Welcome back to our 12-week home buying series! If you joined us last week, you got a clear overview of the entire home buying process—from assessing your finances to making an offer and closing. This week, we’re diving into the first big step: making sure you’re financially prepared to take the leap into homeownership.
Buying a home isn’t just about having a down payment—it’s about ensuring your overall financial health supports the investment. Let’s explore the key areas you need to review before moving forward.
Why Financial Readiness Matters
Think of financial readiness as the foundation for your home buying journey. Without it, the rest of the process can quickly become stressful or even stall out. Lenders want to know you’re not just ready to buy a home—you’re ready to afford one, too.
Step 1: Check Your Credit Score
Your credit score plays a huge role in:
- Whether you qualify for a mortgage
- The types of loans available to you
- Your mortgage interest rate
A score of 720 or higher typically qualifies you for better rates (qualifying with a score around 620 is possible). If your score is lower, don’t worry—you can work on boosting it by:
- Paying bills on time
- Paying down credit card balances
- Disputing errors on your credit report
🛠 Action Step: Use a free credit monitoring tool or request a report at AnnualCreditReport.com to see where you stand.
Step 2: Know Your Debt-to-Income Ratio (DTI)
Your debt-to-income ratio compares your monthly debt payments to your monthly gross income. Lenders use this number to determine your borrowing risk.
- Ideal DTI: Under 36%
- Housing-related DTI (front-end): Ideally below 28%
💡 Example: If you make $6,000/month before taxes, your total monthly debt should be under $2,160.
🛠 Action Step: Use a DTI calculator to check your current ratio.
Step 3: Budget Beyond the Down Payment
You’ve saved for the down payment and closing costs—great! But that’s not the only expense to plan for. Make sure you can comfortably afford:
- Monthly mortgage payments
- Property taxes
- Homeowners insurance
- HOA fees (if applicable)
- Utilities and maintenance
- Emergency repairs and upgrades
📌 Tip: Set aside an additional 1–2% of the home’s value annually for maintenance costs.
Step 4: Organize Your Financial Documents
Being organized now saves time later. Most lenders will ask for:
- Last two years of tax returns
- Recent pay stubs (1–2 months)
- W-2s or 1099s
- Two months of bank statements
- A list of current debts and assets
🗂️ Bonus Tip: Create a folder (digital or physical) with these documents ready for your pre-approval application.
What’s Next in the Series?
Now that you know how to check your financial readiness, you’re one step closer to becoming a homeowner.
👉 Next week, we’ll break down the different types of mortgage loans—including conventional, FHA, VA, and more—so you can choose the one that best fits your situation.
If you missed Week 1, go back and check out “Your First Step to Homeownership: Understanding the Home Buying Process”.
