7 Essential Steps You Need To Take Before You Purchase A Home

Don't buy a home before you take these 7 essential steps!

If you haven’t been following my blog for long, let me be the one to tell you that the first home I purchased was a huge financial mistake, and it left me in a financial mess for many years!

Since then, I have picked myself back up and I have learned a lot from my mistakes.  Lucky for you, I’m here to offer you advice on how to avoid a financial mess by considering the following steps before you purchase that home!

1.  You Need A Budget

First and foremost, don’t even think about buying a home unless you know how much money you have coming in and going out.  Don’t be fooled by and rely solely on that pre-approval you received – the lender used your gross income to provide you that number. (Gross income = income before taxes!)

Many people will simply rely on the bank to tell them how much they can afford in regards to house price.  You should never purchase a home at the top of your pre-approval!  When looking at my gross income, the approval amount they gave me on my last house was way more than I could realistically afford.

The bottom line, before you get a pre-approval, you should know how much you can afford well before talking to a lender.  Don’t let the bank dictate what you can and can’t afford!

2. Pay Down Your Debt

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If you have credit card/student loan/vehicle debt, I strongly recommend paying off those debts before you purchase a home.  There is absolutely nothing wrong with renting in the meantime (Is Renting A Waste Of Money?) until you get your financial house in order.

Debt has a way of sneaking up on you and if you have other looming debts, you could quickly find yourself in a dire financial situation.  If you already have an issue with debt, why would you want to add a massive mortgage debt on top of it all?  Renting is not wasting money, buying a home you can’t afford, and having to foreclose is…

3. Save Up For A Down Payment

Now that you have figured out (on your own) how much home you can afford, you need to start saving up for a down payment.  Let me stop right here and tell you that if you have the courage and drive to save up cash to buy your house 100% in cash – it’s totally possible, and I would highly recommend it!!!!

If you are comfortable owing a large amount to a bank for your mortgage and you don’t have other debts, then I won’t fight you on the idea of a mortgage.

How Much Should You Save?

At the absolute minimum, you need to save up 20% of your full purchase price to put down in cash.  This will open up a conventional loan option to you and will waive the Private Mortgage Insurance (PMI) that you would otherwise have to pay.  PMI is used to protect the bank in the event you can’t make your payments and you default on your loan.  This insurance can add several hundred dollars to your monthly payment depending on the amount of your loan.

If you are on a roll and can save more than 20%, do it!  Any extra you put down can save you thousands, and possibly hundreds of thousands of dollars in interest you will pay to the lender during the life of the loan!

4. Know Your Credit Score

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If you are going to take out a loan, your interest rate will highly depend on your credit score.  The higher the interest rate, the higher your monthly payment will be, and even one percentage point can significantly impact the amount of interest you will pay.

Similar to my article on mutual funds, Exposing The Mutual Fund Industry – small percentage points matter!! Credit Karma is a good resource to get an indication of your current credit score.

For reference, here is Experian’s explanation of the credit scores:
800 – 850 – Exceptional (Top of the list for the best interest rates)
740 – 799 – Very Good (Likely to receive better than average rates)
670 – 739 – Good (Only 8% of applicants are likely to become seriously delinquent)
580 – 669 – Fair (Considered subprime borrowers)
300 – 579 – Very Poor (Applicants may be required to pay an additional fee or deposit or may not be approved for credit)

If you rank less than very good, you may want to think about increasing your score or saving up more cash for the home.

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5. Look At Homes You Can Afford Today – And Tomorrow!

Are your kids nearing their teen years (higher food bills)?  Are you going to grow your family any time soon?  Keep in mind that what you can afford today may not be the same tomorrow.  Do your best to forecast your expenses in the next 5 or so years to ensure you do not end up drowning in debt.

This is one of the main reasons to avoid purchasing a home at the top of your budget.  Give yourself room to breathe, no one likes to slowly suffocate to death!

6. Control Your Emotions

I can’t tell you how many people “fall in love” with a home when they go home shopping.  The home buying process needs to be strictly disconnected from emotion!  Use your head, not your heart when buying a home.  That home you love could easily have foundation issues, termites, a terrible neighborhood, or be at the top of your budget.

Do your best to control those emotions and take the time to make a decision.  Rushing in to buy a house can quickly put you in a bad position financially.  Take a few steps back to avoid missing potential land mines you’re willing to overlook based on emotion.

7. Factor In Utilities!

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Congratulations, you can afford that 4000 square foot home in Arizona!  Did you factor in the $500.00 – $600.00 monthly electric bill you’re going to pay in the summer for your air conditioning?  What about that acre of land you have for the backyard?

How much are you going to pay in water and a landscaper to keep that yard looking nice?  Factor in these costs before you sign anything!  Often people become too focused on the home price and neglect all the other expenses that come with home ownership.

Home ownership is much more expensive than renting when you consider utilities, insurance, maintenance, and taxes.  Consider all these costs into your budget well before making a purchase.


These are some of the main things you should think about and plan for before you purchase your next home.  There are other things you should pay attention to such as shopping around for the best loan as well as finding a realtor who will not pressure you into making a purchase.

The absolute best advice I can give you is to save up and pay for your house 100% in cash.  You will save hundreds of thousands of dollars in interest to the bank!
I hope you found this article helpful.  If you think it could benefit others, please share it across social media by using the buttons below.  Also, if you haven’t done so already, please subscribe to my blog via email in the box below!!

Keep at it my friends, you work too hard to be this broke!
-Ryan

About The Author

Ryan Luke

Ryan Luke is a father of three, husband, financial coach, and full-time police lieutenant. His inspirational story about his struggle to make ends meet, to paying off his home in less than 10 years, has been featured on MarketWatch and other media outlets. To learn more about Ryan or to send him a message, visit his contact page here.

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