How We Prepared for Our First Home Purchase

by Kevin on September 29, 2008

This week I am writing about the process of us buying our first home. We bought our home one year ago in September of 2007. I hope you will find some gems that help you in your next home purchase.

Being a financially conservative fellow, I wanted to make sure that we did things right with our first home purchase. No three year adjustable rate mortgage (ARM) for us. No 103% financing deals. We would put down a down payment and get a thirty year fixed rate mortgage.

We got married in January of 2007 and hadn’t really planned to jump right into home ownership. We wanted to be in a home, if possible, a year later. We didn’t necessarily have to wait until then. We also wanted to have it nicely furnished within two years. The only thing holding us back was my wife finding a job as a teacher. She graduated in May and already had a job lined up. We wrote these goals down and referred to our list quite a lot.

We came up with a checklist of information we needed to know. This list was tweaked and added to as we got further into the process. Naturally, we discovered gaps of information we needed that we did not have.

A Checklist of Things You Need to Know to Purchase Your First Home

  • What your monthly income has looked like for the past six to twelve months
    • You will need documentation (pay stubs, W2 statements, etc.). The days of no-documentation loans are long gone.
  • How much flexibility you have in your current budget
  • How much house you can afford
    • Remember to include things on top of just the mortgage payment like taxes, insurance, PMI, etc.
    • Use the typical methods of your total house payments not being more than 28-36% of your income.
  • What your new monthly budget will look like with a house
    • If you are living in an apartment, your budget is going to look vastly different in a house. The square footage that you are heating/cooling is going to be larger, you have more lights to use for electricity, etc.
    • Utilities go up, property tax, maintenance is now your responsibility, homeowners insurance is much higher than renters insurance, etc.
  • Your (and spouse’s if applicable) credit score
    • The higher your score, the lower the interest rate you can qualify for
  • A listing of all of your current debts, interest rates, and payments
    • This will be used by the bank to determine how much you can afford with your current monthly income. You should run this math beforehand so that you know what you’re getting into.
  • What type of home you are looking for
    • Condo? Townhouse? 4 bedroom ranch with 2 acres of land? These will naturally have different price points, as well as different pros and cons. You need to consider these before you start looking. It will save you time and heartache.
  • How far away from your respective work, play, church, etc. locations you are willing to live
    • A.k.a. how much of a commute can you put up with. With gas prices these days this is a major consideration. It may make more sense to pay a little bit more on the mortgage payment to live closer to these areas to save on gas.
  • Are you buying a new home or a “used” one?
    • New homes will probably cost more for a similarly sized “used” home. Used homes might not have a home warranty, and may need fixing up. If you intentionally buy a fixer-upper that opens up a whole new can of worms. Do you have the knowledge to fix everything? If not, do you have the income to pay for repairs? Are you underestimating repair costs as most people do?

The next major thing you need is to get pre-approved for a mortgage. We’ll talk about that tomorrow.

This is by no means a complete list. Have I forgotten something that you think is absolutely necessary to know up front?

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