8 Steps to Buying a Home You Can Afford

The journey to buying a home can be one of the most daunting but rewarding decisions of your life. If you’re ready to become a homeowner, now’s the time to get your finances in shape and figure out how much house you can afford.

I've identified eight steps to buying a home. Let's learn how to avoid common pitfalls, use key affordability formulas, and get the best deal possible on your next home purchase.

How to buy a home you can afford

1. Prepare your credit for mortgage approval.
2. List the features you want and need in a home.
3. Figure out what you can afford.
4. Get preapproved for a mortgage before shopping.
5. Find a great real estate agent.
6. Make a reasonable purchase offer.
7. Work through contract contingencies.
8. Close the deal.

Let's take a closer look at each step.

1. Prepare your credit for mortgage approval

Unless you have loads of cash, you’ll need to finance a portion of your home’s purchase price. Mortgage lenders review several aspects of your finances, including how much you have for a down payment, your income, outstanding debt, and credit.

Without a good credit score, you’ll either be turned down for a mortgage or charged a high interest rate. Even paying 1% more interest than you have to for a home loan means getting charged an extra $50,000 on a $200,000 30-year mortgage! So, if your credit isn’t in good shape, take the time to improve it before applying for a mortgage.

Even paying 1% more interest than you have to for a home loan means getting charged an extra $50,000 on a $200,000 30-year mortgage!

If you’re not sure what’s going on with your credit, visit annualcreditreport.com for free copies from each of the three nationwide credit agencies (Equifax, Experian, and TransUnion). Review your credit reports carefully and dispute any errors, such as accounts that aren’t yours, incorrect loan balances, or invalid late payments.   

Be sure to read or listen to 6 Steps to Build or Repair Your Credit Before Buying a Home for specific tips to get your credit in tip-top shape.  

2. List the features you want and need in a home

Before you start looking for a home, think about what you truly need versus...

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