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5 Things To Do Before Buying Your First Home

home sweet homeIf you’re ready to take the leap from renter to homeowner, one of the most complicated parts of the process can be securing a home loan. Here are some ways to improve the financing you’ll get and other helpful tips for buying your home.

1. Check your credit report

You can receive free annual credit reports from the three major credit bureaus — Experian, TransUnion and Equifax — at annualcreditreport.com. These reports will let you see where you stand with your debts and any credit inquiries you’ve had. Check for errors or fraudulent credit accounts, which could be hurting your credit score. One timely reason to look at your reports carefully: Based on credit fraud analysis, a NerdWallet study concludes that the adoption of EMV chip cards (new chip software in debit and credit cards) will lead to a surge of online shopping fraud.

2. Raise your credit score

Although your credit report gives you an overview of your credit history, lenders use your actual credit score to help determine the mortgage rate you get. The higher your score is, the better your rate will likely be, and the lower your monthly interest payment. You can get your score at one of the three credit bureaus’ websites for a small fee.

If you don’t have good or excellent credit, you can begin boosting your score a few months to a year before you buy a home. One way is to avoid applying for any new credit cards or loans until after you have the mortgage. When you apply for any sort of credit, the lender reviews your score in what’s called an inquiry; each inquiry can knock down your credit score a few points. You can also improve your credit score by taking care to pay your monthly credit card and other bills on time and in full.

3. Know your price range

Check real estate listings online to see what homes are selling for near you, and investigate current mortgage rates. You can then make some estimates about what your mortgage payment might look like using an online calculator, which financial institutions like Horicon Bank provide. A good rule of thumb is to spend no more than 28% of your pre-tax income each month on total housing costs, defined as loan principal and interest payment, property taxes, home owner’s insurance and PMI, and condo association dues, if applicable.

4. Save for the down payment

This will likely be the steepest cost you’ll face when buying a home. As hard as it can be, putting down 20% of the home’s value can save you from paying hundreds of dollars each month on private mortgage insurance, or PMI. This coverage protects the lender if you default on the loan. A year or more before buying, consider adopting savings strategies such as limiting your restaurant outings each week and planning more local trips or “staycations” instead of far-flung vacations.

5. Anticipate other costs

Although the down payment tends to be a buyer’s biggest expense, you’ll likely pay between $1100 and $1700 in closing costs. This can include the price of a home inspection, appraisal, loan application, attorney services, and more. You may also need to deposit two months’ worth of property taxes and insurances to start your escrow account.

Keeping these steps in mind as you buy your first home will help ease the process and improve your chances of getting the best possible home loan.

Spencer Tierney, NerdWallet

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10 Responses to 5 Things To Do Before Buying Your First Home

  1. I like your tip on anticipating other costs when you go to buy a home for the first time. I would imagine that saving for things like home inspections and things like that would be just as important as saving for the down payment. My husband and I are starting the process of looking for a home so we’ll have to be sure to save for more than just the down payment.

  2. Foster Smith says:

    Very thorough article. I have been a realtor selling real estate in Summerville, SC for over 20 years, and these points are great! We always pre-qualify our buyers to make sure they are ready and able to put a contract on a house before we take them to see homes for sale.

  3. Opciones de manera constante para poder comprar una casa eficaz a un precio asequible y poder encontrar un hogar nuevo al lado de tu familia

  4. Shad Morris says:

    We have been thinking about buying a new house, but weren’t sure what to do. It’s interesting that you say to come up with a price range, and get estimates about your mortgage payment. It would be nice to figure out how much you are paying a month, and get into the groove of doing it.

    • Grace Bruins says:

      Hi Shad! Absolutely! This information is really helpful for budgeting home payments and helping you get started saving while you search for the right home. At the Horicon Bank Home Loan Center, you can use an online calculator to estimate what your monthly payment will be based on mortgage amount, loan term and estimated interest rate!

  5. Mike Dy says:

    Great blog! Thanks for sharing.

  6. Jade Brunet says:

    It is good to know that checking real estate listings online is a good idea. It would be good to be aware of what homes are selling for near you. Hiring a real estate agent would also be beneficial so that you do not have to handle all of the confusing paperwork of buying a new home.

  7. Kyle Winters says:

    The article makes a very good and important point in tip number three. You always want to know your price range before you start looking for a house to buy. After all, this can keep you from getting attached to a house you later find out you’ll never be able afford.

  8. These are good ideas for buying a home. My wife and I have never bought one before, but it’s time to move out of our apartment. I’ll be sure that we both check our credit score, so we can start fixing it if we need to!

  9. Marcus Coons says:

    It really helped when you mentioned how you should boost your credit score a few months to a year before buying a house. I understand that doing this can not only help you get a better mortgage but also give you time to learn more about buying real estate in your area. My brother is planning on buying a house soon and wants to make sure he does it right, so I’ll share your post with him.

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