5 Crucial Steps to Take When Buying a House

A house is one of the most exciting purchases you’ll ever make. Having a place to call your own, a little shelter from the crazy outside world is an amazing thing.

But buying a house is also one of the scariest things you’ll ever do. It’s a HUGE financial investment and a decision you’ll have to live with for years to come. I mean, it’s not like a pair of pants you bought at Target and realized you didn’t like the fit as soon as you get home. You can just run back to the seller and ask for your money back.

So, if you’re thinking about buying a house for the very first time and feeling a little overwhelmed, don’t worry. I’m going to walk you through five steps to take when buying a house.

Not sure if you're ready to buy a house or not? Check this out! 👈

5 Simple Steps to Take When You’re Ready to Buy a House

1. Get pre-approved for a mortgage

You should get your mortgage approval before you contact an agent or start browsing Zillow because this is going to determine where you can start looking.

You can shop around for a lender and compare interest rates and fees by using a tool like a mortgage calculator or Google searches.

Keep in mind that factors like debt, income, and how long you’ve been at your job may affect how big a loan you can get. Before you start applying, you should have a credit score of at least 620.

Need some help boosting your credit score? Click here!

2. Figure out how big a mortgage you can take on

Sometimes a bank will approve you for a larger mortgage than you can actually afford…or one that will require you to pay more than you’d like every month.

If you haven’t already, sit down and calculate how much you currently spend each month. As a rule, we recommend you spend no more than 50% of your monthly income on needs, 30% on wants, and save at least 20%. So make sure that whatever you take on fits into that budget.

Or, if it doesn’t, think about either where you can cut back, what lifestyle changes you’re willing to make, or how you can start earning more. Be realistic about how a mortgage will affect your lifestyle and whether that’s ok with you or not.

3. Decide your dream features and non-negotiables

As a kid, I remember drawing my dream house on oversized pieces of paper. It had tons of rooms, including a princess attic and always had a slide going from the 4th floor out to the yard. Yes, my dream house had four floors, which is funny, because today I actually live in my dream house and it’s a tiny 800-square foot, 1-story cottage.

So, think about your dream house. What are you looking for? Do you want a house with an open floor plan? How many bedrooms and bathrooms do you want? Is having a yard important to you?

Decide what your dream house would look like, and then decide what features are absolutely necessary for you.

For example, when I was house-hunting, I knew I wanted tons of light; I wanted the space to feel bright and happy. That mattered more to me than having three bedrooms or a big yard. I also wanted an open floor plan. We spend so much time in the kitchen that we wanted the kitchen to feel like it was part of the rest of the house. As for the bedrooms, we didn’t really care, so we ended up with a house with tiny bedrooms and one closet, but we have the open floor plan and light that we wanted.

The other thing to think about is if you’re willing to do renovations to make your house your dream home. Are you the type of person who is willing to rip out the kitchen and re-do it to match your vision? If so, you have way more options open to you.

At the end of the day, this is a decision you’ll be living with a long time. Know what you’re willing to compromise on and what you aren’t. And you might notice that those things change once you start seeing houses and realize what is and isn’t possible with your budget.

4. Save for a down payment and closing costs

It’s easy to focus on the mortgage and forget about all of the other costs.

For a down payment, you should plan to save at least 20% of the total cost of a house. That way, you don’t have to pay for private mortgage insurance, which is an extra fee added to your mortgage in order to protect the lender in case you stop making payments.

In addition, closing costs, which are the transaction fees you pay for the deal to happen, are typically 2-5% of the home’s purchase price. On a $200,000 house, that amounts to $4,000-10,000 in closing costs, meaning that you would need to save a total of $44,000-50,000 to cover both the down payment and closing costs.

That’s not a small amount of money, which is why you want to start saving early.

If you are starting to save for a house -- which ideally means you’ve already paid off all your high-interest rate debt, you’ve saved an emergency fund, and you’re on track with your retirement savings -- then you might want to open a separate saving account for your house fund.

If you plan to buy a house in the next five years, you probably don’t want to invest that money. Instead, you’ll want to put it in a high yield savings account and let it accumulate interest over time.

Bonus tip: put the savings for your house in an account that’s separate from your day-to-day checking account so you won’t see it and aren’t tempted to dip into it.  

5. Start house hunting

Finally! This is the exciting part. Start searching on Zillow or Trulia and make sure you filter for the price range you can afford so you aren’t tempted to spend more than you have.

Go to open houses and get a feel for the options in your area. And pay attention to which realtors’ names you see on the listings. The ones who have the most listings will probably be the most experienced.

Once you’ve narrowed down what you’re looking for, interview a few realtors and see who you want to represent you and support you through the process. You can also ask for referrals from friends.

Don’t forget -- buying a home is a giant negotiation! So don’t get so focused on one particular house that you lose your negotiating power.

Are you ready to buy a house?

I hope that helps you on your journey towards home ownership. And by the way – congratulations!! Buying a house is a huge and exciting milestone, and I hope that you find a place you can live in and love for years to come.

In the meantime, if you want to improve your financial situation so you’re actually ready to buy a house in the near future, be sure to check out our free masterclass on building wealth as a first-time investor where we walk you through our fail-proof three-step system for taking control of your finances once and for all.

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