By the Sea Real Estate and Property Management, LLC Helping you with all your real estate needs every step of the way…

Buying a home can be a daunting task, but being prepared can make it less stressful. This is a must read for the first time homebuyer.


Apartment building exterior

Mario Gutiérrez/Getty Images

“Wanting” to buy a home and “being ready” to buy a home are two completely different things.

Bank of the West study found that 56 percent of Millennials believe owning a home is more important than paying off debt or retiring comfortably. They may want to buy a home but they might not be ready for it.

Even as many are still hoping to achieve their American dream of buying a home, that doesn’t mean everyone is financially prepared.

Here are seven things you need to do before you buy your home.

  1. Pull your credit report and check your score
  2. Review your budget
  3. Get preapproved
  4. Beef up your down payment
  5. Get an agent
  6. Don’t skimp on an inspection
  7. Make a plan B (and C)

1. Pull your credit report and check your score

Your credit report and corresponding score are your golden tickets to buying a home. They showcase your credit responsibility and worthiness. Your credit score can seriously impact your mortgage rate. The higher your credit score, the lower your interest rate will be. This means you’ll end up owing a lot less money over the life of the loan.

Your credit score is broken down by:

  • Payment history: 35 percent
  • Credit utilization: 30 percent
  • Length of history: 15 percent
  • Types of credit: 10 percent
  • New credit: 10 percent

You can pull your credit report for free from Bankrate to go over your credit history. Cleaning up your credit report is one of your first steps to pre-buying a home. If there are errors, call one of the three major credit bureaus — Equifax, Experian, and TransUnion — to have them removed.

If you’re noticing a high credit utilization, start chunking away at your debt. See if you can consolidate your debt, refinance for lower interest payments, or transfer a big credit card balance to another card with friendlier repayment terms. Keep your utilization below 30 percent of your total limit.

Avoid getting new credit within a year of buying a home since it can cause a temporary dip in your score. The length of your credit history matters, too. The longer your credit history, the more credit-responsible you look.

2. Review your budget

If you’re working on a clean bill of credit health, give your budget a hard assessment. Use the 28-36 rule to see where your money is going. This is when your maximum household expenses shouldn’t exceed 28 percent of your gross monthly income. Your debt, like credit cards and loans, shouldn’t exceed 36 percent.

Your debt-to-income ratio, or DTI, is important to lenders for determining how much home you can afford and if you’re a good candidate to receive a mortgage. You might discover you need to make some adjustments, like spending less on travel and clothing, for example, to make room for a mortgage payment.

Fine-tuning your budget pre-homebuying will allow you to put extra cash towards a down payment, closing costs, or potentially higher home costs than you’re paying right now.

3. Get preapproved

With a stellar credit score and a solid down payment built up, you might feel confident in buying the house of your dreams. But until you get preapproved, that house will stay in your dreams.

Getting prequalified is nice, but it’s not the same thing. A prequalification is only based off information you give a lender. A preapproval is completing a mortgage application that pulls all your financial records.

Lenders base how much money they’re willing to give you based on your entire financial existence: your income, debt, and credit history all pay a crucial role. But it’s also there to show you how much home you can afford. If you know you can only get a $200,000 loan, you won’t waste your time looking at half a million-dollar homes.

It’s important to remember that you don’t need to settle on the first lender you find. Browse throughdifferent banks, online lenders, and credit unions to see which ones offer the best terms. Compare interest rates, fees, and the terms for paying back your loan. Consider working with a mortgage broker to help you weed through your options.

4. Beef up your down payment

Down payments for homes and cars are very similar: the higher the down payment, the less each monthly payment will be. But homes are much more expensive, which means the more you can put towards your down payment, the better off you’ll be every month.

It can be difficult to keep stashing money away for a down payment when you’re trying to afford basic necessities right now. Try cutting back on things you can manage, like dining out, grocery spending, unnecessary purchases, and travel.

Your debt might be holding you back as well. Try making larger debt payments every month until it’s completely paid off. Then the money you were putting towards your debt can now go to your down payment fund.

5. Get an agent

Whether you’re looking for a home 300 miles away or three, it’s a good idea to find someone who knows the neighborhoods better than you.

A real estate agent is on the hunt for your best interest because they want you to find the right home and buy it. Agents get their commission after a home is sold, so you don’t have to worry about costs up front.

Not all realtors do the same great job. So if you’re on the hunt for a great one, do your research. Look for one with top-notch credentials that has a proven track record. It’s similar to interviewing someone for a job, so talking to a potential agent’s former clients through may help you determine if they’re the right fit for you.

6. Don’t skimp on an inspection

You might think getting a home inspection is unnecessary. After all, you toured the home yourself and you would’ve seen major issues. True, maybe you can spot the big problems, but what about the small ones?

Home inspections go over every single detail of your home, from walls and appliances to the roof and drainage. Getting an inspection is a major part of buying a home because if there is, say, a water leak, you can take this issue back to the seller for negotiation. Either they fix the problem before you buy it or they lower their asking price of the home to accommodate the new cost of fixing the leak.

7. Make a plan B (and C)

As you’ve diligently prepared for your future home, you might not have considered what might happen if it doesn’t work out. What if your down payment is a little low? What if you don’t get the lender with the best terms? What if your dream home has an old roof?

Regardless of the setback, build the “just in case” options into your plan. If your down payment is too low, maybe you get an FHA loan instead of a conventional one. If you don’t get the lender with the best terms, maybe you get the second-best terms. That old roof may save you a lot if you talk the seller down, but you’ll need to make sure you can afford to replace after you close on the home.

Throughout the entire home-buying process, you will face different options for every single step you make. It’s important to remember how your choices are impacted along the way.