263 | How to Prepare to Buy a House

Many of my clients believed they’d never be able to purchase a home, but it turned out they were closer than they thought.

Summer is prime homebuying season. Whether you’re buying your first or your next home, you want to make sure you’re prepared.

In this episode, let’s talk about some things to consider as you prepare to buy your home, including how much to spend and how to fund your purchase.

• • strategic homebuying
  • preparing your finances for purchasing a home
  • how much to spend on a home
  • various loans and programs to fund your purchase

• No More Harvard Debt (The blog was down at one point but is back up as of May 2025.)

• AnnualCreditReport.com

• mortgagecalculator.org

• available loan types: conventional loan, FHA loan, VA loan, USDA loan, JD mortgage, and probably others

• Neighborhood Assistance Corporation of America (NACA)

• first-time homebuyer programs

You’re listening to Personal Finance for Lawyers. I’m Rho Thomas, and as a busy wife, mom, and former Biglaw associate, I know all too well the tension between the culture of the legal profession and pretty much everything else you want to do in life. That’s why each week, I’m bringing you the information and tools you need to improve your money mindset and manage your money to create true wealth. Because ultimately, it’s not about the money. It’s about the freedom and flexibility the money affords.

Hello friend. Welcome back.

Today we are talking about preparing to buy a home.

We are in the middle of home-buying season, as they say, and I have had a lot of conversations around how to prepare to buy a house. What types of things you want to be doing and thinking about when you’re buying a home? And so I thought that we could talk about it today.

So the first thing that I want to talk about is thinking about your home purchase strategically.

I heard a property somebody like a property expert talk on a podcast years ago. It was literally right after I bought my home, but he said that the biggest mistake that most people make is that first home they buy, they buy for themselves and their family. Like they buy your typical single-family home, or condo, or townhome, but it’s just for them and their family.

And he was saying that you can buy up to a 4-unit building with a residential loan and he would recommend that people buy something like that, something with additional units that you could rent out to other people and it’s called house hacking.

And when you do that, it’s a way to drastically cut your living costs or even eliminate it altogether because imagine like let’s say you buy a 2-unit building like a duplex. You live in one unit and you’ve got a renter on the other side and that person’s rent covers the entirety of your mortgage, or almost the entirety of your mortgage.

Now you don’t have a housing cost, which is the biggest expense for most people, and you’re able to put all of that money toward other goals that you have.

So I wanted to be sure that I shared that, and I’ve been sharing it with everybody that I have conversations with around buying a home because it’s something that I wish I had known. I didn’t hear that advice until after I had already gotten into my single-family home making the mistake that he said everybody makes and so now I share it with everybody else.

So think about when you are purchasing a home. Is there a way to get into a duplex or a triplex, or even a home that has a basement? Or you could even buy a single-family home, this probably will work better if you don’t have a family, but buy a single-family home and rent out the rooms.

I remember when I first started learning about people paying off their debt quickly. There was a guy who had a blog called No More Harvard Debt. I don’t think that it’s available anymore, but he was trying to pay off all of his debt from going to Harvard and one of the things that he did was he rented out the other rooms in his home. It was just him there and he rented out the other rooms and that offset his mortgage.

So think about a strategic way that you could be viewing your home. So it’s not just an expense for you, but it becomes something that is making you money and even offsets your housing expense altogether.

The next thing I want to talk about is cleaning up your finances.

So if you don’t have savings, if you still got a bunch of credit card debt, if your credit score is not very high, you want to clean those things up because all of that is going to impact whether you’re actually able to get a mortgage and it will impact the rates and terms and all of that around any mortgage that you are able to get.

So on the savings front, it’s not enough to just have the down payment for the house, the bank is going to want to see that you have reserves as well. So you want to make sure that you’ve got an emergency fund on top of whatever down payment you’re going to have.

With the credit card, you’re looking at your debt-to-income ratio and having to too much credit card debt is going to lessen the amount that you’re able to take out in a mortgage with your credit score. Having a lower credit score means that you have higher interest rates or things like that.

So all of that stuff that you want to make sure that you’re cleaning up before you start getting into the home buying process, build up your savings, pay down your credit card debt, and as you’re paying down that debt, that’s going to also help take care of your credit score.

Another thing you can do is pull your credit report. You can do this every year. There is a site called annualcreditreport.com where you can get a free copy of your credit report and you can go through that and make sure that there aren’t any inaccuracies or any accounts on there that you don’t recognize, things like that. All of that goes to helping to clean up your credit score so that you are in the best position possible when it’s time to apply for a mortgage for your home.

When we are thinking about your housing cost, you want to try to keep that to 25% or less of your take-home pay. This is something that I talk about a lot because that number gives you a lot of wiggle room for your other bills, for things you need to take care of, things that you just want, and your goals.

So if you can keep your housing costs to about 25% or less, then you’ve got a lot of room for all of the other stuff that you have and I have said before, it doesn’t have to be exactly 25%. If you’re at 28%, if you’re at 30%, that’s not so bad, especially depending on what else is going on.

So I’ve seen sometimes people have the higher percentage because they don’t have any debt. They are able to handle a higher percentage going to their housing payment and still have money left over for the other things that they want to do.

But you want to look at what mortgage and down payment amount allows you to have a payment that’s around that 25% mark. I really like the mortgage calculator at mortgagecalculator.org. That is the one that I use and I found the numbers to be very reliable and it is still the one that I use with my clients who are looking at buying homes as well. So check out mortgagecalculator.org and play around with what does it look like if I’m buying this price home with this down payment. It’ll give you what that mortgage amount will be. And again you just want to make sure that it’s around 25% of your take-home pay.

So now getting into your down payment and paying for your home, everyone always talks about putting 20% down, but you don’t necessarily need 20%.

Now take everything that I’m about to say with a grain of salt because I am not a mortgage expert or anything like that, but I’m just sharing with you what I know. Take the information that I’m giving you and look into it research, verify for yourself, but you don’t necessarily have to have a 20% down payment.

Now with a conventional loan, a 20% down payment means you avoid private mortgage insurance or PMI, but PMI is actually not that bad. People talk about it like, oh, you don’t want to have to pay PMI and blah blah. But we did a conventional mortgage and we chose to put 10% down because if we put 20% down, we would have had to put another 25,000 down.

And so we chose to do the 10% and get the PMI and PMI only added like $70.00 a month to our payment and that was something that we estimated with mortgagecalculator.org. We looked at, OK, if we did a 10% payment or a 10% down payment, how much would it be? And then if we did a 20% down payment, how much would it be? And mortgagecalculator.org will also tell you like this is the payment with PMI and then after so many years the PMI is going to drop off and this will be the payment after that. So another plug for them. I don’t have any sort of sponsorship or anything, I just really like their calculator.

But, all that to say, we did 10% down and we got another, you know, $70.00 a month added to our payment with the PMI. I’ve heard of people doing as little as 5% down with the conventional mortgage. I don’t know what the minimum is for that, but I know that it doesn’t have to be 20%.

There are also other loans that you can put substantially less. Down and possibly not put anything down. With the FHA loan, I think you only have to put 3.5% down. I don’t know if there’s PMI associated with that. If you’re a veteran, you can get a VA loan and put 0 down. There’s also the USDA loan which you can get for homes in rural areas and you can put 0% down.

And the interesting thing about the USDA loan is what’s considered rural under the guidelines might not necessarily be rural. I live in Atlanta and there are parts of metro Atlanta that are less than an hour outside of the city that are categorized as rural. So look that up for your area because it could be that the area that you’re looking in or an area close to it would qualify for that loan.

There’s also the JD mortgage that can often be more favorable for lawyers because we do tend to come out with large student loan burdens. And with some of the other loan programs, they will look at your student loans and calculate that in your debt to income. But I believe with the JD mortgage, they calculate your debt to income ratio not really looking at your student loans in the same way because it’s made specifically for lawyers in that unique situation that we have. You can also put low or no money down with that loan. Right?

And then there may be even more loan options than that, like talk to an actual mortgage professional who can guide you through all the things that are available because there are things out there that we might not even know anything about.

Then beyond your mortgage, there are also programs that can help you get into a home. There’s one called NACA, N-A-C-A. I don’t know if that stands for anything, but I heard about them and you can, like, take their classes and meet certain requirements, and you can get into a place for 0 down. And I want to say that the mortgage that they offer is somewhat more favorable than like the typical mortgage that you would get on the market. So I think they’ve got some strict guidelines and they’re only available in certain areas, but if that’s available to you, if you are willing to go through whatever the things are that you have to go through, it sounds like it can be a really beneficial program. So look into whether that’s something that you can do.

And then if you are a first-time home buyer, there are all kinds of first time home buyer programs that can help with down payment assistance and closing costs and all of that. So look and see what’s out there, what’s available to you, and what you can qualify for.

The main thing in all of this is I want you to prepare yourself, get your finances in order, research the resources that are available to you. Don’t just assume that you can’t afford to buy a home like actually talk to somebody. Get pre-qualified and see like, OK, this is how much I qualify for. If I want to qualify for that much, what do I need to do? Because a professional can help guide you in that so that you know exactly what you need to do.

Know what works for your budget. So that goes back to what I was saying with playing around with the mortgage calculator and seeing like, if I put this much down on this price home then my payment is going to be this much and does that fit my budget?

Because with what I was saying with getting pre-qualified a lot of times they will tell you that you can afford a much more expensive house than what actually be practical for you to still be able to achieve other goals.

And so you want to have an idea in mind of what you can afford based on the numbers that we’re talking about, right? Like based on the 25% of your take-home pay because I want to say that the number that the mortgage brokers and the banks and all of that look at is like 33% of your gross pay. Something like that. Don’t quote me on that number, but whatever it is, it doesn’t make sense to me because I don’t see my gross pay. So I don’t want to go off of a calculation based on my gross pay. I want to go based on my net pay. What am I actually getting in my bank account? I want to make sure that my number is based on that.

So make sure that you know what works for your budget, even as you’re going and getting guidance from these professionals, and just make smart decisions. Buying a home can be an emotional process, but don’t let your emotions get the better of you.

Find a place that works for your income that will still allow you to achieve your goals because you don’t want to be sitting in this beautiful home with no money to do anything else because you’re house-poor.

And the final thing I’ll say is once you get in your house, do not spend all your money and go into a bunch of debt trying to furnish it. That is a mistake that I see a lot too.

So take your time. It’s OK if every room is not completely furnished right away. You do not want to end up in the situation that I have seen people in where they’ve got a bunch of credit card debt from moving and furnishing their new place. Do not fall into that trap. Alright.

If you are in the market for a new home or you’ve been thinking about getting one, I hope that these tips help you to think about it more strategically from a financial standpoint, so you make sure that when you make this decision, it does not harm your finances.

So that is it for this week’s episode, please share the episode with a friend or two who can use this information. That’s the best way to spread this information and get it into the hands of as many lawyers as possible so that we all can improve our finances and achieve the freedom that we are looking for.

As always, I appreciate your support.

As we close out friend, I pray that you take the information you learn here, apply it in your life, and open up to the realization that wealth is available to you. As you do that consistently, week after week, you’ll continue to take steps to take back control of your time, build wealth, and live the life of freedom and choice you deserve.

Talk to you later.