Buying a home is the largest financial transaction most people ever make. The difference between being financially prepared and being underprepared can cost you tens of thousands of dollars — in worse loan terms, unexpected costs, or buying too soon. Here’s how to get ready.
Step 1: Know your credit score and fix any issues
Your credit score determines your mortgage rate — the difference between a 720 and a 760 score can mean thousands of dollars over the life of a loan. Check your credit report, dispute any errors, and spend 6–12 months improving your score before applying for a mortgage if needed.
Step 2: Save for more than just the down payment
Most first-time buyers focus only on the down payment and get blindsided by closing costs (2%–5% of the purchase price), moving expenses, immediate repairs, and the fact that your savings account will be nearly empty after closing. Budget for all of it, not just the down payment.
Step 3: Get your debt-to-income ratio in order
Lenders look at your debt-to-income (DTI) ratio — your monthly debt payments divided by your gross monthly income. Most lenders want your DTI below 43%, ideally below 36%. Pay down existing debt before applying to improve your DTI and qualify for better terms.
Step 4: Build a stable employment history
Lenders want to see at least 2 years of stable employment in the same field. If you’re thinking about changing careers or going freelance, consider doing so after the mortgage closes. Job changes — even to higher-paying roles — can complicate the approval process.
Step 5: Get pre-approved before house hunting
Pre-approval tells you exactly how much you can borrow and shows sellers you’re a serious buyer. In competitive markets, many sellers won’t consider offers without pre-approval. Get pre-approved with 2–3 lenders and compare — even a 0.25% difference in interest rate matters over 30 years.