Buying your first home is one of the most significant financial decisions of your life. It's exciting — and it's complex. This checklist covers everything you need to prepare financially before you start shopping.
1. Check and Strengthen Your Credit Score
Your credit score determines your mortgage rate. A score of 760+ will get you the best available rates. Check your report for errors, pay down credit card balances, and avoid applying for new credit in the 6–12 months before applying for a mortgage.
2. Save for a Down Payment
A 20% down payment lets you avoid Private Mortgage Insurance (PMI), which adds $100–$200/month to your payment. However, many first-time buyer programs allow 3–5% down. Know your target number and save specifically for it in a HYSA.
3. Budget for Closing Costs
Closing costs typically run 2–5% of the purchase price and are separate from your down payment. On a $350,000 home, that's $7,000–$17,500. Many first-time buyers are caught off-guard by this. Budget for it in advance.
4. Get Pre-Approved Before Shopping
A mortgage pre-approval shows sellers you're a serious buyer and tells you exactly how much you can borrow. It requires a hard credit pull, income verification, and bank statements. Shop at least three lenders to compare rates.
💡 A 0.5% difference in mortgage rate on a $300,000 loan saves over $30,000 in interest over 30 years. Rate shopping matters enormously.
5. Calculate Your True Monthly Cost
Your mortgage payment is just the start. Add property taxes, homeowner's insurance, PMI (if applicable), HOA fees, and a maintenance budget (1–2% of home value per year) to understand your actual monthly housing cost.
6. Keep Cash Reserves After Closing
Don't spend every dollar on the down payment and closing costs. Lenders want to see reserves, and you'll need them. A new furnace, roof repair, or appliance replacement can hit in year one. Aim to keep 3–6 months of mortgage payments in savings after closing.
7. Research First-Time Buyer Programs
Federal, state, and local programs exist specifically for first-time buyers — offering down payment assistance, closing cost grants, and below-market interest rates. The FHA loan (3.5% down, flexible credit), VA loans (for veterans, no down payment), and USDA loans (rural areas, no down payment) are all worth exploring.
🎯 Bottom line: The best time to prepare to buy a home is 12–24 months before you plan to purchase. Start with your credit and your savings rate — everything else builds on those two foundations.