Home Buying

Whether you are considering buying a home as is or doing major renovations, a home buying checklist is a valuable tool for ensuring you don’t miss anything and can make informed decisions at every stage of the process.

Complete the Home Buying Checklist

To prepare beforehand, it’s wise to scrutinize your finances before the bank does. Here are some important aspects to review:

Credit Score

Checking credit scores and reports before applying for a mortgage is a good idea. Lenders use these to determine the type of mortgage you might qualify for, if any. Credit scores range from 300 to 850, with scores above 760 generally securing the best terms and rates. 

Scores below 500 often make mortgage approval difficult. Alternatively, while FHA and VA home loans are more flexible with credit scores, they come with other requirements.

If someone with a low credit score still gets a mortgage, they might face higher fees and interest rates. So, waiting until some debts are paid off could be helpful before initiating the process. Improving a credit score is also possible by using a credit card responsibly and paying off the balance in full each month.

Income and Savings

When assessing your financial situation, a lender typically looks at two key factors: your income and savings. They want to be sure you have a steady and reliable income to comfortably manage monthly payments and other expenses. Savings also play a big role, especially when you are buying a fixer-upper or planning major renovations. 

Income and Savings Considerations

• Consistency and Stability: You should be able to show income from reliable sources, such as a salaried job or long-term self-employment. The length of employment or a consistent work history is also important.
• Verifiable Income Sources: You should be able to show proof of income through pay stubs, tax returns, W-2 forms, or 1099s. 
• Cash Reserves: Lenders often ask for proof of savings to show you have sufficient cash to cover loan payments in the case of emergencies (typically 3-6 months). 

DTI Ratio

In addition to checking your credit history, mortgage lenders also look at your debt-to-income ratio (DTI). To calculate DTI, divide your monthly debt payments by your monthly income.

A DTI above 40% can make it harder to get approval and may lead to higher rates. Keeping your DTI below 40% can help with mortgage approval and provide flexibility for unplanned renovation costs. 

To do this, try paying down existing debt. For example, prioritize paying off high-interest loans like credit cards to reduce monthly payments faster. You can also apply any extra income you have, like bonuses or tax refunds, to your loan principal to lower balances. Cut out any unnecessary spending to reduce your monthly expenses and avoid closing out old credit accounts. 

By combining these strategies, you can effectively reduce your DTI and improve your financial standing, making you more attractive to lenders. 

Set Your Budget

It’s essential to determine what you can afford—not just the upfront payment but also the ongoing monthly mortgage payments. You can do this by preparing a monthly budget.

Calculate your monthly income after taxes, then subtract your debts and regular expenses. Also, separate your spending into needs and wants. While you know your essential expenses, check how much you spend on non-essentials. 

You’ll also want to account for any renovations you may want or need after moving in. For instance, if you’re priced out of buying a new or fully renovated home (meaning it’s beyond your budget), renovating an older home could be an excellent alternative.

Ensure you save a portion for emergency funds, ideally 10% to 20% of your monthly income. After completing these steps, you’ll better understand how much you can comfortably put towards housing costs.

For a clearer picture, use an affordability calculator to see how different home prices, down payments, loan amounts, and interest rates can affect your monthly payments. Don’t forget to include costs like homeowners insurance, property taxes, and any HOA fees.

Consider a Fixer-Upper

When you’re searching for a home, you might find that new or move-in-ready options are beyond your budget due to price appreciation and rising home prices. You may also find that new families are being priced out of a new home because of this or don’t want to change locations and move out of the city, for example, just to be able to afford a home.

That’s where a fixer-upper can be a smart choice. These homes often come at lower prices because they need some work, and with the right financing, you can turn them into a space that fits your style and needs. For example, RenoFi loans let you borrow based on what your home will be worth after renovations, giving you the funds to create your ideal space.

On the other hand, if you already own a home and the cost of buying a new one feels out of reach, consider renovating your current space instead. It allows you to improve your living space without the hassle of moving.

Find a Local Real Estate Agent

A local real estate agent can help you find homes that fit your needs and budget, including potential fixer-uppers. They’ll guide you through listings and help you understand the renovation potential of different properties.

They’re also knowledgeable about various neighborhoods and types of homes you might not discover on your own. From preparing and gathering necessary documents to making competitive offers and negotiating sales, a skilled agent helps guide you every step of the way.

Working closely with one will ensure you have a dedicated advocate throughout your home-buying journey. Be sure to interview several agents to find one that clearly understands your priorities and vision.

Prepare the Required Documents

At some stage in the mortgage process, you’ll need to submit many financial documents to your lender. Finding your ideal home can be stressful, and you may not want to risk losing it while searching for paperwork.

Here’s a list of documents that will likely be requested:

• Tax Documents: Include your past two years of tax returns, which give a detailed overview of your financial history.
• Proof of Income: Provide a month’s worth of paycheck stubs or other income records to show current earnings.
• Bank Statements: Submit statements from the last 60 days to check your recent financial activity and account balances.
• Loan Papers: Include documents for any existing debts, such as credit cards, student loans, and car loans, to help determine your debt-to-income ratio.
• Rental Payment History and References: Provide information about your rental history for the past two years, including landlord references and payment details.
• Documents for Other Assets: Share forms related to any savings, bonds, stocks, or other securities you own.

In addition to the above, if you’re planning on renovating you may need to also get

• Detailed Description of the Renovation Project: The lender asks for this to evaluate the viability, cost, and potential impact on the property’s value and also uses it to ensure that the scope of the project aligns with the loan.
• Plans and Blueprints: Like your description, these provide lenders with information that helps them assess the risks and ensures the loan is properly secured.
• Project Estimate or Bid: The estimate is the total approximate cost of the project, like the scope, size, and materials needed. A bid is a more formal and detailed proposal that contractors submit in response to a request for work. It often includes the specific price for completing the project and highlights a more defined scope of work.
• Information on the Contractor: The lender uses this to verify the contractor’s qualifications, reliability, and professionalism. 

These documents will be required for both purchasing and any renovation financing you pursue through RenoFi or any other lender. You might want to check with your pre-approval lender to see if any additional documents are needed, but these basics should give you a solid start.

Find a Mortgage Lender and Get Pre-Approved

Speaking with mortgage lenders early in the home-buying process is a smart move. It helps get an idea of the available mortgage options and provides the opportunity to learn about terms, fees, and interest rates associated with the loan. This early interaction also helps you decide which loan officer or mortgage broker might be the best fit for future dealings.

If you’re considering a home that needs some work, contact RenoFi today to check your borrowing power and rates. A RenoFi loan can help you cover major renovation expenses, giving you more flexibility with your budget.

Once you find the right mortgage lender, consider asking them for a pre-approval letter. Getting pre-approved for a mortgage can significantly benefit you in the home-search process. While it doesn’t guarantee a loan, it indicates that you’re financially ready for one based on an initial review of your finances.

The pre-approval letter will specify a maximum loan amount and clarify your new home budget. However, in most cases, this amount may be higher than one can realistically afford.

While a pre-approval letter is not a requirement, it can be beneficial in a competitive market. Some sellers value offers from pre-approved buyers more, and some realtors might focus solely on those who have been pre-approved. Overall, it can simplify the search and make it easier to find the right home.

Begin Your Home Search

With your buyer’s agent by your side and your pre-approval letter ready, it’s time to start looking at homes. Buying a home is a big decision, so take your time viewing homes to ensure you’re confident and feel satisfied with them later.

You can either opt for a newly built, move-in-ready property or an older home with the intent of renovating it. While a ready-to-move-in home offers convenience, older properties are typically sold at lower prices and allow owners to customize them according to their needs. Carefully consider whether you want to invest in a fully-furnished house or one that requires significant renovations.

However, moving quickly is essential, as many other buyers are also actively searching for homes. Rely on your agent to assist with showings and provide insights into the local market.

Make an Offer and Negotiate

Once you’ve chosen your home, it’s time to make an offer. If you’re considering a fixer-upper, keep renovation costs in mind to ensure the total cost remains within your budget. Your agent will help you set a market-competitive price within the set budget. In some states, a real estate lawyer might also be required.

An offer that’s too low will be rejected, while one that’s too high could mean overpaying. It’s easy to want to go over budget for a home you love, but that can lead to financial stress with a higher mortgage. This is where negotiating can help—throw counteroffers to reach a reasonable price with the seller that fits your needs.

Lastly, be sure to include some contingencies in the offer. These clauses allow you to back out of the deal without losing money if any issues arise. Consult with your agent to determine which contingencies are needed to protect against potential problems.

Pay Earnest Money

Be ready to include a money order or check with your offer to show you’re committed to the deal. This is known as the earnest money deposit, and the amount can vary depending on the specific listing and your local market. It might be between 1-3% of the purchase price or a fixed amount, like $3,000 or $4,000 for a reasonably priced home. 

The money is kept in an escrow account and will be applied to the purchase price when you close on the house. You’ll get your money back if something goes wrong due to the seller’s fault. However, if the problem is on your end—like if you can’t secure your mortgage—you may risk losing it.

Finalize Your Financing

Once the price is settled and the contract is signed, the next step is the mortgage application. Be prepared to submit the documents you’ve gathered, and expect to work closely with your mortgage broker or loan officer as you go through this process.

Underwriters will review the finances in detail and may request letters of explanation or additional documents for any specifics that require further clarification. Final approval might only come just before the closing date, so it’s crucial to have all documents ready before applying.

At this stage, arranging homeowners insurance and ensuring that title insurance and the title search are completed to confirm ownership is necessary. Your agent or lender should be able to guide you through these requirements.

Order a Home Inspection and Appraisal

Now is the time to schedule a general home inspection with a licensed professional to ensure the property is habitable and free of hidden issues. If any major concerns arise, your agent can help negotiate with the seller to address them.

In the meantime, your lender will arrange an appraisal to verify that the home’s value matches your mortgage amount. If the appraisal comes in lower than expected, you might need to cover the difference with cash, or the deal could be at risk. 

If there’s an appraisal contingency, you can back out of the sale and keep your earnest money in such situations. If the appraisal matches or exceeds the sale price, the deal is favorable, and the lender will proceed with the loan.

Closing

Closing on a house is the exciting final step in your home-buying journey. During this phase, you’ll sign the necessary legal documents, settle closing costs, and finally receive the keys to your new home. Your loan officer or real estate agent will be there to review the documents with you, ensuring that everything is in order. In case you can’t make it to the closing in person, you can appoint someone through a power of attorney. 

Last but not least, make sure you have a few thousand dollars ready for closing costs. This will cover attorney fees, underwriting fees, and your remaining down payment.

Renovating Your Home With RenoFi

Buying a new home is a big milestone, and having a home-buying checklist can make the process smoother and more manageable. Alongside having a solid checklist, choosing the proper financing method is another pivotal decision, especially when there are major home renovations you want to complete. This is where RenoFi enters. 

We offer various loans tailored to support your home renovation needs. Our RenoFi loans provide a practical and reliable solution, ensuring you can fund your project and achieve your dream home with ease.

What sets RenoFi Loans apart is that they’re based on your home’s value after renovations, not just its current worth. Unlike traditional loans, which are limited by your on-spot home value or require you to refinance your primary mortgage, RenoFi Loans are based on your home’s after-renovation value. This means you can borrow up to 11 times more and enjoy lower monthly payments—all while keeping your existing low rate!

RenoFi is the smart choice for financing your renovation. It maximizes your borrowing power and keeps your mortgage terms intact. Discover how RenoFi can make your renovation dreams a reality—explore your options today!