Thinking about buying a house? The first step IS NOT looking for homes online. Here are 5 things to do before buying a house – before you even start shopping!
There are so many things to consider when you are deciding to buy a house. The purchase of your home is likely the largest investment you will make. It is not a decision to make lightly.
But once you feel like you’re ready to start the process of buying a house, the first thing you probably want to do is jump on Zillow and start shopping, right? What if I was to tell you that shopping online for homes is NOT the place to start when you’re buying a house.
There are actually several things you need to before you even starting looking around at homes! If you’re a first time home buyer and you’re curious how to start the process of buying a house and specifically what you need to do BEFORE buying a house – you’re in luck!
Here’s 5 action steps you need to take before buying a house.
1. Start a savings account.
A lot of banks have programs where you are able to start a separate savings account for something specific and track your saving goals. It really helped motivate us to see our progress when we were saving for a house. (Bonus tip: check out all of the ways we saved money for our deposit here)
2. Strengthen your credit score.
Before buying a house is the perfect time you can work on strengthening your credit score, which will factor into your interest rate when you go to get a mortgage. Here’s a good article on 11 ways to raise your credit score fast from Forbes.
EXPERT TIP: Keep it simple. 3 lines of credit are good to build such as: car loan, paying a bill in your name, a credit card in your name, or a phone bill in your name. Notice I say “in your name” . It doesn’t help if you’re paying a bill in someone else’s name unless you’re just generous and want to help them build credit.
3. Figure out how much you can afford.
EXPERT TIP: I like the affordability calculator, but going to a lender is much more accurate. When a lender pulls your credit, the creditors understand that you’re looking for a home. It doesn’t affect your credit score, like a credit card credit check does. I’d recommend checking with your bank that you’re already using when looking for your lender. They may offer incentives to customers (some Credit Unions have great rates and less closing costs). Next, check with a couple of other brokers or if you trust your Realtor, ask them.
4. Start collecting your financial records and get a prequalification letter from a lender.
I would recommend getting this as soon as possible. When we first started looking at homes, we found a home and wanted to put an offer in right away due to the competitive market. Luckily our lender was able to turn our prequalification letter around quickly (cheers for good lenders!).
Your lender is going to want to review A LOT of documents before handing over that letter. Your lender will send you a list of what documents they need. But typically they will ask for tax returns, bank statements, pay stubs, investment account statements, etc.
EXPERT TIP: Remember that your lender will want ALL pages of those documents even if it’s a blank page. If the lender sees “page 5 of 6” they will definitely want to know where page 6 is if you bring only 1-5.
5. Find a Realtor.
EXPERT TIP: One of the best ways to find a Realtor is asking your friends, even if your friend purchased in a different city. You’d be surprised at the network Realtor’s have and who they can connect with. Realtors that deal in the residential market have many designations that most likely mean nothing to the lay person. However, to other agents, it gives access to many sources for referrals. So, start with a friend who really appreciated their Realtor.
Here’s how we knew we were ready to buy:
When we first decided to move to Bend, we knew we would rent a home. We were certainly taking a risk moving somewhere so far away and so unfamiliar. We wanted to rent before making a big investment like buying a home.
After about 6 months of renting, we knew it was time to start the process of buying a house.
- It was cheaper to buy than rent. Although we needed to have a good chunk of money upfront, we are now paying $371 less every month for our mortgage payment than we were for our rental (and our rent probably would have gone up by now) This is great calculator to see if it would be cheaper for you to rent or own.
- Home prices were rising. We literally felt like there was a clock ticking. Eventually the market would come to a point where we wouldn’t feel comfortable buying so close to a peak.
- Interest rates were historically low. Couple this with the rising home prices and we knew that time was of the essence for us.
- We were ready to start building equity…slowly. Have you ever looked at an amortization schedule? Take a look, a real hard look. This post does a great job explaining what it means. So, when you hear someone say that they want to start building equity….in all reality, it’s going to take a while to start building any equity. You will be paying mostly interest for the first few years. Regardless, we’re not getting any younger and we were ready to start having our monthly payments to go interest + a little teeny weeny bit of equity, rather than paying our landlord’s mortgage.
- We needed a place for our dog, Gannon to roam. Our dog, Gannon, needs exercise…lots of exercise. We knew we wanted a bigger backyard that would have room to create a space that we could all enjoy.
- We had been building our savings account. This was a long time coming. We’d started thinking about buying a home about a year and half before we actually did, so we had been in the “saving” mindset trying to build up that piggy bank. This is all the ways we saved a ton of money when we were saving for a deposit.
- We were eager to have a house to do whatever we wanted with. We had the urge to renovate something that we could call ours. I think that is what motivated us most in starting the process of buying a fixer upper.
With that in mind, we definitely knew what we were looking for when were done deciding to buy a house – a fixer upper!
Further Reading – Other Home Buying Articles:
- The home buying process from A to Z – a must read for a first time home buyer!
- How to find a home that matches your lifestyle, which is so important when shopping for a home.
- Check out our pre-renovation home tour here to see the 1st fixer upper we ended up buying!
- See how that first fixer upper ended up when we were done renovation – interior renovations & exterior renovations.
- We’re now onto our 2nd fixer upper – check out the pre-renovation home tour here.
This article “5 Things To Do Before Buying A House” was written with the expert help of my awesome mother-in-law, Martha Johnson – an all-star Realtor located in Bakersfield, CA. If you’re looking for an awesome real estate agent in Bakersfield, give her a call. I promise she’ll take good care of you 🙂