Are you thinking about buying a home? Not sure where to start? Don’t worry! Most people have no idea either, so let me walk you through 5 essential things you need to do before you start the home buying process.

5 things you need to do before buying a house

If you are thinking about buying a home or simply want to refresh yourself on what you need to do before you start the process, you’ve come to the right place. 

These 5 home buying tips will set you up for success when you want to buy your next house:

#1 - Set a monthly payment goal

What is a comfortable monthly mortgage payment? Not sure? Let me walk you through what goes into a mortgage payment and how your costs will look like when buying a home. 

Use an Amortization Calculator to estimate your payment

Breaking down your mortgage payment

Principal & Interest (your mortgage -aka- the money you owe the bank)

Property taxes - the cost you pay the state to own your home. These are state specific and vary house to house. Research the area and track the different costs you see, it will give you a good gauge for the average property tax cost for your area. 

Homeowners insurance - (protecting your home from fire, damage and theft). As the homeowner, you will choose your insurance company and they will give you an annual cost. This cost will vary city to city, you can always call a local agent and get a quote for the area.

Mortgage Insurance or PMI - when you put less than 20% down on a property you will be required to carry PMI. It is a risk based insurance that helps offset the bank lending such a high amount on a home. This number will vary based on your purchase price and your credit score. Your mortgage lender can give you a quote!

*side note* If you’d like me to do a tutorial on PMI and how it works, please comment below!

Pro Tip: HOA dues are not collected with your mortgage payment, however if you are buying a condo or townhome, and in some case a single family home in a planned development, you will have HOA or homeowners association dues. These can vary wildly and will be part of your home loan qualification process. The real estate listing will indicate if HOA dues apply.

Don’t panic, it feels like a lot of math but it is not! This is a fast process for a mortgage lender to run with you. Give your lender a ballpark payment goal, what are you comfortable spending and where do you want to buy,

Once they give you a range of loan payments and options, you can work on the next four steps! Your payment goal (how much you really want to spend monthly) is your roadmap to buying a home. 

#2 - Know your credit score

What is your credit score? What is on your credit report? These are two questions mortgage lenders will ask you when helping you to qualify for a home loan. 

Get ahead of the game and check your credit score & report before applying for a home loan.  Yourcredit score will determine what type of loan you can qualify for and yourcredit report tells a lender how much you currently owe to other companies. (Your outstanding debt.) By pulling your own credit report and score, you are working to clean up any credit issues on your report, pay down any outstanding debt, and improve your score in the process. This will better prepare you to make your home purchase.

Pro Tip: 

In order to qualify forbest case interest rates for a traditional mortgage, you want your credit score above a 740+.

#3 - Show solid employment history

Rule of thumb for almost the majority of mortgage loans is that as the borrower, you need to show a minimum of six months of employment history. Aka, be at your job for atleast six months before applying for a loan. The longer your employment history the better! 

Now, commission, bonus, overtime and tips are all viewed differently and typically require a longer time frame of receipt (two plus years) then the traditional hourly or salary income level when buying a home. 

So for those self-employed people, commission employees, or someone who receives tips, overtime, or bonuses, you typically will need to show a two year history of receiving this type of income before it can be used to qualify a home loan. 

Think about it this way, these income types vary month-to-month or even year-to-year. In order to get an accurate read for what average income is, your lender needs a two year history to show stability and consistency allowing you to pay back the money you’d like to borrow. 

If you're not sure how your income is going to be looked at, chat with a mortgage professional in your area and work through your specific scenario. Everyone has a unique situation and one size does not fit all when it comes to understanding your loan qualifications. So seek help and make sure your personal income will allow you to make your home purchase goals happen.

#4 - Have your down payment saved

This is a tough one, it is not easy to save money, especially in this day and age. However, there is a light at the end of the tunnel! Did you know that you DO NOT need 20% down to buy a home. WHAT! Yes, you heard that right. There are several loan programs that require 5% down OR Less! Talking with a pro who can guide you through YOUR options will give you a roadmap for saving for your down payment and home buying goals.

For the purposes of this tutorial, your down payment goals will be based on you the monthly payment and home price goal you set for yourself in step #1. Focus on saving to that goal so you have your cash ready (stacked and saved) for when you are ready to purchase your new home. 

#5 - Don’t take out any debt  

That new car you were thinking about buying. Don’t do it! The more debt you have on your credit report, the less of a house you will be able to qualify for.  Now is the time to focus on reducing your spending, paying down any debt you have, and avoiding the urge to open new credit lines or loans. 

Another great way to help reduce your monthly debts is to refinance any large payments you might have. I.e. student loans, car payments, or personal loans into a more manageable and lower monthly payment. I realize this may not be feasible for every single credit debt you may have, but it is worth looking into for any large payments that sit on your credit report. 

Just know that the less money you owe monthly, the easier it will be to qualify for a home loan.

There you have it! 5 tips for buying a home

#1 - Set a monthly payment goal

#2 - Know your credit score

#3 - Show solid employment history

#4 - Have your down payment saved

#5 - Don’t take out any debt  

What real estate topics are you interested in learning about? Comment below!

That’s a wrap! 5 things you should do before buying a home. Use these tips to get ahead of the game and on track to make your purchase.

Happy House Hunting!