit of negotiation) and you’re in the home stretch of your first home buying experience. Now you’ll want to arrange a home inspection to identify any faults or repairs that may need to be made to the property. 

Discovering a flaw like a leaky roof isn’t always a bad thing during home inspections. If the repair cost isn’t too high, discovering issues with the property may ultimately save you money by allowing you to negotiate a better deal. After the home inspection, your lender will carry out a home appraisal to ensure they aren’t lending you more than the home is worth. Be sure to budget for this final step in the home buying process since most lenders pass appraisal costs on to you. After the appraisal, you’ll conduct a final walk-through with your realtor and review your lender’s closing disclosure forms. Then, the only thing left to do is fill out the remaining closing paperwork, cut the check, and the keys to your first home will be yours! 

You’ve officially navigated your first home buying experience from start to finish, and your castle awaits you.

How Noah Helps Home Buyers

If your new abode requires renovations or updating, Noah can provide interest-free access to the equity you may already have in your property. Additionally, for first-time buyers struggling to make a 20% down payment, Noah offers competitive Down Payment Assistance that can cover up to 75% of your down payment.