What to Do Before Buying a House

Current mortgage rates are at an all-time record low, and home prices and sales are up. But even though the housing market seems to be recovering, many Americans are finding they can’t qualify for a mortgage, or afford the down payment on a home. However, if you are one of the lucky few, and you believe you are in a position financially to take advantage of what realtors are describing as a “buyers market,” here’s what you need to do before buying a house in Ohio, Oklahoma, Oregon, Missouri, Montana or any other state.

  1. Know your credit score:

    If you’re like 99% of the people reading this, you’re going to need to apply for a type of loan called a mortgage in order to pay for a house. As it is with any loan, your chances of getting one with reasonable fees improve if you have a decent (640 to 660) or above average (760 to 850) credit score. Your FICO score is a numeric grade of your credit history as compiled by Equifax and Trans Union credit bureaus. It’s to your benefit to know your score and address any issues with your past credit before you apply for a mortgage. You can get your FICO score for free at the myfico.com website.

  2. Determine what you can afford:

    Optimism is a wonderful thing, but before you buy a home, you’re going to want to sit down and figure out whether or not you can actually afford the monthly mortgage payments, as well other expenses related to home ownership, including taxes, insurance, and utilities. There are several mortgage calculators online that can help you begin to break down your incoming and soon-to-be outgoing income. Before buying a house, you might try taking a few months to set aside each month in a savings account the amount you estimate you would have to pay on a mortgage, just to see what doing so really feels like.

  3. Save for down payment and closing costs:

    When it comes time to buy a house, you’ll need to be ready to put down a down payment and, assuming everything goes well, money for closing costs. The amount you’ll have to put down depends on your credit and how you decided to finance your purchase. Closing costs can run anywhere from $2,300 to $4,000. Use the closing costs map at bankrate.com to estimate closing costs in your state.

  4. Build your savings:

    At this point, you’ve probably figured out that you’re going to need to save up some cash before you start shopping around for a house. Knowing your credit history, and knowing what to expect in house-related expenses, will give you an idea of what you need as a “cushion” when it comes time to start paying your mortgage (and new utility bills!). Having a significant savings, say three months to a year of living expenses, will also make you a more attractive candidate to lenders.

  5. Organize your documents:

    Mortgage lenders will want to see relevant paperwork authenticating your income and taxes. You’ll probably need to present two recent paystubs, the previous two years’ W-2s and tax returns, and the last two months of your bank statements. Check in advance what the lender requires, and take time to gather all the necessary paperwork.

  6. Get pre-approved for a mortgage:

    Assuming you qualify, a lender can pre-approve a mortgage for you for a certain amount, and for a certain period of time. Being pre-approved for a mortgage assures the people selling the house you want to buy that you aren’t going to be turned down for a loan and, since you’ve already gone through the process of getting qualified for the loan, will save you time at closing.

  7. Buy a house you like:

    After all of that, do you really want to compromise on the house you’re going to be living in and paying off for the foreseeable future? Take time to shop around and select a home you can see yourself and your family living in for more than a few years. Chances are you won’t be able to sell the house quickly if you decide after a few months it’s not right for you. Doing so will cost you money and won’t necessarily bring you any profit.


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