Step 1: Evaluate Your Finances – The First Step to Homeownership
If you’ve decided to make 2025 the year you buy a home, the first step is understanding your financial picture. A strong financial foundation is key to a smooth home-buying process. Here’s how to get started:
1. Review Your Debts
Lenders look at your debt-to-income (DTI) ratio when evaluating your loan application. Pay off debts to improve your ratio and boost your borrowing power. Looking for more info about how to do this – I highly suggest following the Baby Steps with Dave Ramsey.
2. Assess Your Savings
Buying a home involves upfront costs like a down payment and closing fees. On average, you’ll need 3-20% of the home price for a down payment, plus an additional 2-5% for closing costs. Start setting aside savings if you haven’t already.
3. Check Your Credit Score
Your credit score plays a significant role in determining your mortgage rate and loan eligibility. Request a free credit report and review it for accuracy. If there are any errors, take steps to dispute them. Reminder all Credit Scores are not equal - for instance car loans and mortgages are not run the same way.
4. Create a Budget
Analyze your monthly expenses and income to determine how much you can comfortably spend on a mortgage. Remember to include property taxes, insurance, and maintenance costs in your budget.
5. Consult a Professional
If this feels overwhelming, don’t worry—I can connect you with trusted advisors and lenders who specialize in helping first-time homebuyers. They’ll help you to create a clear plan tailored to your situation.
This may not be the most exciting step (unless you love numbers and spreadsheet), but if you do it right it can set the foundation for not just your home search but also for your long term goals.