10 Early Steps to Take Before You Decide to Buy a Home

First up, can you actually afford it?

The home-buying process can be long and complicated, so before you commit to go down that road, make sure you're aware of all that it entails. The process isn't just a matter of shopping for the right house, but also getting yourself financially ready and doing a big picture assessment of your life priorities. If you have the goal of home-ownership on the horizon, there are several early steps you can take now to see where you stand and prepare yourself to embark on this path.

To map out these steps, we asked home experts about the important considerations to make before becoming a homeowner. Check these to-dos off your list so you can get closer to that goal of “home sweet home.”

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Determine if you can afford to become a homeowner

An important starting point is to know that buyers need enough saved up for a down payment, generally up to 20 percent. “Buyers don’t need to bring 20 percent to the closing table, although they can avoid paying private mortgage insurance [PMI] each month if they do,” says Clare Trapasso, executive news editor at Realtor.com.

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And there are loans, Trapasso explains, that don’t require anything down for veterans, military members and their families, as well as for those buying in more rural areas. Some loans also require as little as 3 percent to 3.5 percent for qualified borrowers. “However, if home prices dip, borrowers could quickly find themselves underwater on their mortgages, owing more than their homes are worth,” Trapasso cautions.

Buyers also need to be able to afford closing costs (between 2 percent and 6 percent of the size of their mortgage loan), plus cash for furnishing the home, making repairs, and maintaining it, Trapasso says. “If they’re moving from a smaller apartment into a larger single-family home, energy bills can more than double or triple in size," she adds. "Buyers should also have an emergency fund just in case anything goes wrong."

Consider how long you plan to live in the home

The rule of thumb for buying a home is that you should stay put for at least five years if you don’t want to lose money, as selling a home is often very expensive, says Trapasso. “Home values can fall over the short-term, but generally rise over the long-term if homeowners can weather down markets,” she says. This varies significantly and can depend on factors like what type of home you own and its location. However, five years is a good starting timeline to keep in mind when you're considering if you're ready to commit to buying a house and staying in one place for a while.

Separate your needs from your wants

Your dream home may come with a long list of ideal qualifications, but for your first time buying a home, you may need to manage your expectations. “The nation is still suffering from a housing shortage, so the home you want may not be available or may not be possible in your budget,” Trapasso explains. Instead, a more practical approach should be considered. “Maybe you only really need three bedrooms and two full bathrooms,” Trapasso suggests. “Maybe you could move a little further out or purchase a home that hasn’t been recently updated.” Think about your make-or-break-it list items, and which items you're willing to give up to secure a home purchase.

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Look for down payment assistance

There are ample programs available to assist both first-time and other buyers in becoming homeowners. So, do your research and see what resources are available to you. “Buyers can qualify based on their incomes, professions, racial backgrounds, where they want to buy, disabilities, among many other factors,” Trapasso says. “Different sorts of grants and loans are available from federal, state, and local agencies, non-profit organizations, lenders, even private businesses. Some employers also offer it as a perk.” These assistance programs and resources can add up to substantial savings, so don't skip this step during your search.

Get pre-approved for a mortgage

Before you start looking at homes and begin the home-buying process, Trapasso says it’s helpful to be pre-approved for a mortgage. “This lets sellers know you’re serious about buying and have the ability to get the financing to make a deal happen,” she says. Plus, it also helps you see what you can afford so you can identify which homes are within your price range—and which homes are not.

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Find an agent

Trapasso says it’s really important when looking for an agent to work with someone that is familiar with the local area where you want to live. “They will be able to help you price your offers just right and may know of neighborhoods that fit your criteria that you may not be familiar with,” she says. “Make sure [the agent] is someone you trust as this is the person who will guide you through what could be the largest purchase of your life.”

Think about your longer-term plans

Your life-plan should be taken into account as you embark on your homeownership quest. “If you're considering starting a family, you might want to go straight for a three-bedroom home,” says Kate Wood, home expert at NerdWallet. Although you could buy a smaller starter home and plan to upgrade later, Wood cautions that coordinating a home sale, a purchase, and a move once you've added kids to the mix could be a tall order. “You don't want to buy 'too much house' in the sense of exceeding your budget, but so long as it fits your finances, you're not likely to bemoan an extra bedroom,” she says.

Save up for maintenance and repairs (not just a down payment)

Even if you're buying a brand-new home, it's important to set aside some funds for basic maintenance and emergency repairs, says Wood. Ideally, this is separate from your regular emergency fund.

“Though you should hold some money aside for this when you're buying a home, it's also a good idea to continue contributing regularly to this 'home repair' fund once you’ve moved in,” she says. “That way, when something big happens—like a major appliance goes kaput—you're able to take care of it right away.”

:How to Budget for Maintenance and Repairs When Buying a Home

Get your finances in order

If your finances are well-organized when you're looking at mortgage lenders, this may demonstrate that you're a well-qualified borrower. “Request your credit reports from the three major credit bureaus, and fix any errors,” suggests Wood. "You might also spot problems that you can easily fix to help strengthen your credit, work on paying down debts, and avoid taking out new lines of credit."

Decide what kind of mortgage you want

Wood reports that most home loans in the U.S are 30-year, fixed-rate conventional loans, but mortgages aren't one size fits all. If you've served in the military, she says, you're likely eligible for a VA loan, and if you’ve had some credit challenges, an FHA loan may be a better fit for you. “And depending on prevailing mortgage interest rates and your homeownership plans, you might decide that an adjustable-rate mortgage or ARM makes more sense for you than a fixed-rate loan,” Wood says.

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