Financial Planning
The Home Buyer's Financial Readiness Guide
You're financially ready to buy a home when you have stable income, a credit score that qualifies you for a reasonable rate, a manageable debt-to-income ratio, savings for the down payment and closing costs, and an emergency fund left over after you move in.
Last reviewed
Your readiness checklist
- Stable, documentable income
- Credit reports reviewed and errors disputed
- Debt-to-income ratio calculated
- Down payment saved
- Closing costs saved
- Emergency fund intact after purchase
- A budget that includes all ongoing homeownership costs
Check your credit
Your credit score affects the mortgage rate you're offered. Review your reports for free at AnnualCreditReport.com, dispute any errors, and avoid opening new credit in the months before applying. Learn more in Understanding Your Credit Score.
Calculate your debt-to-income ratio (DTI)
DTI is your total monthly debt payments (including the estimated new mortgage) divided by your gross monthly income. Lenders use it to judge affordability. Many lenders prefer a lower DTI, and a lower ratio also leaves more breathing room in your budget.
Save for the down payment
| Down payment | What to know |
|---|---|
| Less than 20% (conventional) | Usually requires private mortgage insurance (PMI) |
| FHA loans | Lower minimum down payment for qualifying borrowers; mortgage insurance applies |
| VA and USDA loans | May allow no down payment for eligible borrowers |
| 20% or more | Avoids PMI on conventional loans and lowers your monthly payment |
Many states and cities offer down payment assistance programs for first-time buyers. Check your state housing finance agency.
Budget for closing costs
Closing costs include lender fees, appraisal, title insurance and prepaid items like property taxes. They often add up to a few percent of the loan amount. Your lender must give you a Loan Estimate that itemizes them.
Plan for ongoing costs
Your monthly payment typically includes principal, interest, property taxes and homeowners insurance (often called PITI). Also budget for:
- HOA fees, if applicable
- Utilities, which may be higher than in a rental
- Maintenance and repairs — many owners set aside 1–2% of the home's value each year
Keep your emergency fund
Don't drain your savings for the down payment. Homes come with surprise repairs, and you'll want a cushion from day one.
Next, learn how mortgages work in Mortgage Basics: What You Need to Know.