Are You Ready to Buy Your First House? 4 Steps to Prepare Before You Buy

May 2, 2019

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Deciding to buy a house is probably one of the biggest financial decisions you’ll ever make. This is why it’s not something that should be done on a whim or taken lightly. It is something you should do when you are really ready.

How to Prepare for Homeownership

Although the saying goes that you’re never really ready for most things in life, I do think you can do a few things to help prepare yourself for homeownership.

1. Get Your Finances in Order

This one is pretty obvious at first glance. Before you buy a house, you need to make sure that your finances are in good shape.

For example, if you have credit card debt, get it paid off ASAP. Although you can buy a house while you have credit card debt, paying off your high-interest debt first makes financial sense in most cases.

First, paying off credit card debt may help increase your credit score. A higher credit score could lead to a lower interest rate on a mortgage loan. Since mortgages are usually fairly large loans, even a small reduction in your interest rate can add up to huge savings over the life of your loan.

Second, paying off credit card debt frees up your monthly income so you can save up more money for a down payment. Of course, you should never put yourself in a situation where you’re house poor. But if you don’t have other debt to pay each month, you will have more financial flexibility when considering more expensive homes.

2. Save a Down Payment

As a first time home buyer, there are many programs available to help make homeownership more affordable. For example, PenFed offers several resources and programs to help first-time buyers transition from renting to buying their first home.

But even with lower down payment requirements for some first-time homebuyer programs, you’ll still need to have some money saved up for a loan’s closing costs, insurance, taxes, etc.

In my experience, from having bought two homes now, there are always additional costs that end up popping up at some point. That’s why it’s important to have more money set aside than you think you’ll probably need.

For an estimate of what you’ll need to have saved up for your down payment and closing costs, and how much you can afford and what your payment could be, use the Affordability Calculator from PenFed on this page.

3. Consider Costs Beyond the Monthly Mortgage Payment

Being able to afford the monthly mortgage payment is one thing, but can you also afford all the other costs associated with homeownership?

With my first home, many of the additional costs, like insurance, property taxes, etc., were rolled into my monthly mortgage payment, but that doesn’t mean there’s nothing else to pay for. You may have homeowner’s association costs depending on where your home is located. Plus, you’ll inevitably have repairs, updates, etc. to pay for on your home over time.

In my case, almost immediately after buying my house I had to fix and replace a few things.

4. Make Sure You’re Ready to Put Down Roots

Finally, before you buy, it’s important to consider your goals for the next few years. Buying a house is like putting down roots in a certain location, and while you can sell your home and move, there are costs associated with that.

Because of the costs of buying and selling a home, it’s important that you plan to live in the home for at least a few years before moving, otherwise, you may end up losing money.

Ready to Buy? Here’s What to do Next

So you’ve decided that you are ready to buy your first home. Congrats!

Here’s what you should do next.

1. Find a Real Estate Agent

Your real estate agent is going to be like your best friend during the home search process. They’ll be your eyes and ears for what’s new on the market that may be a good fit for you.

2. Look for a Home

Working with your real estate agent, your next step will be to start looking for your dream home, or at least one that checks most of the boxes and is in your budget.

3. Get a Mortgage

After you’ve found a home, it’s time to get a mortgage. You’ll need to find a lender who can walk you through the process for pre-qualifying or applying for a mortgage.

Shopping around at different lenders may be a good idea to find out about rates and costs at different lenders.

You may also want to see if you can qualify for a real estate rewards program, like the one at PenFed. With this program, you can save 0.5% of your loan amount up to $20,000.

4. Close and Move In

After you’ve gotten your mortgage, it’s time to close, sign the documents, and move in.

Summary

I know this blog post makes the entire process of buying a home sound easy, but there are always things that can pop up along the way, which is why it’s important to have a real estate agent and lender that is on your side to help work through these things.

Ultimately, buying your first home can be a great financial investment in your future, but there are many factors to consider before you decide to buy your first house.

This post is in collaboration with PenFed Credit Union. The views expressed in the article are the views of the author and do not necessarily reflect the views of Pentagon Federal Credit Union. PenFed Credit Union is an Equal Housing Lender and is federally insured by the NCUA.

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