10 Crucial Things to Do Before Buying a Home

Buying a home is an intense process, especially so for first-timers. Since buying my own home in July 2013, I've gotten a lot of questions about how to get the ball rolling, so I've compiled all of my knowledge here. Below are the 10 things to do before buying a home. Some of these are common best practices, and others are from my own experiences; the things I wish I'd known before buying my own little gem.

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1. Build Your Wishlist

Everyone has a wish list for what they want in a home, whether you are currently looking, in a home already, or still renting and compiling a list of your “must haves” for the future. I've been making a  list in my head since I was ten, and even though I own a home currently, I still think about what features I'd like to have in the future.

Here's a chart of what I had on my wish list back when I bought my first home in 2013 and how the home I bought stacked up.

wishlist

Obviously, if you watch enough house hunters you'll know that wish lists don't line up with budgets most of the time, but it is still good to have a rough idea of what you'd like before you aggressively begin to search. A wish list will also help an agent find homes best suited to your needs.

 

2. Do a Drive-By

House hunting is exciting. Truly. It is also exhausting. Before you make an appointment to physically see a home, leverage the internet to do a little bit of detective work. See if any photos are available online. Those will go a long way to narrowing down your list.

Then, before you ever make an appointment, do a drive by of the home(s) you're interested in. Do one drive by during the day time, and then another at night for each house. Neighborhoods can look a lot different during the day, or you may notice a few issues with the home during the drive by that weren't noted/pictured on the internet listing. This was crucial for me, as I was able to narrow down ten homes off my initial list of 20 just by doing drive-bys.

Best of all this can be done on your own time, so you're only truly visiting homes with your realtor that you have vetted.

RELATED: 5 Lessons You'll Learn During Your First Year of Home Ownership

3. Get Pre-Qualified for a Mortgage (& Comparison Shop For A Competitive Interest Rate!)

You should get pre-qualified for a mortgage before you begin seriously shopping (read: touring homes instead of just browsing online) so you know how much home you can afford. Being pre-qualified also lets sellers know you mean business.

Depending upon your status and credit score, you may also qualify for an FHA loan. An FHA loan often enticers buyers with sexy interest rates and lower down payments (FHA loans can get by with as low as 3.5% down!) It's good to get it if you can, especially as a first-timer who may not have so much cash or liquidity.

Obtain quotes from at least three lenders. It's not only smart business, but a difference in interest rates could save you thousands of dollars on what is arguably the biggest purchase you'll ever make. Ask for mortgage broker referrals from friends and family. We like LendingTree and to shop mortgage and home loan interest rates with zero hassle or commitment click here.

4. Bid Appropriately and Unemotionally

Ask your realtor to research comparable properties in your area before you make a bid. Whatever the average selling price of other homes in the area is, try to start a little bit lower in case the seller wants to negotiate (which in 99% of cases, they will. They have financial goals too!)

Try to avoid a “bidding war” at all costs. From my own experience, a bidding war becomes more about emotions than good common sense. I ended up bidding way too much on the home I have now. I won the war, but later had to fight the bank to reduce the price after the inspection turned up a lot of damage.

Sometimes I wonder how much I would have saved had I bid a bit more conservatively. Research, and doing a second tour of the home during a bidding war can help with this.

5. Budget for Not-So-Hidden Fees

Generally, everyone accepts a few expenditures as part of the home buying process: the down payment, realtor commissions, homeowner's insurance, and the like.

But there are also lots of other fees that can be associated with buying a home, particularly if you are buying a foreclosed home, getting an FHA loan, or lumping renovation costs in with a mortgage. Here's an example of fees I paid:

  • Earnest Money ($500-$1000)
  • Home Inspection ($300-500)
  • Home appraisal ($4-500),
  • a HUD Consultant fee (If buying a foreclosure and doing a 203k renovation loan, this is typically $4-500 paid at the outset of the renovation),
  • $250 in document preparation fees to an attorney at closing
  • $15 for a home buyer's education class
  • $30 in cashiers check fees and postage.

I think all told it took me $2100 just to get to closing. This wasn't paid out at one time, rather over the course of 6 weeks but still….Yikes!

You can use the spreadsheets in my Grow Your Money Tree tool kit to help set a budget and stick to it. You'll get $5 as a first time home buyer if you use this special link. Yay!

6. Prepare for an Appraisal

I mentioned above the need for an appraisal. Since the housing crash of 2008, many banks have tightened their lending terms. They will no longer approve a mortgage on a home if it does not appraise for that value, no matter how much you're willing to pay for a home, or if the home falls under the amount you're pre-approved for. This can frustrate many buyers who fall in love with a home, but do not have the cash to cover the difference between the seller's asking price and the appraisal.

I remember being on pins and needles during the appraisal process for my current home, but thankfully the home (after renovations) appraised for the home value + the upgrades, so I was able to get the money I needed to renovate.

7. Get (And Attend!) an Inspection

Since you pay an inspector to do a walk-thru of the home and they prepare a written report of the findings, I've known many homeowner friends who skipped the inspection. No! Bad! Wrong! Completely wrong.

The inspection is for you. In addition to finding out if anything is wrong with the home, this is your chance to learn where the breaker box is, the water main, and all appropriate shut off valves. Plus, having the potential buyer there guarantees a more thorough inspection.(People behave differently when they're being watched- it is proven.)

  • Find a qualified inspector through friends (or Angie's List, like I did)
  • Ask to see an example of the final report before you hire someone. You want it to be THOROUGH with pages (15+) of documentation and photos.
  • Once you get a report with any potential damages, get estimates for the fixes. It will be up to the seller to either fix them or provide a credit at closing.

8. Get Your Documents Together

One of my friends who had purchased a home before I did remarked how ridiculous the loan underwriting process is, and how many hoops it seemed they had to jump through before they could close.

That won't be an issue for me, I arrogantly thought at the time, I'm a hyper-organized, type-A personality. I have impeccable records.

And even though, yes, I am organized, it was still a pain in the butt. Here are a few of the “standard” documents you will be asked for during the underwriting process.

  • Check stubs (usually for the past 30 days.
  • W2's for the last two years.
  • Any additional proof of income you may have like your stock portfolio, alimony/child support whatever.
  • Bank statements, usually about three months worth.
  • A letter stating your employment and rental history for the past two years.
  • A home buyers training seminar certificate. 
  • Tax returns and the transcripts which have to be ordered from the IRS.
  • Copies of all of my rent checks to my current landlord.

And if you have a side hustle, or freelance or work for yourself….

  • Be prepared to show copies of checks from clients in addition to your tax returns (I printed mine off of my banks website.)
  • Three months of paypal statements if you earn money online.

If you are planning to buy a home and don't know where these are, I suggest you locate them immediately.

9. Stay Organized

I was able to access my files quickly and turn them over to him within a matter of hours (if not minutes) whenever my mortgage broker emailed and asked for them.  Not that this sped up the processing of my loan or anything (sorry…still bitter….) but it did save me a lot of hassle and headache because I didn't have to worry or search for a specific document.

  • Get digital. Now. I know this can be difficult for some of you to let go of, I'm a “keep a hard copy for my records” kinda gal too, but when your mortgage company is asking your for this stuff, it is way easier to point, click, and email over a PDF than to scan the document.
  • If you are thinking about purchasing a home in the next 6-12 months, go ahead and thin out your files. I cut down on my files just by scanning and digitizing my pay stubs for the past two years.
  • Create a “master list” for all your accounts and passwords.
  • Once you've been pre-approved and are under contract on a house KEEP A COPY of everything the bank sends you via email or snail mail. Especially if you are working with a large bank, you never know what might go missing that could hold up the processing of your loan.

10. Familiarize Yourself With Murphy's Law

Murphy's Law: Anything that can go wrong, will go wrong. 

While I'm saying this a little tongue-in-cheek, I've never known anyone who had a 100% smooth home buying process. There are simply too many variables (money, two sets of people, real estate agents, the bank) to ensure it will be absolutely perfect. Using the tips above, doing your homework and not taking short cuts will help ease the process, but try and remember that bumps in the road are expected too.

Buying a home is stressful, but so, so worth it. Stay organized. Stay cool. And when things aren't going your way, just remember why you wanted to buy a home in the first place.

Like this post? Get more first time home buying information in my book, The Millennial Homeowner: A Guide to Successfully Navigating Your First Home Purchase, now on Amazon. Click here to get your copy! 

 

There are 10 crucial things to do before you buy your first home. See what they are, how to do them, and how they can save you BIG bucks when it comes time to buy!

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  • Sylvia Muriedas Gutiérrez
    March 13, 2015 at 9:14 am

    Thanks for sharing your experience!! As a mortgage banker, I can tell you there are many situations where a valuation can come in lower than sales price and a lender will still finance the transaction. It depends on many variables. Here are some a buyer should consider:
    -Are you really willing to pay above market value for a property? If yes, can you qualify to finance a higher loan amount?
    -At price points below $417,000, there are many loan programs that allow up to 103% financing – some with no mortgage insurance requirements.
    -Does your selected loan program allow a higher loan-to-value (LTV)? Does the higher LTV carry mortgage insurance (MI)? Can you still afford the housing payment with MI?
    -Have you considered other loan programs that may allow you to finance a higher LTV?
    -Any amount in excess of valuation can’t be financed on most loan programs. Do you have additional resources to make up the difference between sales price and market value?
    -If you don’t want to pay above market value, why not renegotiate the price with the seller?
    -If the property needs rehabilitation, keep in mind that FHA loan programs generally cap financing of repairs to no more than $35,000.
    -If you are considering a HUD home, you may be limited to a HUD loan program if the condition of the home presents a safety issue and is uninhabitable.

    Once repairs have been completed, you may want to consider refinancing out of a government loan program into a conventional loan program. Yes, there are additional one-time closing costs for refinancing, but the long-term value of being able to cancel mortgage insurance once the property value reaches 78% is significant (in 2013, FHA began requiring lifetime MI on 30 year loans and 15 year loans allow cancellation after the 11th year). Interest rates won’t be this low forever.

    Buyers need to partner with in-market expert lending professionals to learn their options as face-to-face meetings allow for greater clarity. Relying on one lender may not be enough as each lender limits their product offerings and you may need a specialized program that one lender doesn’t offer, but another does.

    http://www.sylviagutierrez.com

  • Stapler Confessions
    March 3, 2015 at 9:36 am

    We are in the process of buying a home right now, and all of this is SO TRUE! Especially being prepared with all the documents the underwriters need. I was so confused when I discovered that I can’t find my 2012 Tax folder anywhere, so I had to request my W2’s from my former employers. Thankfully, they sent them out to me within 24 hours, which was really helpful.

    • Lauren Bee
      March 3, 2015 at 11:00 am

      Yikes! Glad you were able to recover that so quickly. Good luck with the home buying process- very exciting for you, Rebecca. 🙂

  • Giulia Lombardo
    February 26, 2015 at 5:46 am

    Absolutely agree, I am collecting pics and information about my dream’s houses, comparing prices, works, but for the moment I am the phase save for a deposit:P

    • Lauren Bee
      February 26, 2015 at 8:29 am

      That’s perfectly fine! A beautiful phase to be in. 🙂

  • Hello Pre Nurse
    February 25, 2015 at 4:38 pm

    I definitely had no idea what I was doing when I bought my first house. I basically just did whatever my parents told me to do and I didn’t really understand everything. If I did it again, I think I’d be much more prepared and well-researched. -Kayla

    • Lauren Bee
      February 26, 2015 at 8:29 am

      Definitely. I think that is typical of a lot of first time buyers (including myself) I didn’t do nearly as much research as I should and it bit me in the butt, BIG TIME.

  • Ms. Mintly
    February 25, 2015 at 4:08 pm

    If you can walk away from a house (knowing you have a place to live and you aren’t under strict time constraints), that will allow you to make those negotiations unemotionally (or at least help!). That’s not always possible, but it’s a nice place to be if you can manage it!

    • Lauren Bee
      February 26, 2015 at 8:29 am

      Good point! A lot of things can happen if you are down to the wire and need a place to live! I see this happen a lot when people need to sell their homes too. They get desperate.

  • Stefanie @ brokeandbeau
    February 25, 2015 at 9:18 am

    I hate being a freelancer during moments like this. Getting documentation together is so much more work. And people on the other end always seem confused.

    • Lauren Bee
      February 25, 2015 at 9:39 am

      I know. It’s almost like people get punished for being entrepreneurial sometimes.

  • Taylor Lee
    February 25, 2015 at 8:43 am

    We’re in the process of buying a home this spring/summer (after having looked on the market for the past six months) and it has been *rough*. We’re still in the stages of finding places in our price range after being outbid a couple times already this year. I love your breakdown of your hidden fees; what kind of closing costs were you looking at on top of that?

    • Lauren Bee
      February 25, 2015 at 9:43 am

      I didn’t write about it in this post, but I applied for and received down payment assistance through a home ownership program in Atlanta. It was worth about 15k that gets forgiven every year. Because of that, a lot of that grant money was applied to closing. I think the original amount was around $6k but I came to the table with $1800 and that was all I had to pay at closing.

      • Jordano Williams
        February 25, 2015 at 9:56 am

        A lot of closing costs are going to depend on what your house is going to cost but I used this estimator to get a rough idea. Also, like Lauren, I was concerned about it and negotiated a 3% back from the seller (which was a bank in my case -foreclosure) so I only brought around 7k to my closing (had about 7k covered from the 3%) and they also asked me to put 2500 in earnest money. So that’s 16k total! It can get pricey. Run a few estimators and always ask your realtor because they can fill in the blanks of the unknowns of some costs specific to your deal.

        http://michaelbluejay.com/house/closingcosts.html

        • Lauren Bee
          February 26, 2015 at 8:30 am

          Thanks for sharing Jordano! Yes, closing costs depend on the price of your house. I know I’m very lucky that I didn’t have to pay that much. 🙂

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