How to Prepare Financially for Buying a Home This Year
Whether you’re planning to buy in the next few months or sometime later this year, there’s one thing that almost always determines how smooth (or stressful) the process will be: how financially prepared you are going in.
At Mortgage Austin, we work with buyers at every stage of readiness — and the ones who have the best experience are almost always the ones who started preparing before they needed to. Here’s a practical financial checklist to help you get ready to buy a home this year.
Step 1: Know Your Credit Score and What’s on Your Report
Your credit score is one of the most important factors in determining what mortgage programs you qualify for and what interest rate you’ll receive. Before anything else, pull your credit report and actually read it.
Where to Check
You’re entitled to a free credit report from all three bureaus (Equifax, Experian, and TransUnion) at AnnualCreditReport.com. Review each report carefully for errors — incorrect balances, accounts that aren’t yours, or outdated negative items that should have aged off.
What to Aim For
- 620+: Minimum for most conventional and FHA loans
- 680+: Better rates, more program options
- 740+: Qualifies for the best conventional pricing with minimal rate adjustments
If your score needs work, don’t panic — there are often specific, targeted actions that can meaningfully improve it within 3–6 months. Talk to us and we’ll walk through your report together.
Step 2: Save for More Than Just a Down Payment
Many first-time buyers focus exclusively on saving the down payment — and then get caught off guard by closing costs, reserves, and other expenses. Here’s what you actually need to plan for:
Down Payment
- Conventional: 3–20% of the purchase price
- FHA: 3.5% (with 580+ credit score)
- VA / USDA: 0% for eligible buyers
Closing Costs
In Texas, closing costs typically run between 2–3% of the loan amount for buyers. On a $400,000 home, that’s $8,000–$12,000. These include lender fees, title insurance, appraisal, prepaid interest, escrow setup, and more. We’ll give you a detailed estimate early in the process so there are no surprises.
Reserves
Many loan programs require you to show that you’ll have money left in the bank after closing — typically 2–3 months of your future mortgage payment. Having reserves also gives you a personal safety net as you settle into homeownership.
Moving and Initial Home Costs
Budget for moving costs, any immediate repairs or improvements you want to make, and basic home maintenance items. It’s not uncommon for new homeowners to spend $2,000–$5,000 in the first few months beyond the mortgage payment.
Step 3: Get Your Income Documentation in Order
Lenders will need to verify your income thoroughly. Getting organized in advance makes the process significantly smoother. Here’s what you’ll typically need:
- Two most recent pay stubs
- W-2s from the past two years
- Federal tax returns for the past two years (especially if self-employed)
- Most recent two months of bank statements (all pages)
- Documentation of any additional income sources (rental income, bonuses, alimony, etc.)
If you’re self-employed, plan on providing both personal and business returns, plus a year-to-date profit and loss statement from your accountant.
Step 4: Reduce Your Debt-to-Income Ratio
Your debt-to-income ratio (DTI) compares your monthly debt payments to your gross monthly income. Lenders look at this closely — most programs want your total DTI (including the new mortgage) to stay below 43–50% depending on the loan type.
If you have high-balance credit cards, car loans, or other revolving debt, paying those down before you apply can meaningfully improve your DTI and your overall qualification profile. Even paying off one or two smaller debts can shift the numbers in your favor.
Step 5: Avoid Major Financial Changes Before You Apply
Once you’re in “buying mode,” consistency is your friend. Mortgage underwriters want to see stability. In the months before you apply and during the loan process, try to:
- Avoid opening new credit accounts (new credit card, car loan, etc.)
- Avoid large, unexplained deposits into your bank accounts — these require documentation
- Don’t quit your job or change to commission/self-employment without talking to us first
- Don’t make large purchases on credit (furniture, appliances, vehicles)
These things don’t mean you can’t buy — they just mean timing matters. If any of these situations apply to you, let’s talk about how to plan around them strategically.
Step 6: Get Pre-Qualified Early
The best thing you can do at the start of this year — even if you don’t plan to buy for several months — is to get pre-qualified. Here’s why doing it early pays off:
- You’ll know your exact budget and won’t waste time on homes that don’t fit
- You’ll discover any issues (credit, income, documentation gaps) with time to address them
- You’ll be ready to move fast when the right home appears
- You’ll have credibility when making an offer in a competitive market
Pre-qualification with us is straightforward, low-pressure, and genuinely useful — regardless of whether you’re buying in 60 days or 6 months.
Ready to get the process started? Get pre-qualified here or reach out to us with any questions. We’ll meet you wherever you are in the process and help you build a clear path forward. You can also explore your loan options to get familiar with what might be available to you.
Frequently Asked Questions
How long before buying a home should I start preparing financially?
Ideally, 6–12 months before you want to close. This gives you time to address credit issues, build savings, and gather documentation without stress. That said, some buyers are ready in 30–60 days. Start the conversation now and we’ll tell you honestly where you stand.
Can I use gift money for a down payment?
Yes, on most loan types. FHA, VA, and conventional loans all allow gift funds from family members under certain conditions. The gift must be documented with a gift letter confirming it doesn’t need to be repaid. We’ll walk you through the paperwork when the time comes.
What credit score do I need to get the best mortgage rate?
Generally, a 740 or higher credit score gets you the best rate tiers on conventional loans. There are still plenty of good options below 740, but each tier can affect your rate by a fraction of a percentage point — which translates to real dollars over the life of a loan.
How much should I have in savings before buying a home?
As a general rule, plan to have enough for your down payment (3–20%), closing costs (2–3% of loan amount), and 2–3 months of mortgage payments in reserve. The more savings you have, the stronger your application and the more cushion you have as a new homeowner.
Does being pre-qualified lock me into working with your company?
No. Getting pre-qualified is informational — it doesn’t commit you to anything. We encourage buyers to shop their options. Our goal is to earn your business by providing the best service and value, not by trapping you with paperwork.
Ferrando Financial LLC | Mortgage Austin | NMLS# 2403080 | Licensed in Texas. This content is for educational purposes only and does not constitute a commitment to lend. Loan approval is subject to creditworthiness and program guidelines.
