Planning for a future home purchase

Though it's nice to dream of homeownership, careful planning can help make it a reality. Here's a step-by-step guide to put yourself in the best position for that wish to come true.

Figure out how much you can afford.

This isn't the same as how much a bank will lend you. Lenders evaluate your ability to repay, but you need to decide what you're actually comfortable paying. You must consider other financial goals, such as retirement and your kids' education.

You can start by following two rules of thumb. First, consider your overall payment. Including property taxes and insurance, it should be 25% to 36% of your take-home pay. Second, to help in qualifying for a loan, figure out your total monthly debt payments. Including mortgage, car payments, credit cards, student loans and anything else owed, they should stay below 36% of your monthly pretax income.

When crunching the numbers, remember there are many other expenses beyond the mortgage. You'll have utilities, maintenance and possible homeowners association dues.

Check your credit.

If there's a weak spot in your credit, it's important that you're the first one to discover it. That way, you can fix it before it leads to a higher interest rate on your mortgage or rejection.

Start by checking out your credit report. It shows how long you've had each account, limits, balances, payment history and any delinquencies. Look for any unknown errors and outstanding balances.

You can get a free copy of your credit report once a year from the three major credit agencies: Experian®, Equifax® and TransUnion®. To get started just visit annualcreditreport.com.^{See note1}

Your credit score is a factor that lenders take into account when they determine how much risk they'll take if they loan money to you.

Save for a down payment and other costs.

A larger down payment may give you access to a broader choice of mortgages. It also may help you qualify for a lower rate and pay less interest over time. You also could avoid paying for private mortgage insurance, or PMI. Additionally, there are loan options requiring as little as 3% down — 0% for eligible service members and veterans.

You also should save for the other costs associated with buying a home. Those include closing costs and moving expenses, such as furniture, rugs and other necessities for your new place.

If you're planning to buy in the next few years, avoid using your house fund money on a risky investment. Many planning to buy in a year or two choose savings accounts, certificates of deposit or other low-risk investments.

Take homebuying slow.

The idea of purchasing a new home can be exciting, but don't let emotions rule your decisions. You could be living with the results of your choices for years to come. So, take a slow, steady and deliberate approach. Avoid hasty decisions about neighborhoods, houses or mortgages.

Choose a real estate agent carefully.

An agent plays an important role in your search for a new home. You should be just as careful and deliberate in your selection of an agent as you are in choosing a home or a mortgage.

Get prequalified or preapproved for a loan.

A prequalification or preapproval helps remove doubt on your ability to secure a mortgage up to the stated amount. It also can help you narrow your search to homes you can afford and make your purchase offer more credible in competitive markets.

Make a wish list of home features.

This is important when you won't be the only one living there. You'll also minimize conflicts later in your search. Make a thorough list of what you want in a home and some things you could live without. This could include total size, number and types of rooms, number of stories, garage requirements, lawn size and neighborhoods.

You also should factor in your commute. Make sure you measure it in minutes, not miles. Traffic is different based on time and day, so consider checking it out at various points.

Browse listings.

Now you're ready to start zeroing in on potential properties. Your agent will help you find homes that match your wish list. You also can use home-search websites to do some looking of your own, such as Zillow.com®.^{See note1}

The USAA Advice Center provides general advice, tools and resources to guide your journey. Content may mention products, features or services that USAA Federal Savings Bank does not offer. The information contained is provided for informational purposes only and is not intended to represent any endorsement, expressed or implied, by USAA or any affiliates. All information provided is subject to change without notice.