June 25, 2025
Preparing Financially for Your First Home:
What to Do Now to Be Ready Later
For many U.S. adults, homeownership is a key part of the American Dream. But contrary to popular belief, the homebuying process doesn’t start with scrolling through listings or walking through open houses. If you’re thinking about buying a home within the next few years, the most important work actually starts well before you meet with a realtor or lender.
The good news? There are smart steps you can take today to get your finances in order, so that when the right opportunity comes along, you’re ready to act confidently and qualify for a mortgage at a competitive rate. And that can make all the difference when it comes to having your offer accepted.
Here are three important things that you can start doing now to set yourself up for success:
- Boost Your Credit Score
Your credit score is one of the biggest factors in qualifying for a mortgage and getting a favorable interest rate. Here’s what to focus on:
• Payment History makes up 35% of your score. Make sure you pay all of your bills, especially your open lines of credit, on time. If you’ve hit a bump in the road in the past and fallen behind for a few months, don’t get discouraged! Every month of on-time payments means an improvement in your credit score. Also, the older the delinquent months are, the less they impact your credit score.
• Credit Usage accounts for 30% of your score. The higher percentage of your credit limit that you use, the more of a hit there will be to your score…even if you pay it off every month! If you are carrying a balance, make every effort now to pay that down to zero. You’ll save on interest and improve your credit score.
• New Credit is 10% of your score. When you apply for new credit, you’ll see a drop in your score that can last for several months. So, try not to take out any loans until after you have closed on your mortgage. Too often, someone will be pre-qualified for a mortgage and then go to buy a new car only to find out that they lowered their score and canceled the pre-qualification for the mortgage.
Visit our Basics about Credit blog for a deeper dive into how credit scores are calculated and what you can do to protect your credit.
- Aggressively Pay Down Debt
Lenders don’t just look at credit score, they also look at your debt-to-income ratio (DTI.) This is the percentage of your gross (pretax) income that goes toward monthly debt payments, including credit cards, student loans, car payments and your future mortgage. Lenders use the DTI to determine if a borrower can handle the financial obligations of a new mortgage payment in addition to their existing debts.
A lower DTI indicates that a borrower has a smaller portion of their income dedicated to debt payments, making them a less risky borrower to the lender. Most lenders prefer a DTI of 36% or lower. For help on debt reduction strategies visit our blog on the Debt Snowball and Avalanche Methods.
- Build Your Savings
Buying a home involves more than just a down payment. You’ll need cash for closing costs, moving expenses, furniture and repairs. Plus, it’s important to keep some savings set aside for unexpected expenses.
While saving 20% for a down payment isn’t always realistic (especially with the average price for a starter home in Massachusetts at well over $500,000), there are several loan programs that allow for a lower down payment. No matter what, you’ll want to start saving now.
Here’s some great ways to get started:
• Automate your savings. Set up a recurring transfer from your checking account into a dedicated savings account each month. Treat it as one of your mandatory monthly bills like your rent, phone and car loan.
• Practice your future budget. One suggestion is to use a mortgage calculator to get an idea of what your mortgage payment will be and start saving the difference between your current rent and your estimated future mortgage payment. Not only will you have savings for when you do buy that home, you’ll also have started to incorporate that higher payment into your budget! Visit our blog for more saving strategies.
Homeownership is about more than just having a place to live - it is also a fantastic vehicle for wealth creation. By focusing now on improving your credit, paying down debt, and building your savings, you’ll be in a strong position when the right home comes along. The opportunity will be there; the key is to prepare yourself so that you are ready to react when that moment arrives.
At Cape Cod 5, we're here to help you during every step of the home financing process. Reach out to us, we're here to help.
