• Checklist for Buying a House - Part 1 of 3

    Brandon Cornett

    By Brandon Cornett
    © 2011 All rights reserved

    Editor's Note: This is part one of a three-part series. At the end of this article, you'll find a link to the second part of the home buyer's checklist.

    There is a lot of information on this website, but it's spread out over hundreds of pages. So I thought it would be helpful to create a comprehensive checklist for buying a house. We will start with the budgeting process and continue all the way through closing.

    Creating a Home-Buying Budget

    Before you try to buy a house, you need to know how much you can afford to spend each month toward the payments. Don't wait until you apply for a mortgage loan to figure this out. Do it now.

    It's not the lender's job to tell you where your financial comfort zone lies. The only thing they can tell you is how much you are qualified to borrow. But your budget is something you must determine on your own.

    Here is a mini checklist for this part of the process:

    1. Figure out how much money you bring home each month, after taxes are taken out.
    2. Next, figure out how much money you spend on all of your combined expenses. This should include everything except for your current rent or house payment (since that item will be replaced by your new mortgage payment).
    3. When adding up your expenses, be sure to include any money you want to contribute toward savings each month.
    4. Add the amounts from steps #2 and #3, and then subtract them from the amount in step #1. In other words, subtract your total monthly expenses from your net monthly income. Write this number down. It's important.
    5. When considering your monthly mortgage payments, you need to make sure they do not exceed the number you wrote down in step #4. In fact, your monthly payment should be less than the difference between your income and expenses.
    6. For example, if you subtract your expenses from your income and are left with $2,200 a month, I recommend keeping your mortgage payment below $1,900 a month. This will allow you to meet all of your other debt obligations, while keeping some emergency funds in reserve.

    Saving Enough for Your Housing Costs

    Next up in the checklist for buying a house, we need to talk about your saving habits. The more money you can save now, the better off you'll be when it comes time to close on the house. On the contrary, if you don't save enough money between now and your closing date, you could find yourself cash strapped.

    Here's a checklist to help you save funds for the home-buying process:

    1. First, you need to consider the potential costs of buying a house. Unless you use the VA loan program, you're going to have a down payment of some kind. This would be a minimum of 3.5% for the FHA loan, or 5% for a conventional mortgage. You'll also have closing costs that could easily add up to thousands of dollars.
    2. Think about the items you spend money on each month. Some of them are necessities, while others are luxuries. Which of the luxuries can you do without? If you eat dinner out a lot, consider making more dinners at home. This will help you save money every week. Apply this same discipline to all you do between now and your closing day.
    3. Consider setting up a separate account for your housing fund. If you dip into your checking account on a daily basis with your debit card, it would be better to have a separate savings account for your home-buying fund. That way, you won't chip away at those funds without realizing it.
    4. Every time you're about to buy something you don't absolutely need, remember your priorities. Think about that house you want to buy, and how you're going to need every extra penny to make it happen. Do you really need that new TV set right now? Probably not.

    Checking Your Credit

    In my opinion, most checklists for buying a house do not start where they should. They start too far into the process. They talk about getting approved for a mortgage loan, house hunting, etc. There's a time and place for those things, but it comes later in the process. What about the budget? What about the financial self-assessment? What about the credit check?

    If you plan on buying a house within the next six months, you need to review your credit reports today. You also need to check your credit score to see if it's high enough to qualify for a mortgage loan.

    Here is a checklist to help you through this part of the process:

    1. Start by requesting your credit reports from all three of the reporting bureaus. You need to get your reports from TransUnion, Experian and Equifax. You can get all three at once for free by visiting AnnualCreditReport.com. Learn more here
    2. If you request your reports online as I recommended above, you will be able to save them onto your computer. You can also print them out if you like, but be warned -- they contain quite a few pages. Review your credit reports for accuracy. Make sure all of the personal information is correct. Make sure all of the accounts listed are actually yours.
    3. If you find errors on one or more of your credit reports, you need to dispute them immediately. All three of the credit reporting bureaus have a section of their website where you can dispute these types of errors. They are required by law to investigate the issue, and to remove any erroneous information they find.
    4. It's important that you start this process as soon as possible. Erroneous information on your credit report can lower your credit score, which in turn can hurt your chances of getting approved for a loan. It may take weeks to correct these items, so start today.
    5. When you get your credit reports from AnnualCreditReport.com, you may be given a chance to buy your credit scores as well. The reports are free, but you will have to pay a small fee for the scores. I highly recommend that you obtain your scores to find out where you stand. Lenders will use your credit score to determine if you're qualified for a loan, and also to assign an interest rate to the loan.
    6. If you choose not to buy your credit score at the time you are requesting your reports, you can get them later by visiting MyFICO.com.
    7. If your middle score is below 640, you should work on improving it as much as possible. With a FICO score below 640, you will have fewer mortgage options available. You might even have trouble qualifying for a loan. The more you can boost your score between now and the time you apply for a mortgage, the better off you will be. Learn more here

    Note: This concludes the first part of our checklist for buying a house. You can continue reading part two here.

2011 Home Buyer's Guide