Do you want to become a homeowner someday? Most of us do!
But there’s more to buying a house than just mortgage payments. Soon, the questions start to roll in: What’s a good credit score to buy a house? How do you know if you can afford it? When should you purchase?
In this post, we cover all the deets you need to prepare to buy a house – before, during, and after the process. So you can get ready, and navigate this whole journey with extra confidence when the time comes.
PS: Don’t blame us if you feel like sneaking into an open house or 2 after reading this!
👀: 9min read
Number 1: Every house needs a strong foundation!
Home buying is the same.
Before you start looking, here are 3 steps you can take to ensure your wallet is ready, no matter what banks, lenders, or life throw at you.
PS. To build a better credit score, you need to open a credit card (and manage it wisely) – so do this first if you haven’t already. It makes your home-buying experience easier in the long run!
We’ll get into when to buy a house, and how much you need to save, in a little bit.
Right now, let’s just assume you have the money. Maybe you started looking at a house or two already (how exciting!).
This means you're ready to tackle the mortgage process.
Here’s a checklist of 8 things you need to prepare before you buy a house — plus tips for your mortgage negotiations to go extra smooth, like avocado on toast.
Print it and frame it so you don’t forget to cover all bases! ;)
But what if you can’t afford it? Let’s get into the money piece: when do you know it’s time? And how much money should you save anyway?
How do you know you’re ready? Are you truly prepared to buy a house?
First, look at your income & financial health.
Can you afford it?
To calculate that, you need to know these 3 terms from the home-buying dictionary:
And you probably guessed it! Combine these 3 numbers, and you’ll get a good idea of how much money you have to buy your future home.
Generally, if you have:
You're in good shape to buy a house!
Next: is it a good time to buy?
The housing market (like any market) operates in cycles. Sometimes prices are very high; others, they're very low.
Housing typically goes through an 18-year cycle.
Your income and the market cycle are both equally important.
If your wallet’s not there yet, don’t rush into things.
Build it up first.
Your home is a big investment, and we wouldn’t want you to stretch yourself thin without needing to.
So, the question remains: how much money is enough to buy a house?
Short answer: A LOT.
Let’s break it down!
How much should your AGI be to buy a house?
Your AGI (Adjusted Gross Income) needs to be at least FOUR times as much as your annual mortgage payment.
On a $500,000 house this would be anything greater than an AGI of $56,000.
How much is the down payment for a house?
You'll need 20% of the cost of the home for the down payment.
If you don't have that full amount, you can usually get a mortgage with the additional cost of mortgage insurance.
Using the $500,000 house example again, this is a $100,000 down payment.
How much is a mortgage?
Your mortgage payments will depend on several factors. The 2 main ones are: your interest rate (fixed vs. variable), and the number of years on your loan (15 vs. 30 year loan).
Say your $500,000 house has a 4% fixed interest rate.
It’ll likely have a monthly mortgage payment of about $2,400/mo on a 30-year plan, while a 15-year plan might cost $3,700/mo.
How much are closing costs?
Closing costs are exactly that: charges billed at the end, to “close” the sale. They’re usually around 3-6% of the home's total value.
So, on the $500,000 house, be ready to pay $15,000 to $30,000 for closing costs.
Don’t forget about other costs!
For example, HomeOwners Associations are common in the US. Membership usually costs around $200-$300 per month. So you gotta save for that. Plus home insurance. Always insurance!
You should also think about whether you're ready (or willing) to deal with all the extra work that comes with owning your own home: maintenance, lawn-mowing, renos, etc.
We know these aren’t immediate costs, but definitely something to think about if you’re considering whether you should buy a house now.
In sum, for a $500k home you need:
Plus a cushion for monthly costs around mortgage payments, home insurance, homeowners associations, etc.
This is why it’s a good idea to start saving before you think, find, or prepare to buy a house!
If you’re already a Penny member, we have great news for ya!
You have access to all of this info (and more!) inside the home buying money plan. Login to your profile, scroll down to the “home buying” module, and use it to create your personalized home buying plan in less than 1 day – with actual numbers, tailored to your wallet.
#1 – Celebrate! You did it!!!
Buying a home is no easy feat. It feels so good when your hard work pays off, and you have a place to call your own. Take a long bath, go out for a nice meal, or take the day off to rewatch Emily in Paris (or Bridgerton). You earned it!
#2 – Get your docs and admin in order.
Keep your homeowner and insurance docs safe. Check warranties. Ensure everything’s working. Take it one day at a time.
Don’t forget to update your address! Especially with banks, credit cards, & subscriptions. If you’re expecting snail mail, the USPS can help forward your mail from your old address to your new one for up to 1 year.
#3 – Furnish your new home.
The fun begins! Paint your walls, add new tiles, and replace the old couch. Start unpacking boxes and treat yourself to these finds:
Ready to become a homeowner? Start with the money maker quiz
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Have more questions? Check out the homebuying money plan
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