Are You Financially Ready?
Buying a home is the largest financial transaction most people will ever make. Before browsing listings, run through this readiness checklist:
- Emergency fund: 3–6 months of expenses saved separately from your down payment
- Stable income: Most lenders want 2 years of consistent employment history
- Credit score: 620 minimum for conventional loans; 740+ for the best rates
- Debt-to-income ratio: Total monthly debts (including future mortgage) below 43% of gross income
- Long-term plan: Buying makes financial sense only if you'll stay 5+ years
Down Payments Explained
Conventional loans require as little as 3% down. FHA loans require 3.5%. VA and USDA loans for eligible buyers require nothing down. The 20% figure you've heard avoids private mortgage insurance (PMI) — but it's not a requirement.
PMI typically costs 0.5–1.5% of the loan annually. On a $300,000 loan, that's $125–$375/month. It's not ideal, but often better than waiting years to save 20%.
First-time buyer programs: Many states offer down payment assistance grants. Check your state's housing finance agency before assuming you must save the full amount yourself.
Understanding Mortgages
Fixed vs. Adjustable Rate
A fixed-rate mortgage keeps the same interest rate for the life of the loan — predictable and preferred by most buyers. An ARM starts lower but adjusts periodically based on market rates. ARMs can make sense if you're confident you'll sell or refinance within the fixed period.
15-Year vs. 30-Year
A 30-year has lower monthly payments but significantly more total interest paid. A 15-year saves tens of thousands in interest but requires higher monthly payments. Most financial advisors suggest the 30-year and investing the difference — but the right answer depends on your priorities and discipline.
Hidden Costs to Budget For
- Closing costs: 2–5% of the loan amount (inspection, appraisal, title insurance, lender fees)
- Moving expenses: $1,000–$5,000 depending on distance
- Ongoing maintenance: Budget 1–2% of home value annually
- Property taxes and insurance: Often escrowed into your monthly payment
- HOA fees: Can range from $50 to $1,000+/month if applicable
The Buying Process
- Get pre-approved — a real credit check giving you a firm number, not just an estimate.
- Find a buyer's agent — their commission is typically paid by the seller, so it costs you nothing.
- Make an offer — your agent guides negotiation and contingencies.
- Due diligence — home inspection, appraisal, title search. Never skip the inspection.
- Close — compare your closing disclosure to the loan estimate line by line.
Timeline: Accepted offer to close typically takes 30–60 days. Budget time for delays, especially in competitive markets.