10 Things to Do Before Buying a Home

Congratulations! Whether you've already found your dream home or you're just starting to look, it's an exciting time. But you also have to remember to be cautious. A home is a huge expense, and sometimes all the costs associated with owning one aren't immediately apparent. Before you make any offers, do the following 10 things to ensure you won't regret your decision later.

Our credit card expert uses this card, and it could earn you $1,148 (seriously)
As long as you pay them off each month, credit cards are a no-brainer for savvy Americans. They protect against fraud far better than debit cards, help raise your credit score, and can put hundreds (or thousands!) of dollars in rewards back in your pocket each year.

But with so many cards out there, you need to choose wisely. This top-rated card offers the ability to pay 0% interest on purchases until late 2021, has some of the most generous cash back rewards we’ve ever seen (up to 5%!), and somehow still sports a $0 annual fee.

That’s why our expert – who has reviewed hundreds of cards – signed up for this one personally. Click here to get free access to our expert’s top pick.

Even if you think you've found the perfect home, it doesn't hurt to make a list of the things that are most important to you in a home and a neighborhood. This can help you narrow down your search area and make it easier for you to compare one house with another.

If you don't yet have a certain home in mind, your list can also help you begin to estimate how much you'll need to spend in order to get the home you want. For example, if you know you want a three-bedroom home in a certain school district, you can look up the average cost of homes that fit this criteria and use this information when determining your budget.

The general rule of thumb is not to spend more than 28% of your monthly income on housing costs, but that includes more than just your mortgage payment. You also have to factor in property taxes, insurance, and any other home-related expenses. Your bank won't necessarily turn you down if you want to buy a home with a mortgage payment that exceeds 28% of your monthly income, but you may have a more difficult time keeping up with the payments.

There are plenty of mortgage calculators online you can use to assess how much home you can afford based on your income. One of these is a good place to start. If you already have a mortgage lender and a home in mind, you can also ask your lender about what your payments would be.

Now that you have some idea of how much you're looking to spend, you can figure out what you need for a down payment. While 20% is the gold standard, few homeowners these days actually put down that much. If you put down less than 20%, you will have to pay private mortgage insurance (PMI) until you have 20% equity in your home.

Some loans only require a 3% down payment and certain borrowers, like military members and veterans, may be able to purchase a home with no money down. Review the options available to you and make sure you have the cash on hand to cover your down payment before you begin applying for mortgages.

Pull your credit reports before you apply for any mortgages to make sure there aren't any errors or negative marks that could get your application denied. You're entitled to one free credit report per bureau per year through AnnualCreditReport.com. Look for anything that's incorrect or any accounts you don't recognize and notify the credit bureau and the financial institution associated with the incorrect information. Make sure it's corrected before you apply for a mortgage.

You may also want to look at your credit score, which is based on but not included with your credit report. There are many scoring models out there, but the most popular is the FICO score. Many credit card companies now offer free FICO scores to their customers, so check to see if this is an option for you. Ideally, you want a score in the high 600s or above, with a higher score earning you a better APR on your loan.

Mortgage lenders tend to look at the same information, more or less, but they weigh things differently. That can result in you receiving different rates from different lenders. Comparing rates from multiple lenders is the best way to save money, though it does require a little more time because you have to apply with several banks.

Make sure you get all your applications submitted within about one month of one another. Then they'll count only as a single hard inquiry on your credit report, which will minimize the negative effect they have on your credit score.

Our credit card expert uses this card, and it could earn you $1,148 (seriously)
As long as you pay them off each month, credit cards are a no-brainer for savvy Americans. They protect against fraud far better than debit cards, help raise your credit score, and can put hundreds (or thousands!) of dollars in rewards back in your pocket each year.

But with so many cards out there, you need to choose wisely. This top-rated card offers the ability to pay 0% interest on purchases until late 2021, has some of the most generous cash back rewards we’ve ever seen (up to 5%!), and somehow still sports a $0 annual fee.

That’s why our expert – who has reviewed hundreds of cards – signed up for this one personally. Click here to get free access to our expert’s top pick.

Before settling on a mortgage lender, inquire about closing costs. Though negligible compared with the cost of the home itself, closing costs can still be thousands of dollars. That can affect the size of your monthly payments and, consequently, how much home you can afford.

You may be able to get the seller to pay your closing costs, though you'll have to negotiate this and not all sellers will be interested in doing so. Still, it doesn't hurt to ask.

If this is your first home, you may qualify for grants or even tax credits from your state or local government to help you purchase your home. This can help you make a larger down payment so you can potentially afford a larger home than you could on your own.

Available assistance programs vary by location, so you'll have to do some research to figure out what types of assistance are available to first-time home buyers where you live and whether there are any additional qualification requirements.

Getting preapproved means your bank has done a preliminary assessment of your credit history and is willing to lend you a certain amount of money for a mortgage. A preapproval is usually only good for a certain amount of time.

It gives you a guideline for how much you're able to spend, and it shows sellers that you're serious about buying a home. Amid the COVID-19 pandemic, when a lot of sellers are wary of letting strangers into their homes, some are only allowing those with preapprovals in for showings.

Homes have maintenance costs, and everything breaks eventually. A home inspection gives you an idea of what potential maintenance costs you may have coming up in the near future. You definitely don't want to skip this step because you could miss a major issue that could cost tens of thousands of dollars to fix.

Once the house is in your name, it's on you to pay for whatever problems arise. But if you catch it in the home inspection phase, you can negotiate with the homeowner to get the issues resolved or walk away and find another place. Make sure any offers you make are contingent upon the results of the home inspection.

Unless you can afford to purchase your home without a mortgage, you'll need homeowners insurance. And you should have it even if you don't need it. If you lose your home due to fire or a natural disaster, your home insurance policy will cover the costs necessary to rebuild your home so you aren't out hundreds of thousands of dollars.

Keep in mind there are a few disasters that a typical home insurance policy doesn't cover, like earthquakes and floods. If you live in an area that's prone to one of these, your lender may require you to purchase additional coverage to protect against these disasters.

House hunting can be stressful, especially when you're sorting out all the financial details, but it should also be fun. Go see what's out there and try to enjoy the process. But keep these 10 tips in mind so you don't run into any financial surprises.

Our credit card expert uses this card, and it could earn you $1,148 (seriously)
As long as you pay them off each month, credit cards are a no-brainer for savvy Americans. They protect against fraud far better than debit cards, help raise your credit score, and can put hundreds (or thousands!) of dollars in rewards back in your pocket each year.

But with so many cards out there, you need to choose wisely. This top-rated card offers the ability to pay 0% interest on purchases until late 2021, has some of the most generous cash back rewards we’ve ever seen (up to 5%!), and somehow still sports a $0 annual fee.

That’s why our expert – who has reviewed hundreds of cards – signed up for this one personally. Click here to get free access to our expert’s top pick.