Check Your Credit
Lenders use your credit scores and the information on your credit report to determine whether you qualify for a loan and what interest rate to offer you. Check your own credit reports early on to prevent unpleasant surprises and correct any mistakes. You’ll also need a good idea of your credit scores to make the most of our budgeting and planning tools.
- Get copies of your credit reports.
- Check your reports carefully for errors.
- Obtain one or more of your credit scores.
Assess Your Spending and Create a Budget
Before you start home shopping, take a close look at your current spending. For most people, buying a new home means taking on new expenses — whether you are currently renting or already own a home. You need a clear understanding of how much you’re currently spending to decide what you can comfortably afford to spend on a new home.
- Take a realistic look at your spending patterns.
- Create an as-is monthly budget that accurately reflects your current spending and determine how much you realistically can afford.
- Develop a forward-looking budget for how you'll spend your money once you've bought a new home.
Determine Your Down Payment
Now that you have a good sense of what you can comfortably afford on a monthly basis, it’s time to look at your savings and determine how much you can afford for a down payment.
- Gather your savings and investment statements and add up your total available funds.
- Decide how much you want to set aside for other savings goals, moving costs, and any renovations for your new home. Subtract these amounts.
- Now, subtract an additional amount for an emergency cushion. A good rule of thumb is at least three to six months' worth of expenses.
- The result is your maximum available cash for closing – how much you can contribute out of pocket at the time you close on your loan.
In addition to your down payment, there are many costs associated with "closing" or finalizing your loan and home purchase. Closing costs depend on a lot of things – the price of the home you buy, your down payment amount, the lender costs, the kind of loan you choose, and the location of your new home. You can make a rough estimate now, using a home price that is typical for the neighborhoods you’d like to live in. Come back and refine your estimate as you move forward and gather more information.
Decide How Much You Want to Spend on a Home
Once you know your estimated down payment amount, one of your credit scores, and a few other details, you can use our tools to figure out what interest rate you might expect to pay for a mortgage. This lets you get a realistic estimate of the home price range that you can comfortably afford.
- Explore interest rates.
- Choose a realistic interest rate to use in calculating your affordable home price.
- Use our mortgage calculator to help you.
Consider Whether It's the Right Time to Buy
Buying a home is a big financial decision. Now that you’ve looked at your finances and estimated how much you can afford to pay for a home, consider whether now is the right time for you to buy.
- Compare your estimate for the home price you can afford to the prices of homes in your target area.
- Explore the tradeoffs of renting versus buying.
- Understand the risks and responsibilities of homeownership and your financial stability.