Prepare to buy your next house with these 7 home-buying tips

Buying a home is exciting, especially for first-time homebuyers, and it’s one of the smartest investments you can make. It’s a big purchase and a process that can change as you move forward. Like many processes, the more you know about it, the better prepared you are going in, and the better your outcome tends to be.

Every step of the home-buying process is a chance to set yourself up for success. These home-buying tips will give you an in-depth idea of what to focus on, from getting your finances in shape to making an offer and closing with confidence.

Tip 1: Organize your finances

Before you start browsing listings, take a close look at your financial health. Getting your finances in order early can give you a clearer picture of what you can afford and put you in a stronger position when it’s time to apply for a mortgage.

Review and strengthen your credit score

Your credit score is one of several factors mortgage lenders consider during the application process. Depending on the loan type, it may influence the loan options and interest rates you qualify for. In some cases, a stronger credit profile may help you access more favorable terms, which could save you money over the life of your loan.

Understand your debt-to-income ratio

Your debt-to-income ratio (DTI) is the percentage of your monthly income that goes toward debt payments. Lenders use it to determine how much you can responsibly borrow. As a general rule, a DTI below 43% is considered favorable for most mortgage loans. A debt-to-income ratio calculator can help you estimate your DTI and understand how it fits into the mortgage qualification process. If your DTI is higher, paying down existing debt before you apply for a mortgage loan can make a meaningful difference. In some cases, a lower debt-to-income ratio may help you qualify for a broader range of loan options or programs.

Build your savings

You’ll need cash on hand for more than just a down payment, including an emergency fund for unexpected expenses. Closing costs, moving expenses and initial home repairs can add up quickly. Start setting money aside early to cover these costs. A good rule of thumb is to save an additional 2% to 5% on top of your down payment to cover closing costs, though your specific loan type and lender may affect that number.

Tip 2: Assess your budget

Knowing what you can afford is just as important as finding the new home you’ll love. And the true cost of buying a home goes well beyond the listing price. Understanding the full cost of homeownership can help you set a realistic budget before you start making offers, so it’s worth taking a close look at the full picture.

Interest rates play a big role in determining your monthly mortgage payments. Even a small difference in your rate can have a significant impact over the life of your loan. For example, on a $300,000 mortgage, the difference between a 6% and a 7% interest rate works out to roughly $200 more per month, or $2,400 a year. You can use a mortgage calculator to run the numbers with different rate scenarios, so you know exactly what you’re working with.

It’s also important to remember that your mortgage payment is just one piece of the puzzle. Make sure you’re accounting for all the costs that come with homeownership:

• Property taxes
• Homeowners insurance
• HOA fees (if applicable)
• Routine maintenance and repairs
• Utilities

A good rule of thumb is to budget 1% of the home’s purchase price annually for maintenance and repairs, and other unexpected costs. Factoring in these costs upfront can help you set a realistic budget for homeownership.

Tip 3: Shop for favorable mortgage terms

Not all mortgages are the same, and the lender you choose can have just as big an impact on your bottom line as the home you buy. Taking the time to shop around and compare your options is one of the best home-buying steps you can take.

Compare lenders and home loan types

Different lenders offer different rates, fees and loan products, which is why it’s important to get quotes from more than one. When you’re comparing offers, look beyond the interest rate. Pay attention to the annual percentage rate (APR), which includes fees and gives you a more complete picture of the cost of the loan. 

Also, consider the home loan type that’s right for your situation. Conventional loans, FHA loans, USDA loans and VA loans all have different eligibility requirements, benefits and trade-offs, especially for military members.

Consider locking in your rate

Once you find a rate you’re happy with, it’s often a good idea to ask your lender about a rate lock. A rate lock secures your interest rate for a set period of time (typically 30-60 days) while you finalize your purchase. Locking your rate can help protect you from rate increases between the time you apply and the time you close, giving you one less thing to worry about.

Get a preapproval letter

Before you start talking to a real estate agent, see if you can get preapproved for a mortgage. A preapproval letter shows sellers that you’re a serious buyer and that a lender has already reviewed your finances and is prepared to lend you up to a certain amount. It also gives you a clear sense of your budget so you can focus your search on homes in your price range.

Tip 4: Make a competitive offer

In a competitive housing market, how you make your offer can be just as important as how much you offer. Here are a few strategies to help you put your best foot forward:

• Lead with your preapproval letter. When you’re serious about putting in an offer, your preapproval letter can let sellers know you’re ready and able to buy. Including it with your offer right away can set you apart from buyers who haven’t taken that step yet.
• Consider your earnest money deposit. Earnest money is a good-faith deposit that shows the seller you’re serious. It’s typically 1% to 3% of the purchase price and is applied toward your down payment or closing costs at closing. Offering a stronger earnest money deposit can make your offer more attractive.
• Be flexible on terms and timelines. Sometimes the best offer isn’t the highest one. Sellers often have priorities beyond price, like a specific closing date or a smooth, complication-free transaction. Being flexible on things like the closing timeline can make your offer stand out even if it isn’t the highest bid.
• Minimize contingencies where you can. Contingencies are conditions that must be met for the sale to go through. While some, like a financing contingency, are important to keep in place, minimizing others where possible can make your offer more appealing to sellers who want a straightforward deal.

Working with a good realtor is essential. They can help you negotiate with the seller, provide valuable insights during negotiations and guide you through the process with confidence.

Tip 5: Evaluate resale value before you buy

It’s easy to fall in love with a home and imagine yourself living there for years to come. But even if you plan to stay long term, it’s smart to think about resale value before you make an offer. Life changes, and the home that works perfectly for you today may need to appeal to someone else down the road.

Before you commit, ask yourself a few important home-buying questions:

• How is the local real estate market?
• Are nearby homes well-maintained?
• How are the local schools rated?
• Is the home close to shops, parks or public transit?
• Does the home have broad appeal, or is it very specific to your tastes?
• Would it be easy to update or renovate if needed?

Areas with rising home values, good school districts and strong local amenities tend to hold their value best over time and make for smarter long-term investments.

Tip 6: Protect your investment with the right insurance

Buying a home is a major investment, and the right insurance coverage can help make sure it stays protected. Before you close, you’ll need to have homeowners’ insurance in place. Depending on where you live and what you’re buying, you may need additional coverage as well:

• Standard homeowners’ insurance typically covers damage from common hazards like wind, theft and certain water damage. 
• Endorsements and riders allow you to expand your coverage beyond what a standard policy includes. For instance, if your home is in a flood-prone area, a separate flood insurance policy is worth looking into. In some cases, your lender may require it.

It’s also important to know that insurance costs can vary depending on your location, the age and condition of the home and the coverage you choose. Get quotes before you close so you have a clear picture of what your monthly costs will look like.

Tip 7: Close on your home with confidence

You’ve found the right home, made a winning offer and locked in a great rate. Now it’s time to close. Here’s how to make sure closing day goes smoothly:

• Review your closing disclosure. Your lender is required to provide this document at least 3 business days before closing. Go through it carefully and ask questions if anything is unclear.
• Do a final walkthrough. Confirm the home is in the condition you agreed to during your home inspection and that any requested repairs have been completed.
• Bring what you need. Come closing day, have a valid photo ID, your closing disclosure and a cashier’s check or confirmation of a wire transfer for the amount due.

Closing day is also where money changes hands, so it’s important to know what to expect. Closing costs typically range from 2% to 5% of the loan amount and can include lender fees, title fees, prepaid taxes and insurance and other charges. On a $300,000 home, that could mean anywhere from $6,000 to $15,000 due at closing. A mortgage closing cost calculator can help you estimate and compare closing costs for homes you're considering.

Navy Federal Credit Union supports you through the home-buying process

Buying a home is one of the most rewarding things you can do for yourself and your family. And with the right preparation, knowledge and the partner by your side, you’ll be ready to take the next step.

At Navy Federal, we’re committed to helping our members navigate every step of the home-buying process. Whether you’re ready to explore mortgage rates or want to learn more, our Home Buying Center brings helpful tools and resources together in one place. We’re here to help.