Once you catch the real estate bug, it might be tempting to jump into the process of buying a home. But just because you’ve spent hours looking at dream houses on the internet, doesn’t mean you’re ready to take the plunge.
Purchasing a house is a decision you’re going to have to live with—literally.
Besides providing a roof over your head for years to come, a house also comes with financial implications that can affect your future. Before you go any further on your home buying journey, make sure you check out our list of top six things to do before you begin house hunting.
#1 Check Your Credit (and Get Your Credit in Check)
Unless you just won the lottery, you’ll need a mortgage to buy a house. This means you’re going to need good credit if you want to qualify for a loan. Checking your credit is free and won’t lower your score, so it’s helpful to evaluate where yours stands as soon as you start considering homeownership. Improving your score can take months, meaning the earlier you start working on this, the better.
Here’s how lenders categorize different credit scores:
- Excellent – 720-850
- Good – 660-719
- Fair – 620-659
- Poor – 300-619
#2 Track Your Spending
If you want to buy a home, you need to get comfortable with budgeting. Making a budget and tracking your spending is the best way to paint a clear picture of your financial situation, and to see if you can afford to purchase a home. Once you can see where your money is going, it’s easier to start paying off debt, putting money aside for a down payment, and calculating how much you can allocate towards a mortgage payment.
#3 Look into Loans
Mortgages aren’t OSFA (one-size-fits-all), and it’s important that you look into all your lending options. Some of the most common types of mortgages are:
- Fixed-Rate Mortgages – Also called a standard mortgage, this is one of the most common types of loans and a great option for people who value stability. A fixed-rate mortgage locks in an interest rate for the lifespan of the loan, meaning it won’t be subject to economic fluctuations.
- Adjustable Rate Mortgages (ARMs) – ARMs are another extremely common type of mortgage, but these loans have interest rates that change over time. This can be good or bad depending on factors like the national interest rate and the individual terms of the loan.
- Veteran Affair (VA) Loans – VA loans are available to current and former service members, and offer perks like zero money down. If you take out a VA loan, you also might be eligible for a low-interest refinancing option called a VA IRRRL down the line.
- Federal Housing Administration (FHA) Loans – These kinds of loans have less stringent credit requirements, so an FHA loan can be a good choice if you’re still struggling with debt. They also often require low down payments, but they also require costly mortgage insurance premiums.
#4 Set Realistic Expectations
Once you’ve started digging into the reality of your credit, personal finances, and loan options, it’s time to start being realistic about your expectations as a future homeowner. Recognizing where you stand financially and looking for homes that fall within your budget will save you from getting your heart set on something you can’t afford.
#5 Organize, Organize, Organize
In a perfect world, purchasing a home would be as easy as buying a cup of coffee. In reality, buying a house means you’re going to have to provide a lot of documentation and do plenty of paperwork. The more organized you are, the easier it will be when the time comes to put in an offer.
Whether you prefer to keep everything on your computer or in an old-fashioned filing cabinet, have these documents organized and ready:
- Bank statements
- Tax returns from the last two years
- Proof of income
- Asset statements
#6 It’s More than Just Money
The financial logistics of buying a home are undeniably important, but they’re also only one piece of the puzzle. Homeownership requires taking on a level of responsibility that you might not be used to, and it’s an important aspect of the process you need to consider.
Take stock of where you are in your life emotionally, and ask yourself if you’re ready to commit to a long term investment. Take time to do some soul searching and self-reflection before making such an enormous decision.
Happy House Hunting
Once you feel confident that you’re ready, congrats! You’ve already tackled a big step in the home buying process, and are well on your way to finding your perfect house to furnish and decorate as you please.
Good luck, and happy house hunting.