4 things you should do before buying a houseMaybe you’ve decided the time is right for you to purchase your first home, or perhaps you already own a home but you’re looking to move into a bigger house or a new neighborhood. Whatever reasons you have for moving, there are some things you should be doing right now in preparation for buying a home.

Check your credit score

Years ago it was easy to get a mortgage for as much as you wanted. Some banks were willing to loan money to just about anyone with a pulse and even a mediocre credit score would provide smooth sailing through the loan process.

But these days banks have much stricter standards and if you have bad credit you’ll have an awful time trying to secure a mortgage.  Plus, the higher your score the better the interest rate on your mortgage will be so it makes sense to work on building up your credit as much as possible before you start applying for home loans.

But don’t just look at the score itself. Take the time to review your credit report and look for errors too.  There could be payments that were marked late when they were made on time or accounts that don’t even belong to you. The negative impact these have on your credit-worthiness could affect your ability to get a mortgage or cost you thousands of dollars through a higher interest rate.

Check Multiple Lenders or Get a Broker

When shopping for a home, you also need to take into account where you plan on getting the money. Most people will be getting a mortgage and focusing on a traditional/conventional mortgage. The length varies with 15, 20, and 30-year mortgages being popular. Your rate is typically lower with the shorter terms, but the monthly payments will be higher.

As with anything you buy, you should always shop around to compare prices. It’s imperative when looking for a mortgage. There are hundreds of banks that could lend you money, especially if you have a good credit score. It’s much harder if your credit is less than stellar.  After you check your own credit score and report, make sure you check out multiple lenders to find the best rate for you. Luckily, when you apply for a mortgage,  you can apply at multiple places within a certain time frame without affecting your credit score. So, take advantage of that period and get multiple quotes.

If you don’t want to jump around to different lenders, then try out a mortgage broker, who has access to different lenders and can shop rates and deals for you. No matter what you do, just make sure you get at least three rates from different banks. That’s the least amount of information you should process when making such a huge decision.

Don't let the excitement of buying a home cloud your judgement. It's a huge financial undertaking! Click To Tweet

Save as much as possible for your down payment

The less you put towards a down payment on your home the higher your monthly payment will be so it makes sense to put down as much as possible to minimize your monthly outlay.

Also keep in mind that if you put down less than twenty percent of your new home’s value your lender will charge you private mortgage insurance (PMI).  PMI protects the bank (not you) if you can’t pay back the loan.  Rates vary based on your lender, credit score, and the amount of the loan but you could easily end up paying an additional $74 to $150 per month in PMI depending on how much you borrow.

If you are considering a $200,000 home to purchase, you should have at least $40,000 in the bank to handle the down payment. While there are loan options for those who can’t come up without the down payment, shooting for the 20% mark is good financial sense.

Consider the real cost of owning a home

It’s easy to get distracted by the sales price of a home, but that is just one expense you need to consider. Closing costs such as title insurance, loan origination fees, appraisal fees, real estate broker’s commissions, home inspection fees, property taxes and homeowner’s insurance will add thousands of dollars to the cost of your home and if you don’t have that money sitting around you’ll need to roll it into your mortgage which means your monthly payment will be higher.

Speaking of monthly payments, there are many more homeownership expenses besides your mortgage payment.  Don’t forget to factor in home insurance, property taxes, utilities, and maintenance costs which can be considerable.  In the last six months I’ve had to replace my kitchen faucet, hot water heater, and refrigerator, plus have repairs done on our upstairs shower and the boiler.  Altogether those items cost me several thousand dollars so it’s a good thing I budget for home repairs and improvement projects. You also need to factor in the costs of moving.  Those can be expensive if you’re not doing it all yourself, which still has costs involved.

Try the calculator below to see how much home you really can afford.


Are you in the market for a new home in the near future?  What steps have you taken to make sure your finances will be in order when the time comes?