How to Prepare to Buy a Home: Preparing to Purchase a Home in 6 Simple Steps

Buying your first home is one of the most significant financial decisions one can make.

Factors like slower home construction, the financial impact of economic uncertainty, and fewer available homes all take their toll on home buying.

In today’s market, the homebuying process is more complex to navigate than ever before. Our own Maggie Stankiewicz reported last year that the average age of first home buyers rose from 30 to 38 years old, highlighting the complexity of the situation.

But that doesn’t mean it’s impossible to buy a home. It means it takes some preparation, determination, and understanding.

This article explores how to prepare to buy a home in 6 steps. The 6 steps toward preparing to purchase a home include:

1. Checking your credit score
2. Saving for a down payment
3. Setting a realistic budget
4. Getting pre-approved for financing
5. Researching neighborhoods
6. Utilizing home buyer assistance programs.

We’ll also reveal how to prepare for homeownership by using self-storage.

Let’s start from the very beginning by checking your credit score.

Step 1: Check Your Credit Score

When preparing to buy a house, checking and improving your credit score as needed is the logical first step.

Unless you’re prepared to pay the cost of your new home all at once, you’ll need to apply for a mortgage or home loan.

Your credit score not only determines which loan options you’ll have access to, but also what interest rates you’ll be paying on your mortgage.

As soon as you start considering buying a home, here are some immediate actions you can take:

• Pull your free credit report from AnnualCreditReport.com: These particular reports won’t affect your score.
• Review the report carefully: look for claims, collections, defaults, or other blemishes and activity you don’t recognize.
• Credit reports can be inaccurate: Dispute any errors directly with the reporting bureau.
• Pay off your balances as fast as possible: Pay down revolving balances to below 30% credit utilization so you have 70% of your credit free.
• Avoid opening new lines of credit: Don’t open any new lines for at least 6 months before applying for a mortgage.

Reviewing your own credit history before you let lenders take a look puts you ahead of the game.

You’ll be prepared to answer any question. And you won’t miss out on opportunities because of a mistake you could have had fixed beforehand.

What’s on a Home Buyer’s Credit Report

Your credit report contains a combination of personal information and information about your borrowing, repayment, and spending habits.

We’ll talk about your credit score in the next section. Here’s what your credit report will include besides your score:

• Personal information: Name, former and current addresses, birth date, social security number, current and former phone numbers.
• Credit accounts: Balances for credit cards and loan accounts, including student loans, auto loans, home loans, and personal loans, the creditor, payment history, credit limits, and whether the accounts are open or closed.
• Judgments and liens: Foreclosures, liens, bankruptcy, civil lawsuits.
• Collections: Late or defaulted credit card, utilities, rent, or bill payments.
• Inquiries: A list of hard and soft inquiries into your credit history made by lenders.
  • Hard inquiries are attempts to extend credit and impact your credit score.
  • Soft inquiries are a fast credit score check during pre-screens or interest rate adjustments and don’t impact your credit score.

How Credit Scores Impact the Home Loan Process

Most lender programs access your credit report through one of three credit bureaus: TransUnion, Equifax, and Experian. Your credit score may actually vary from bureau to bureau.

The credit bureau will review your debt, payments, and credit activity and give you a credit score between 300 and 850.

The typical minimum to receive a conventional loan is 620. 580 is the minimum for Federal Housing Administration loans.

That said, the higher the score the credit number gives you, the higher the chances that the lender will approve you for the loan.  Here’s how lenders categorize credit scores:

• 720+: Excellent
• 680-719: Good
• 620-679 Average
• 580-619: Poor
• 500-579: Bad
• Lower than 500: High risk

Step 2: Save for a Down Payment

Understanding how to prepare to buy a home requires some knowledge about down payments. 

While the average house size may be shrinking, down payments are as much a necessary part of the home buying process as they’ve ever been.

The amount you put down impacts your monthly mortgage payments, whether you owe private mortgage insurance (PMI), and which loan programs you’re qualified to use.

There are First-time Buyer Assistance Programs that can help you reduce the down payment amount you need to get started.

You may have heard the number 20% get thrown around a lot when down payments on a home come up.

And yes, a 20% down payment puts you way ahead on monthly payments, removes the need for private mortgage insurance, and qualifies you for all kinds of home loans.

20% might be doable for someone who’s selling one home to buy another. But 20% of the cost of a home is a lot of money to come up with for a first-time home buyer.

Fortunately, 20% is the high end of what’s required to qualify for a conventional house loan. On average, first-time home buyers put about 6%-7%.

But you’ll still qualify for lots of conventional home loans with a down payment of as little a 3%. Let’s take a quick look at the downpayment benchmarks for the most common types of loans:

• Conventional loan: your standard home loan requires a minimum down payment of 3% of the purchase price, with 20% eliminting theneed for PMI.
• Federal Housing Administration loans: If your credit score is over 580, you qualify for an FHA loan with just 3.5% down.
• VA loan: Eligible veterans and active military servicemembers qualify for a VA loan with 0% down.
• USDA loan: The USDA offers rural home buyers home loans at 0% for qualifying rural houses or agricultural project dwellings.

Step 3: Set a Realistic Budget

Preparing to purchase a home includes setting a realistic budget ahead ot time. And by budget, we mean debt-to-income ratio, or DTI.

Living comfortably in your new role as a homeowner requires a debt-to-income ratio of 28/36. 

The 28/36 rule states that your total housing costs, including the principal, interest, taxes, and homeowner’s insurance (PITI), stay under 28% of your income. And that your total monthly debt payments, including your PITI, are less than 36% of your income.

Before we get into the percentages, let’s take a look at what we mean by PITI and housing costs:

• PI: The principal and interest due on your monthly mortgage payment. This is the balance due to your lender each month.
• T: Taxes, meaning the property taxes you pay to your local government. The percentage varies by county, but the payment is usually factored into your monthly mortgage payment.
• I: insurance, homeowner’s insurance specifically. The percentage varies by county, but the payment is usually factored into your monthly mortgage payment.
• Other housing costs include:
  • Private mortgage insurance (PMI): Again, if your down payment is under 20% of the home’s purchase price, a PMI is added to your mortgage payment.
  • HOA fees: Some neighborhoods require homeowner’s to join the local HOA fees: Some neighborhoods require homeowners to join the local Homeowners’ Association, and those fees are factored into your monthly housing costs. 
  • Home maintenance fund: We suggest you set aside 1%–2% of home value each year for maintaince, home winterization, and repairs.

Not only does following the 28/36 debt-to-income ratio rule give you a higher quality of life and sense of security. But lenders also use this equation to decide whether or not you qualify for the home loan.

If your PITI payments will be more than 28% of your gross monthly income, the lender may refuse to give you the loan.

You might already be making debt payments like auto loans, student loans, and credit cards.

If your PITI housing costs will make your monthly debt payments higher than 36% of your gross monthly income, this can also disqualify you from receiving the loan.  

But this isn’t a hard rule, more like a guideline. Some loan programs are fine with a higher DTI if you have compensating factors like a large savings account, high-value assets, or a high credit score.

Keep in mind that maintaining a healthy debt-to-income ratio continues to be important after you qualify for and receive your mortgage. It’s about your financial security as well.

There are other costs of owning a home you’ll need to prepare for as well. Your average home comes with costs like utilities, landscaping, self storage, and upkeep. 

And don’t forget the hidden costs of moving. Part of how to prepare for ownership is planning ahead and finding ways to lower your moving costs.

Step 4: Get Pre-Approved

Securing mortgage pre-approval is another necessary step in the home buying process.

Getting a pre-approval letter while you’re preparing to buy a house makes you a stronger candidate, not just for the home loan options, but for the real estate agents selling the house.

To be clear, pre-approval is different than pre-qualification. Pre-qualification is when a lender gives you an informal estimate without actually verifying your info and running your numbers.

Pre-approval means you’ve actually submitted paperwork with the lender and they’ve verified that you qualify for a loan program.

The lender then gives you a pre-approval letter that tells real estate agents that you’re a serious home buyer who’s supported by a lender. In fact, most realtors won’t talk to you until you have a pre-approval letter in hand.

It may be worth your time to seek pre-approval from multiple lenders to see who gives you the lowest interest rate. Here’s what you’ll need to bring to get pre-approved:

• Last 2 years of W-2s or tax returns
• Recent pay stubs  from the past 30 days
• Bank and investment account statements from the past 2–3 months
• Government-issued photo ID
• Documentation of any gift funds or supplemental income

Keep in mind that there may be a few other conditions you’ll need to meet to secure the actual loan.

Pre-approval doesn’t guarantee you a loan from that particular lender. It just lets you know the amount and interest rates you can expect.

Also, just because you’re approved for a loan doesn’t mean you can afford it without putting your lifestyle under stress.

The reason we did our budget before this step was so that we already knew our monthly spending limit, so we don’t take on a mortgage payment that’s outside of our means.

Step 5: Research Neighborhoods

Understanding how to prepare to buy a home includes more than just financial literacy.

You’ll also need to apply some basic neighborhood research skills to ensure you buy a home in an area you want to live in.

When considering your next place to live, weigh factors like the cost of living, school system quality, crime rates, transportation options, climate, outdoor activities, environmental hazards, job markets, commute time, community development, and education.

Quality-of-life factors, including healthcare, recreation, and work-life balance, tell a clear story about how enjoyable life in the community will be.

Some of our favorite neighborhood research tools include:

• GreatSchools.org — school ratings and test score data
• Walk Score — walkability, transit, and bike-friendliness
• FEMA Flood Map Service Center — flood zone identification
• Local city planning department — zoning and approved development

We suggest visiting your top choices at different times of day to get a feel for the full package.

For families buying their first home, quality schools, safety measures, and child-friendly amenities can provide a nurturing new environment.

If you’re a retiree buying a home for the first time, you’ll want to consider the best neighborhoods for retiring.

Retirees should ponder more than just how much money they’ll save or spend. You’ll also want to consider location, culture, and healthcare.

Step 6: Explore Home Buyer Assistance Programs

There are federal- and state-level First Time Home Buyer assistance programs that will help reduce not just your required down payment but also your closing costs.

The factors that make you eligible vary depending on the program and the details of your home-buying process. But they usually have somehting ot do with your income and the purchase price of the home.

Here’s a short list of first-time buyer programs you can look into:

• Down payment and closing cost assistance grants: unlike loans, grants never need to be paid back.
• Forgivable second mortgages: These are mortgages that are “forgiven” if you make a certain number of payments on time and stay in the house for a specified number of years.
• Mortgage Credit Certificates: A federal dollar-to-dollar tax credit applied to reimburse some of your mortgage costs.
• Specialized assistance programs: programs set up to help specific types of first-time home buyers, like students,  military personnel, and essential workers.
• Employer-sponsored homebuying incentives: Some jobs offer homebuying assistance programs to their employees.
• Below-market-rate loans through federal and state housing finance agencies: For example, the Federal Housing Administration (FHA) offers mortgages with reduced down payment requirements, sometimes as low as 3.5%.

There are first-time buyer programs like the National Homebuyers Fund, and various grants available. These programs use metrics like your credit score and income level, and have other government-underwritten mortgage requirements.

There’s currently a bill called the Downpayment Toward Equity Act, which has yet to be passed into law. If passed, this first-time buyer program would give qualifying new home buyers $20,000-$25,000 as a down payment on a home.

Navigating these program options can seem daunting when you’re already saving up, shopping for houses, and planning a large-scale move.

Luckily, there’s something called a housing counselor who can help you improve or build your credit score.

Housing counselors will take a look at your income and financial situation and help you apply for the assistance programs you qualify for.

And once your financing is in place, self-storage.com is here to help you prepare for your move. We’ve got a pre-moving checklist you can use before you even start packing.

Let’s take a look at a few other ways you can use self storage before and after you move to make the transition nice and smooth.

Storage Tips for the Home Buying Process

By now, you should have a pretty good idea of how to prepare to buy a home using our 6-step home buying process.

We covered building up your credit, saving up a down payment, and figuring out a budget by calculating how your mortgage will impact your debt-to-income ratio.

We discussed the importance of pre-approval and key factors to research when deciding on the neighborhood to buy in. And we also provided some first-time home buyer assistance programs to look into.

Now it’s time to explore how to prepare for home ownership, starting with prepping for the move itself.

Moving is stressful enough when you’re moving from one rental to another. And no matter how good a deal you get on your mortgage, home ownership requires an adjustment period.

Self storage can play a huge role in easing your transition to your new home. For example, self storage can help you declutter and downsize before your move.

Before you even start packing, take a thorough home inventory, deciding what you don’t need to take with you as you go. Any duplicates or items you don’t use either get tossed, donated, sold, or put in storage.

Since you’re moving, you’re not using storage as a permanent place to keep unwanted items, but as a decision-making tool that buys you time and mental space as you organize and pack.

And once you’ve decided what you’re keeping, pack as much as you can ahead of time and stage your moving boxes in your storage unit.

You can book one storage unit near your current place and rent a second unit at the new home you’re buying. Book these units as close to your old and new addresses as possible.

Pack and stage as many boxes and disassembled furniture into the unit as you can, little by little, during the month leading up to the move.

On moving day, you just pull up to your storage and load up your rental truck. Or have the professional movers meet you there.

Rather than wasting time moving things in and out of your house, you’re simply cross-loading your already packed items from one unit to the other.

Then you move the essentials into your new place and return the truck, or tell the movers goodbye.

Unload from the second unit into your new house, little by little at your convenience, unpacking as you go.

The rest of our stuff can stay in temporary storage, so you don’t live among boxes while you’re getting used to your new place.

But how do you find the ideal storage unit for your belongings, either near your current address or your new home?

First, you can use our self storage size guide to explore different self storage unit sizes, layouts, how many rooms’ worth of stuff they can fit, and common use cases.

Then, you decide on what storage amenities you need. Maybe you need climate control for sensitive items like antiques or electronics, for example. 

Punch the zip code you want to find a unit in into our handy self storage search tool, select the size and storage features you need, and we’ll find all the nearby units that have everything you need.

You select your self storage move-in date, and we’ll even take care of the booking for you. And the best part? Our service is free!