Are You Ready to Buy a Home? The Ultimate Checklist

The English language borrowed the word mortgage from French, in which it literally means “death pledge,” alluding to the long-term nature of such a commitment. Not to mention if you get in over your head, your home loan will surely feel like death.

A mortgage is also a place where you can royally mess up your finances for the long haul. You can clip coupons, shop at ALDI, do a shopping ban, and drive an old car, but if you over-do it on the house, it’s hard to ever get ahead. This is one of the big areas to get right as it’s likely going to be your top living expense.

Fortunately there is a way to buy a home without killing your financial future. It’s all about going in financially prepared. Use the checklist to determine if you’re ready to take a mortgage, rather than a death pledge.

I know how much money I spent last year. You must know where your money is going, or you don’t know whether you can afford a house. If you base mortgage affordability solely off what you pay in rent, you may be unprepared for the extra costs of home maintenance and repairs and increased utilities.

I’ve recorded a budget for this year. You must know where you want your money to go in order to save a down payment, cover closing costs, and be sure you know what you can afford to buy.

I have no credit card debt. Ideally, you’d want to go into buying a home with no debt at all, since a mortgage is the largest debt most people will take on. At the very least, you wouldn’t want to be paying high interest on credit card debt. That’s a financial emergency you must get out of before you start saving for a house down payment or getting into another loan commitment.

What about car loans? It doesn’t make much sense to keep an auto loan around (and paying interest on a rapidly depreciating liability) while trying to purchase a home, either. It would be wise to pay it off ASAP, thus minimizing the interest. After that start saving for the home.

What about student loans? In a perfect scenario, you’d want to have student loan debt out of the way as well. It’s a great way to pretend to be a student until you pay off student debt. Especially if you have a mortgage-size student debt, why not wait? You don’t need two death pledges!

I have six month’s living expenses saved.  That’s nice you’ve saved $20,000. But what is it for? Emergencies such as job loss or illness? A down payment? Closing costs? Incidentals and furnishings? You need to separate these categories, at least mentally. Write it all down, total it up, and save that much, not a random round number that sounds good. What if you buy your house and unexpectedly get laid off? Having a cushion to fall back on is more than ever once you have the major financial commitment of a mortgage.

I have determined a budget for the price of my home, and the mortgage, taxes, and insurance will not exceed 25% of my monthly take-home pay. As mentioned before, please base your budget on the lowest income you expect to earn while paying off that house. If you’d like on parent to stay home with future kids, base it off of one income rather than two. You can always save, invest, or pay down debt with the other spouses’ pay while you’re still a dual income household.

I have saved a 20% down payment. Again, this is in addition to my emergency fund (6 months’ expenses). Putting 20% down will:

  1. Avoid PMI which is money down the drain for a homeowner with insufficient equity to secure the property.
  2. Ensure some equity when you need/want to sell. Early mortgage payments are almost entirely interest meaning you don’t gain much equity in the first few years.
  3. Make your mortgage smaller and monthly payments more affordable.
  4. Indicate you have the financial discipline to handle a mortgage.

I’ve saved an additional 5-7% for closing costs, inspections, appraisal, and setting up the home. For a $100,000 loan, you’ll spend around $5,000 or more just on the home-buying process. Additionally, you may need a lawnmower, furniture, appliances, and other tools to set up your new pad. The cost can add up even if you purchase secondhand. If you buy below your budget, the difference from your down payment savings can cover this. If you buy at the top of your budget you’ll need some extra cash on hand.

I am saving for retirement. At the very minimum you should be earning your employer 401k match. If not you’re essentially allowing your employer to keep part of your paycheck. But investing 6% is only going to inch you toward solid retirement savings. Dave Ramsey recommends investing 15% to build a solid nest egg for the future. Don’t ignore your future in order to purchase a home.

The difference between a death pledge and a mortgage lies in your financial readiness for home ownership. If you are otherwise debt-free, have sufficient savings, and live in area where home prices are reasonable, home ownership can be a solid choice. Just don’t sacrifice other goals like retirement, staying home with kids, or paying off other debt to do so. It’s worth the wait to avoid the death pledge.

Homeowners, what would you add to this list? What do you wish you’d done to prepare for buying a home? 

22 Responses to “Are You Ready to Buy a Home? The Ultimate Checklist”

  1. Tonya says :

    I think a lot of people jump in without taking so many things into consideration. Then they become house poor. I make a good salary and I definitely cannot afford to buy in los angles without being miserable financially.

    • Kalie says :

      That’s so true, Tonya. I can’t imagine we would be able to purchase a home in L.A. or most other high cost of living areas. It’s just not worth strapping yourself financially for 30 years to buy a home. Only if it’s truly affordable is it worth it on any level, financially or otherwise.

  2. Additional hidden costs in home buying says :

    Great information here! Thank you for the post.

    Somethings to consider when buying a home that might wind up costing you more money than you anticipated.

    Auto costs – Insurance may go up depending on location, fuel costs may rise if you move further from work/friends

    Remodeling/Fixing – Take the time to figure out what needs done and what these items will actually cost and not go on what you heard from your friend/ saw on TV/ “think” you can do it for.

    Lawn and driveway care – Have a plan and a budget for this. If you wait until you need it, you will pay top dollar.

    Decorating- Not my favorite topic but it does need to happen, to some degree. Have a budget or a plan for this.

    • Kalie says :

      Yes, those hidden costs all add up. I’ve heard you should budget 1-3% of the home’s costs annually for repairs and maintenance, and I believe it’s true. It’s not if something will break or need an update–it’s when.

  3. Nick says :

    In the process of house hunting now. Definitely re-encouraged me to consider my financial situation and home options very seriously and think through all the details. Thanks for the great blog and insights!

    • Kalie says :

      I’m glad to hear it was helpful, Nick! Purchasing a home can be such an exciting, even emotional decision that it’s nice to temper it with some number-crunching and others’ experience.

  4. MrFireStation says :

    Very good advice! I had no idea the derivation of mortgage was ‘Death Pledge’. That’s scary! We kept our mortgage in good perspective when we were first starting out and never let it get ahead of us, even as we were buying bigger homes. Now we are early retired (in our late 40s) and our big, beautiful house has been 100% paid off for years!

    • Kalie says :

      It’s great to hear you were able to take responsible mortgages and pay off your big, beautiful home AND retire early! It’s definitely possible to approach mortgages the right way and even enjoy lower living expenses once you own your home.

  5. Amanda says :

    Great list! I wish I had this list 19 years ago! I probably wouldn’t have purchased my first or second house! We’re in a much better position now and pay less than we would for rent, though maintenance expenses can add up from time to time. It’s important to be able to budget the time and money for upkeep and maintenance on a home. It seems like something always needs fixed.

    • Kalie says :

      Yes, maintenance and repair costs do add up, and they are inevitable. And if you want to DIY some or most things you need to plan for spending time on it as well. Great point!

  6. DC YAM says :

    This is a really great list, but I’m conflicted about student loan debt in particular. While it’s just a single example, if we had waited to buy a home instead of buying 4ish years ago, we would have missed out on approximately $60-$70k of equity we have been able to gain. If we had rented we’d literally be down $60-$70k, and the costs of having a home was barely higher than it would have been renting (negligible imo). Yes, the market could have gone down, but if you buy with a long-term mindset it can make sense to not pay off your loans first.

    The biggest advice I would give is to have a well-funded emergency fund. There are many emergencies that can come up in the $3k-$15k price range, so having those dollars set aside will make it (slightly) less stressful.

    • Kalie says :

      I agree that it depends on the situation with student loan, DC, and would never be dogmatic about that point. We did not wait until all our loans were paid, but it was down to a reasonable amount and we were financially ready with savings, down payment, etc. to purchase. We were able to pay off the remainder of student loans within a year or so of purchasing. It sounds like in your situation it was also a fine idea since you knew you were getting a good deal in a good market, and renting was comparable to buying. My biggest caution would be for those with large student loans, without the income to handle both the mortgage and student debt payoff. Or if you are in an area with high home costs.

  7. Sylvia says :

    Thanks for this post! I wanted to save for a down payment this year but I never thought about closing cost, furnishing the home, taxes nor insurance. I am going to recalculate my figures so that way I have a better estimate of what I am willing to spend.

    • Kalie says :

      Yes, there are plenty of extra costs. Don’t forget to budget for repairs and maintenance too–it’s bound to be needed. Glad to hear this helped.

  8. Josh says :

    When it comes to home remodeling (or building in our case), you can easily spend a lot of money of everything from getting the most expensive flooring, kitchen countertops, to bathroom/cabinet hardware.

    We spent a lot of money on things that are a pain to redo once you move in like insulation and windows. We cut corners on our floor & countertops to get some quality but not top-grade hardwood or granite. You can always replace light fixtures, blinds, flooring, etc. as a weekend project when it wears out or have the money to upgrade.

    That doesn’t mean to buy chinsy junk that will need to be replaced next year (think buying tupperware from the dollar store instead of the actual Tupperware or Gladware brand). We combed Craigslist and got mid-grade materials from discount stores.

    • Kalie says :

      As with just about anything, there can be a huge range in cost for maintenance, repairs, and remodeling. Craigslist, local auction sites and discount stores for materials has saved us a lot, as well as having a connection that helped us to get kitchen cabinets at cost. I agree that it makes sense to strike the balance between top-of-line stuff and low quality materials that will not last. There is usually a midpoint that is good value.

  9. Hannah says :

    I recommend buying with multiple exit strategies. To me that means that the day you buy it, you could live in the house, rent it out for a significant positive cash flow, or let the house sit on the market a few months and come out ahead (or at least neutral).

    Once you’re done with the house (which happens, on average every 5 years), you’ll hopefully have the option to sell or rent it out. If the housing market falls, neither option will feel great financially. However, if you bought well, you’ll be able to weather either option for a while.

    • Kalie says :

      We did not buy our home with a view to renting, but I think that’s a great option to have and worth considering before buying. It sounds like that has worked out very well for your family. I agree that you need to think about selling when you buy, even if you are not planning to move. When we were house hunting in 2008-2010, everyone was selling for less than they purchased for and I know that was a difficult position for people to be in.

  10. Chelsea says :

    Great post on all the financial considerations about buying a house! Too many families only think about getting a reasonable down payment and then quickly add even more debt after closing for furnishings, lawn mowers, and all the other expenses you mentioned! When my husband and I bought our house, we were careful to only base it on my base income, as we were planning for him to stay home when we had kids.

    I would add to the list that you think about whether you are ready to be in the same place for 4-5 years at least. Unexpected things do happen, but buying a house to sell in a couple years, without any major renovation, to either move to a new location or upsize doesn’t allow enough time to amortize closing costs and other expenses you mentioned (moving, inspection, etc). Your mortgage may be lower than rent but your all in living expenses will likely be higher!

    • Kalie says :

      Great point that you need to be ready to stay. I could write another list of non-financial readiness–knowing where and when to purchase based on your situation. There is plenty more to consider beyond whether you have enough cash on hand. I’m so glad to hear your family was able to make this decision wisely and not get waylaid by hidden expenses or giving up an income to stay home with kids.

  11. Laurie Frugal Farmer says :

    Excellent checklist, Kalie! We’ve been house poor, and it is SO not fun!! Now our goal is mortgage free and it’s so much fun seeing that mortgage balance go down each month. 🙂

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