How to get your finances in order before buying a home
AI-generated summary reviewed by our newsroom.
- Credit scores above 620 improve mortgage approval odds and loan terms.
- Lenders favor debt-to-income ratios below 36%, with flexibility up to 50%.
- Budget must account for taxes, insurance, maintenance, and future savings.
Buying a home is a major financial milestone. Anyone — from the first-time buyer to the long-time owner looking looking to move — can benefit from prepping their finances ahead of time. This advance planning can help you make smarter decisions, reduce stress and improve your chances of mortgage approval.
Here’s a step-by-step guide to getting financially ready to buy a home, complete with all the tools and tips you need.
1. Check Your Credit Score
Your credit score plays a leading role in mortgage eligibility and interest rates. In mid-2025, conventional loans generally require a minimum score of 620. FHA loans allow scores as low as 580 with a 3.5% down payment, or 500 with a 10% down payment — though the terms may be less favorable. VA and USDA loans are more flexible, but typically prefer scores of 620 or higher.
What to do:
Pull your credit reports from Equifax, Experian, and TransUnion at AnnualCreditReport.com.
Dispute any errors you find.
Avoid opening new accounts or taking on debt before applying for a mortgage.
Aim to keep your credit utilization under 30% and make all payments on time.
2. Understand Your Debt‑to‑Income (DTI) Ratio
Your DTI ratio compares how much you owe each month to how much you earn and it’s a key factor in your mortgage approval.
To calculate DTI:
Add up all your monthly debt payments including credit cards, student loans, auto loans, and your projected mortgage payment.
Divide by your gross monthly income (before taxes).
Multiply by 100 to get a percentage.
Example: If your monthly debts total $1,500 and your gross income is $5,000: $1,500 ÷ $5,000 = 0.30 → 30% DTI
Most lenders prefer a DTI of 36% or lower, but some will approve up to 43% or even 50% for well-qualified borrowers.
3. Use a Mortgage Calculator to Estimate What You Can Afford
Before you start touring homes, use a mortgage calculator to estimate your monthly payment. These tools factor in:
Home price and down payment
Interest rate
Loan term (e.g., 15 or 30 years)
Property taxes and homeowners insurance
PMI (private mortgage insurance) if your down payment is under 20%
HOA fees, if applicable
Try this: Bankrate Mortgage Calculator
This gives you a realistic idea of what you can afford and can help prevent heartache down the road.
4. Build a Budget That Reflects Your Reality
Owning a home comes with new costs beyond your mortgage — property taxes, maintenance, insurance, and possibly HOA fees. It’s essential to understand how these expenses fit into your overall financial picture.
Start by listing your gross monthly income, including your salary, bonuses and any side income. Then estimate your monthly expenses, such as:
Projected housing costs – Your future mortgage, property taxes, insurance and PMI if needed.
Utilities – Electricity, water, gas, trash pickup and internet.
Transportation – Car payments, gas, insurance or public transit.
Insurance premiums – Health, life, and any non-home policies.
Groceries and dining out
Debt payments – Credit cards, student loans and other loans.
Savings goals – Emergency fund, retirement, or a cushion for repairs.
Extras – Subscriptions, entertainment, fitness memberships, etc.
Once you’ve added everything up, subtract your expenses from your income to find your net monthly balance. If your budget feels tight, it may be worth adjusting your target home price or spending plan.
Bonus Tips for 2025 Homebuyers
Explore your mortgage options. Independent brokers can help you compare FHA, VA, USDA, and conventional loans to find the best fit.
Know the scoring models. Starting in late 2024, lenders selling to Fannie Mae or Freddie Mac can use newer credit models (FICO 10T or VantageScore 4.0), which may consider rent and utility payments (potentially helping your score).
Watch your BNPL use. FICO will begin incorporating buy-now-pay-later data in late 2025. On-time payments could help, but be aware that missed payments might hurt.
Consider timing. Spring offers more listings but more competition. Fall and winter often mean fewer buyers — and more negotiating power.
In Summary
Use these reminders and resources as you navigate the process.
Check your credit and aim for a score of at least 620.
Calculate your debt-to-income ratio and keep it below 36–43%.
Use mortgage calculators to explore affordability.
Budget beyond the mortgage. Be sure to factor in taxes, maintenance and savings.
Start planning early to avoid surprises later.
Helpful Links:
Buying a home is exciting but getting your finances ready is what makes the process manageable. Stay tuned for the next guide in our homebuyers series.
Production of this article included the use of AI. It was reviewed and edited by a team of content specialists.
This story was originally published July 9, 2025 at 2:44 PM with the headline "How to get your finances in order before buying a home."
