Once you decide to buy a home, the first thing you (understandably) want to do is pop into open houses and fantasize about your new life in your new digs.
It is a crucial part of the process. But jumping straight into the deep end could land you in trouble—both financially and emotionally.
1. Get your credit in order
Good credit is essential when buying a home. A poor credit score can lead to a higher interest rate and, by extension, a higher monthly payment. Dings on your credit—e.g., an old debt that’s been turned over to a collection agency, or a high credit card balance—can even prevent you from buying a home.
“You would think that, having heard so much about credit, people would know exactly what their credit is, but often they don’t,” says Marie Bromberg, a real estate agent with Corcoran in Brooklyn, NY. “Not knowing sets you back—a difference of 10 points can make a significant difference in your loan product.”
Before you start house hunting, pull your credit report (AnnualCreditReport.com is a reputable and free service) and address any problems dragging down your score.
2. Get pre-approved
Before setting foot in a home, find a reputable lender and get pre-approved. Let us be clear: This is not a simple pre-qualification; a pre-approval uncovers exactly how much house you can afford and is an essential component of a successful offer letter.
“Your offer means nothing without showing a pre-approval letter,” says California real estate agent Shelton Wilder.
Don’t have a lender yet? Don’t worry. Your agent can recommend local lenders, or you can seek out recommendations from other homeowners. Once you’ve settled on a lender you like, have the lender review your finances thoroughly to point out any concerns.
3. Make a list of your must-haves
Finally, the fun part! Now you get to start browsing home listings. In fact, feel free to start obsessively refreshing realtor.com for listings in your desired area months before you start seriously looking.
“Then, pick your absolute top three and hold firm on those,” says Dolly Hertz, a broker with Engel and Völkers in New York City. “If you get the rest of your longer list, or even a few of them, you’re ahead of the game.”
If you have this list prepared and in hand when you visit your first home with your agent, you won’t be prone to making impulsive decisions based on your gut, or getting starry-eyed over gorgeous architectural details that don’t actually meet your needs.
4. Review a residential purchase agreement
It might feel like you’re jumping the gun to think about the contract to buy a home before you even start looking for one. But home buying involves a flurry of paperwork, and you should understand what you’ll sign before you’re under pressure. Review a sample residential purchase agreement with your agent beforehand so you can head into this nerve-wracking process with open eyes.
“Sometimes in the home-buying process, especially in a seller’s market, the process can go so quickly that buyers don’t know what they are signing and what the contingencies mean,” Wilder says.
For instance, if you’re selling and buying simultaneously, you might want to include a “home sale contingency,” which makes the purchase dependent on successfully selling your own home. Or you might include an inspection contingency, so that you’ll have the option to back out if serious flaws are uncovered.
5. Prepare to be flexible
The home-buying process is filled with highs and lows. You might find a home that fits most of your criteria—but misses the mark in one big way. You might be forced to compromise, or move to an area you didn’t expect.
Before you dive in, “take a deep breath and promise yourself to be as flexible as possible,” Hertz says. “You may fall in love with the kind of place you never thought you would consider.”
As an example, she recalls the search for her current home. Early on, she was “set on living in a particular town and only that town.” She and her husband spent 10 months looking at homes that didn’t fit the bill.
Then, “quite by accident, my husband found a listing ad that looked intriguing, in a neighboring town we had never even heard of,” she explains. “You can guess the rest: Not only was it love at first sight, but 28 years later, it still is.”
6. Explore all of your loan options
“Often, first-time home buyers automatically sign up for the 30-year fixed,” Bromberg says. “But often there are alternatives that will work for them, but are not explored.”
If you’re buying a small home or studio, you likely won’t stay for 30 years. Perhaps a shorter mortgage term could be useful. Or, if you have big pockets but can’t quite afford an all-cash offer and find yourself repeatedly losing in bidding wars, Bromberg recommends the delayed financing option, which lets you pay cash upfront for the house—and then get a mortgage for the home after closing.
7. Fill your cash reserves
Don’t just save up for a down payment. Make sure you’ve stuffed your emergency fund, too.
In addition to having the down payment in your bank account, Wilder says, you should have an emergency fund that amounts to several months of what the mortgage payments would be.
Having this money before you start the home search will help the loan process—it proves you’re fiscally sound. And, of course, it also buffers against any potential surprises once you get the house, like a brand-new water heater going kaput.
Don’t set foot in a home without preparing yourself emotionally and financially. Laying the proper groundwork guarantees good decisions—and a home you’ll adore.