Preparing to Buy a Home

posted 3 years ago in Money
Post # 3
7281 posts
Busy Beekeeper
  • Wedding: October 2011 - Bed & Breakfast

Save. Save more than you think. Save 6 months worth of living expenses to have an emergency fund. Then save your down payment (at least 3.5% of your purchase price) AND your closing costs (3-6% of your purchase price) AND your random house stuff fund ($3-5k for things like yard maintenance equipment, utility deposits, moving costs, etc.).

Also, keep paying everything on time and manage your credit. Lenders want to see that you have credit available to you that you just don’t use. Say you have 2 cards. One has a $500 limit and the other has a $1000 limit. You want to charge something that costs $400. Charge it to the $1000 card and you will have used 40% of the available line of credit (good). But charge it to the $500 limit card and you’ve used 80% of that line of credit (not so good). Having more credit available than you actually use will help your score. It’s all about using credit smartly. Oh, and keep your current lines but try not to open new ones. Opening a new line will decrease your average account age. If you have 4 accounts that are 3, 4, 5, and 5 years old, your average age is 4.25 years. If you open a new account, your average age drops to 3.4. A longer average age helps your credit score, so be wise about adding new lines of credit.

Post # 4
5160 posts
Bee Keeper
  • Wedding: April 2013

Congrats to you!  So awesome to hear about people your age doing wll with their finances!

Here are a few points to consider:

1) Rent is not (necessarily) throwing your money away.  It’s possible to own a home and esentially “throw money away” too.  For example, you will be paying for interest, property taxes, realestate fees, possibly HOA fees etc.  Run the numbers for your situation before you decide if renting or owning is the right financial choice for you.  Also keep in mind that when you own you also tend to spend a lot more on home items (furntire, renos, etc) which could be money saved.  It might make sense to just move to a less expensive appartment.

2) One of the biggest factors that people sometimes overlook when they choose to buy a home is how long you’re going to stay in the house.  This makes a huge impact whether buying will be a good financial choice or since changing houses is expensive.  

If you decide you are going to do it then step one is to save, save, save!  I would not recomend buying with less than 20% down, and you can alwasy put more down if you’re able.  Regarding your credit, be good with money and this will come togheter.  Use your CCs but pay them off in full every month.  Don’t take out loans just to improve your credit, it’s not worth the interest payments.  

Post # 5
109 posts
Blushing bee
  • Wedding: October 2014

@beetee123:  I’m not in the US, so I can’t give specific advice for loans etc. (here in Aus they didn’t even ask about our credit score!) but I can give you some general advice based on my experiences.

I’m 24 and FI is 27, we bought our first home just over a year ago after renting for 2 years. We paid $285,000 for a 2-bedroom unit about 20 min from the CBD (I know these figures won’t mean much, but that was a decent price for our city). I have been saving forever for a home deposit, so despite still being at uni I had $40k in savings. FI has a decent job so he had about $15k. We paid around $10k in stamp duty (I guess this is our equivalent of closing costs?) and loan costs, so overall our savings covered just under 20% of the total purchase costs, inclusive of all charges.

As I said, we didn’t really have a credit score – neither us ever had a credit card (never needed one, just used debit cards). The bank was much more interested in our current jobs and whether we would be able to service the loan. They looked at our combined income (his was considered quite ‘solid’ because he works for the government, mine much less so because I’m casual) and assumed a set amount of living expenses, then based on that gave us a figure for how much we could spend. That figure was quite high (almost $400k) so after doing our own calculations we decided that in order to be very comfortable and sure we could pay things off, we didn’t want to spend more than $300k. I would very strongly recommend doing your own budget spreadsheet to figure out how much you can afford – we ran a few sets of numbers based on if I lost my job, if we had unexpected expenses, if the interest rate on the loan went up, etc.

Even though we can well afford the house, we still meticulously track all our expenses. We use Yodlee to categorise all of our transactions to make sure we’re keeping to our budget, and tip any extra money straight into the loan. Currently our minimum repayments are around $650 a fortnight – we always transfer $1000 and as a result we’re quite ahead on our loan.

The one thing we underestimated was maintenance costs. Things like getting the airconditioning system serviced, dishwasher/fridge/etc breakdowns, general house maintenance, etc. I’m very glad we have extra money floating around so whenever anything like that comes up we can address it immediately.

Hope this helps – I’ve probably focussed more on the later stages of buying a house but I don’t want to give any advice about the loan types as that seems quite different in the US than here!

Post # 6
3280 posts
Sugar bee
  • Wedding: June 2014

We are 20 and 22 and in school so were in similiar situations. We bought our first house in June and put 20% down and like an extra 1k for an escrow account. Home ownership is awesome! We never considered renting as it would be twice our mortage a month and essentially going towards nothing. Our credit scores were low 700s. Just make sure one of you have three months of full time permanent employment pay stubs, try to pay off any debts if you have them. Good luck!

Post # 7
307 posts
Helper bee
  • Wedding: June 2014

Definitely agree on saving–you’ll pay PMI (Private Mortgage Insurance) if you put down less than 20% I think, so if you can save up that much do. I bought my condo alone (before I met FI), and there were tons of extra expenses at the very end (although partially due to a super shady mortgage broker–both my agent and my lawyer said they’d never had a closing go as terribly as mine did for someone who was totally well-qualified).

Other than the credit cards, do you have any debts that you are paying on? Something like a car? I believe I read that it helps to show you can pay off a debt, so I put my car partially on credit so I could pay it off and prove I could make my payments.

I definitely agree with the PP who said to consider how long you’ll stay there. It’s rarely a good idea if you won’t be living there at least 5 years. Good luck!

Post # 8
2687 posts
Sugar bee
  • Wedding: September 2015 - Ketchum, ID

@lovekiss:  +1 all of that was absolutely great advice!

Post # 9
2687 posts
Sugar bee
  • Wedding: September 2015 - Ketchum, ID

@seree:  Whoa that’s like totaly opposite of the US lol. The banks are all about your credit score here!

Post # 12
6073 posts
Bee Keeper
  • Wedding: August 2012

@beetee123:  How much money did you put down percentage wise?

When I boubht my first home, I put down 3% and rolled in lots of closing costs into the loan.  Keep in mind the house was really cheap (like a purchase price of $110k) and I only had to come up with $3500 out of pocket!  I did have to pay mortgage insurance (this is the insurance the bank has on you when you don’t come up with at least 20% of the value).

My H bought his house by himself before I met him, and he put down 20% to avoid paying mortgage insurance.

They say to put a downpayment of 20% really.


Besides the cost of the down payment how much did you spend on other expenses such as the closing costs?

Closing costs were about $4000 for my little house (the $110k one).  You’ll have to pay for an appraisal so the bank can make sure that they can give you that much money because the property is really worth that much.  There are title fees, escrow fees.  You usually put down some earnest money to show a buyer you’re serious (it’s $500-1000 in my area, not sure about others).  

I highly recommend “Home Buying for Dummies.”  It really spells it all out.  Get it at the library!


Other advice, you can find calculators that help you figure what your total PITI payments will be.  Then start socking away that much more per month to see if you can handle that kind of monthly payment.

If you both put your names in to apply for the mortgage, they are going to come back with a number that is bigger than you thought.  Don’t take it!  Only take a total PITI mortgage that is no more than 30-35% of your total gross income.  Ours ends up being 11% of our gross income.  The smaller the better!

Post # 13
3570 posts
Sugar bee
  • Wedding: September 2011

One thing that may be harder because youre younger – is that you have to show a few years at the same employer.  I think our bank required at least 2 years. 

Post # 14
490 posts
Helper bee
  • Wedding: September 2013

I agree with others, save as much as you can! Ideally, the best amount to put down is 20%+, this gives you instant equity in your home and you will not have to pay a PMI (Private Mortgage Insurance). We put down 15% and are paying a small PMI (around $60 a month). 


Pay all of your credit cards on time, any late payments will reflect onto your credit score. In addition, try not to check your credit score often. Each time you check your credit score, it brings it down. We had high 700 credit scores and had no problem getting our loan.


Do not change jobs while you are looking for a home, banks are looking for a stable flow of income.


Our closing costs were estimated at nearly $10K, but a few days before closing it went down into the $7,000’s.  You don’t really know the exact amount until a few days before closing, but your mortgage company should give you a GFE (Good Faith Estimate) which will give you an idea of how much money you will need for closing costs.


After purchasing the home – Have at least $10,000 to “play with”. You will be making trips to Home Depot, Lowe’s, Furniture Stores, you name it. It adds up quickly!  


Lastly- They say its a good idea to have 6 months salary stored away in the bank in the event of job loss or a “rainy day”. It’s always good to have a cushion!




Good luck, hope it goes smoothly for you!!!








Post # 16
3623 posts
Sugar bee
  • Wedding: July 2013

@beetee123:  We just bought a house a month ago. It is exciting! Here is my advice:


1) Get 6 months salary saved in the bank. I deducted $500 a pay check and refused to buy lunch or coffee out until I was there. Once that money is there, you can begin to save for a house. You should also be saving for retirement.


2) Keep your credit perfect. Use a credit card to pay for everything, then pay it off, in full, every month. Over time, your credit score will go up quite a bit.


3) Pay off any debt you have. Car notes, credit cards, private student loans, whatever. They should all have a $0 balance. Federal student loans that are forgivable if you are in public service (and if you are) are the exception.


4) Figure out what a house in your area costs. In my area, a 1bd condo goes for $700k, in my parent’s area you can get a 4 bedroom house for $100k. Ours was $450 (not in my dream neighborhood, but I am growing to love it)


5) Once you figure out how much the house you want costs, aim to save 20% of the cost + $10k in closing. This should be separate from #1. 20% will save you from paying a lot of fees (or 25% for a condo) and private mortgage insurance. You can get a mortgage with less down, but it is much more risky and more expensive. We put down 25% and had like $10k in closing costs.

6) Apply for a mortgage and you will have an easy time– you will have great credit and will be able to present a strong offer.


Please, please don’t ignore step number 1. Everyone always says that you need savings in case you lose your jobs or something after you close. For us, that was a reality. 3 days after closing my husband and I went on unpaid status for an indefinate period of time. Thank God we had savings! We ended up getting back pay, but I am so happy we had a large cushion to help us pay for food, moving, and all of the expenses in setting up a house!


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