How to Prepare to Buy a House

The real estate market can be competitive and a little overwhelming, but there are steps you can take to prepare yourself mentally and financially before buying a house. Preparing to buy a home can be as simple as researching the home buying process or checking your current credit score. If you're more serious about buying a home, you may consider setting a few dollars aside for a future down payment or seeing how much you pre-qualify to borrow.

Wherever you are on your home buying journey, here are 10 steps to help you prepare to buy a house.

1. Review your credit scores

Your credit scores play a vital role in whether a loan officer will approve you for a mortgage. They also affect what type of interest rate lenders will offer for the specific type of loan you want.

Many banks and other financial companies offer free credit scores to customers, based on data in your credit reports. You can get free copies of your reports from the three major credit reporting agencies at AnnualCreditReport.com.

If your scores need a boost, make all your payments on time every month, utilize no more than 30% of your available credit and don't apply for new credit that you don't need. Asking the credit agencies to correct any errors in your reports could also raise your scores.

2. Check your BuyAbility

BuyAbility^SM is a tool offered by Zillow that lets you figure out your ideal home budget quickly and easily. You just enter some of your general financial information, like your annual income and credit score, and BuyAbility will come up with a custom suggested price for a home based on your preferred monthly payment, plus the max amount you would likely qualify for with a lender, and current interest rates. The suggested price you get will change based on how you adjust the details you enter, and as rates change.

And the coolest part? When you’re shopping for homes on Zillow, you’ll see a “Within BuyAbility” tag on the ones that fall in your BuyAbility budget. You’ll also be able to see what your monthly mortgage payment would be to buy that home.

3. Choose a mortgage loan officer

When you're thinking about buying a home, it's never too early to talk to a loan officer. In your initial conversation, you don't have to share your financial situation, authorize a credit check or even be ready to be pre-qualified or pre-approved for financing.

A loan officer can:

• Educate you about the loan application and approval process.
• Explain the down payment requirements for different loan programs.
• Update you on interest rate trends and how your payment may be affected.
• Help you figure out how much you can spend on buying a home.
• Give estimates of your closing costs.

If you're buying for the first time or haven't owned a home for several years, ask your loan officer about special loan programs for first-time buyers in your area. Read our guide to choosing a lender or contact a lender at Zillow Home Loans* to get started.

4. Review your debt and income with your loan officer

Having a lot of debt shouldn't prevent you from buying a home if you have enough income to make your payments. If your income is stretched, paying off some debt could help you get approved for the loan you want.

Starting a new job, receiving irregular paychecks or quitting your job to launch your own business can make it harder for lenders to understand, track and verify your income. Keeping your income sources consistent before you purchase a home can make it easier for you to get approved.

5. Identify funds for your down payment

Contrary to popular wisdom, you don't need a down payment of 20% of the home's purchase price to buy a home. In fact, a Zillow survey of home buyers found that 52% of mortgage borrowers reported putting down 20% or more.

Some loan programs allow you to buy a home with a down payment as low as 3.5% — or even with no down payment at all. (Buyers who choose these programs usually pay for some form of mortgage insurance, which protects the lender if the buyer doesn't make the loan payments.)

Some buyers have enough income from their job or side hustle to save for a down payment. Others utilize monetary gifts from family members or the proceeds from selling stock or other assets they own.

6. Get pre-qualified for a loan

A mortgage pre-qualification is a step towards understanding how much home you might be able to afford.

In most states, a prequalification is based on your submission of stated income and assets, estimated down payment, desired loan amount and possibly a credit check.

A prequalification isn't a promise from the lender to give you a loan for a specific amount at a specific rate. Rather, it's a first look or rough estimate of the loan amount and rate you may qualify for based on your stated financial information.

7. Set your price range

Before you begin shopping for a home, you'll need to decide not only how much you can spend but also how much you want to spend. That amount — your home price range — is generally based on three factors:

• The dollar amount of your down payment
• The loan amount you're prequalified for
• The monthly payment you feel you can afford

You can shop for a house at the top of your price range. Or you can shop for a more affordable home to keep your payment lower if that's more comfortable for you. Note that your price range may need to be re-evaluated after you’ve consulted with an agent (more on that below).

Tip: Concerned that interest rates may rise before you have a home under contract? Ask your loan officer and real estate agent about a seller-paid interest rate buy-down. With this strategy, you may be able to lower your rate and payment with mortgage discount points paid by the seller.

8. Make your house-hunting wish list

Finding a house you like may be surprisingly easy if you research ahead of time and create a wish list that itemizes your must-haves and nice-to-haves.

Researching homes online can help you learn about local housing markets and identify common characteristics of homes in your price range. Your wish list can help you narrow your focus to homes that will be a good fit for you. Some agents suggest that their clients start their home search as early as eight to 12 months before they're ready to buy.

9. Choose a real estate agent

Smart buyers shop around for a real estate agent as well as a home they want to buy. A good rule of thumb is to talk with at least three agents before you choose one.

You can connect directly with a local buyer’s agent on Zillow, or you can search for agents by the neighborhoods they’re familiar with, their name, or even their specialty. When you do a custom search, you can see reviews from other buyers they’ve worked with, to help you decide who to choose.

A good agent should:

• Keep you informed about homes for sale in neighborhoods where you might want to live.
• Assist you with making an offer for a home you like.
• Help you with any issues that may come up during your transaction.

Don't be afraid to ask a lot of questions to help decide if an agent is a good fit, such as:

• What are your top skills when representing buyers?
• Why should I hire you?
• What do you consider outstanding customer service?
• What type of technology do you use to improve your showing process?

Finding an agent you feel comfortable communicating with is important. A skilled agent can help you decide if your house-hunting wish list is realistic based on your price range. They also may be able to walk you through the process of re-evaluating your wants and needs. This includes identifying homes in a different area that meet your needs at a lower price.

10. Set aside savings for closing costs and moving expenses

In addition to your down payment, you'll need to save or set aside separate funds to pay closing costs when you purchase a home. These costs may include a home inspection, appraisal, title search and insurance, loan origination fees and escrow or attorney's fees. You may also need funds to:

• prepay a portion of your property taxes and homeowner insurance premium
• make repairs to your new home
• arrange for utility services
• move household goods and belongings from your current residence to your new home

Closing costs typically range from 2 to 5% of the home’s purchase price.

It’s important to keep in mind that closing costs are generally paid in cash in addition to your down payment, but there are options for minimizing these costs, including negotiating with the seller and applying for first-time buyer assistance programs.

11. Get pre-approved for a loan

Planning to buy a home within the next 90 days? It's time to step up from a pre-qualification to a pre-approval.

A loan pre-approval generally means your lender has verified your stated income and assets with documentation. The typical ask is two recent W-2s, two recent pay stubs and two months' recent bank statements. A loan officer may ask self-employed borrowers to release their income tax returns.

With pre-approval, your lender should give you a letter that states how much you're pre-approved to borrow.

Most agents want the letter before they start showing properties to ensure the borrowers are qualified. And most seller's agents won't accept an offer unless there's a pre-approval or pre-qualification letter attached. This is because a pre-approval letter is an indication that your funding is far along in the process and you're serious about purchasing a home.

Most prequals and pre-approvals are valid for 90 days, and you can renew them to restart your 90-day clock. But remember that interest rate fluctuations or changes in your employment or financial situation can affect your loan amount.

Once you have been pre-approved and complete the other action items, you'll be off to a strong start in purchasing a home you'll love for a lifetime.

Ready to start looking for your new home? Download our House-Hunting Checklist.