Buyers, Here’s Your Guide to Homeownership in 2025

Buying a home is one of the biggest and most significant financial decisions you will ever make. This is why it's critical to ensure that your finances are in order. Homeownership is already complex as it is, so you need to have a clear understanding of your current financial status before buying. Here are some things to consider:

Assess your savings and see if you have an emergency fund in place.

Start by evaluating your current finances, including your sources of income and savings. List down your after-tax income, cash savings, investments, and inheritances, making sure to leave out your retirement account. Ensure that you also have an emergency fund in place, which is recommended to be three to six months’ worth of living expenses to cover any unexpected costs.

Track your spending habits.

Tracking your expenses gives you a clearer picture of how you’re spending your money. Are you still paying for an unused gym membership? Are there any subscriptions you’re not getting your money’s worth? Have you been spending more on restaurant meals recently instead of cooking at home? When you closely monitor your fixed expenses as well as discretionary spending, you’ll be able to avoid impulse purchases and instead allocate the extra money towards your goal.

Keep an eye on your credit score.

If you still aren’t keeping an eye on your credit score, now is the time to start. Your credit score is one of the foundations of buying a home as it can make or break your ability to get a mortgage. The stronger it is, the easier it will be for you to secure the best mortgage rates. Conventional loans often have a minimum credit score requirement of 620 or higher. On the other hand, programs like FHA loans may allow for lower scores. To prepare for a successful home purchase, it’s essential to boost your credit score in advance. Here are some steps you can take to strengthen your credit:

• Review your credit report from all three major bureaus (Experian, Equifax, and TransUnion) to ensure there are no errors. Dispute any inaccuracies as soon as possible as any mistake can harm your report.

• Pay all your bills on time.

• Pay down credit card balances and other high-interest loans to improve your debt-to-income ratio.

• Avoid opening new lines of credit while preparing for your home purchase.

Understand market trends in your target area

Housing markets vary greatly. Some areas lean toward buyers, while others remain as seller's markets. In many areas, the housing market slows in the winter months and picks up in the spring and summer. This means that buying a home during off-peak seasons may give you more negotiating power while purchasing during peak seasons can increase competition. Understanding where your market stands can help you recognize opportunities and make informed decisions.

Monitor interest rates

During your prospective purchase period, any potential changes in interest rates and housing costs could directly impact your purchasing power and monthly payments. Interest rates are still unpredictable, so it’s important to monitor them over time. If rates seem favorable, it may be worth locking in your rate sooner rather than later.

Just remember that the perfect time to buy is when the home fits your needs, lifestyle, and budget, regardless of whether rates are up or down. You have the option to refinance later if rates improve.

Home loan programs aren't one size fits all. As a first-time home buyer, you’ll want to explore your options. Start by researching the different types of mortgages and loan programs available, as each loan type comes with its own benefits and requirements. Here are a few of them:

• Conventional loans are great if you have a solid credit score and sufficient savings as they typically require a 20% down payment but offer competitive interest rates.

Government-backed loans such as:

• FHA loans are geared toward borrowers with lower credit scores or smaller down payments.

• USDA loans often require no down payment and are perfect for rural and suburban buyers.

• VA loans are low or zero-down payment mortgage options perfect for eligible veterans, active-duty military members, and their surviving spouses.

• Other kinds, such as fixed-rate mortgages, adjustable-rate mortgages, jumbo loans, among others.

Understanding the various types of mortgages is essential so you can sort through your options and find the one that best fits your needs and financial situation.

First-time home buyers often qualify for special benefits and programs, including lower minimum down payment, special grants, assistance with paying closing costs, tax credits, and other valuable resources to make homeownership more affordable. They may be available through the state, county, and city governments, so it's always worth checking to see the specific offerings available in your desired area.

A quick web search will help you find specific sources of government help. If you want to take it a step further, contact your state or county housing authority. You may also reach out to your local government office and check if there’s any housing assistance department.

Building up your savings is a fundamental part of your home-buying journey. Whether you're purchasing next year or in the next few years, you’ll need funds for things like down payment, closing costs, maintenance costs, and even moving expenses. Once you’re done evaluating your finances, create a plan to save up for what you need. Here are some things you can do:

• Create a dedicated savings account and automate savings.

Having a separate savings account can help you stay organized and focused. You can track your progress and won’t be tempted to use your funds for other expenses. Consider setting up a high-yield savings account or a money market account to earn interest on your savings.

• Set a down payment goal.

Before you can take out a mortgage, you’ll have to put down some of the cost upfront since a bank won’t loan you the full purchase price. This is why the down payment is often the biggest hurdle for many first-time home buyers. Your down will be a percentage of the total purchase price, and it’s typically paid in cash at the closing of the transaction. There are multiple factors to consider when deciding how much to save for a down payment, such as your price range for the home and the programs you qualify for.

• Consider ways to increase your income.

You might want to look for opportunities to make more money that you can put directly into your house fund. It could be asking for a raise at your company, moving into a new role with a better income, or picking up part-time jobs, freelance opportunities, consulting jobs, or side gigs that align with your skills and interests. And if you happen to have some tax refund or bonus at work, use the money to boost your savings and reach your goals faster.

Saving up for a house can be pretty intimidating, but it doesn’t mean sacrificing everything fun in your life. With a combination of strategy, discipline, and smart financial planning, it isn’t impossible to reach your savings goal that will help achieve your homeownership dreams.

Homeownership comes with a lot of expected and unexpected expenses that many first-time home buyers may not fully anticipate. When setting a realistic monthly budget for a home, here are some things to include:

Before the home purchase:

• Down payment

• Closing fees and other legal costs. Which typically range from 2-5% of the property's purchase price. Closing costs usually include attorney fees, title fees, as well as inspection and appraisal fees.

After the home purchase:

• Monthly mortgage payments, which is recommended to keep at or below 25% of your after-tax income to stay on solid financial ground.

• Home Insurance

• Property taxes

• Homeowners association fees, if applicable

• Utilities

• Regular maintenance, such as lawn/yard care and seasonal upkeep

• Unexpected repairs, such as broken appliances, damaged windows, etc.

No matter how exciting, buying your first home is a complicated undertaking. Would you want to risk your hard-earned money and your sanity going through the process alone? Building a team of knowledgeable and reliable professionals can make all the difference. Here are some of the people you need in your corner to help you streamline the process and avoid unpleasant surprises down the road.

• Real estate agent

Working with a local and experienced real estate agent can make the home-buying process less daunting. They can provide valuable insights into the housing market, share information about your target neighborhoods, negotiate deals on your behalf, and guide you through the complex paperwork. Look for an agent who knows your preferred areas inside and out, understands your needs and unique circumstances, and has a solid track record of helping first-time buyers in your price range.

• Mortgage lender

Connecting with a trusted mortgage advisor will help you understand your financing options and give you a clear understanding of your buying power. Your lender will also help you track the best mortgage rate trends and explore tools to keep your mortgage payments manageable. A pre-approval letter from your lender also provides you with a clear estimate of how much you can borrow and shows that you're a serious buyer.

• Home inspector

Hiring an inspector who will thoroughly inspect the property’s condition will make sure that you can protect yourself from hefty expenses caused by unseen major repairs. They can easily uncover any hidden issues related to structure, electrical, or plumbing. The inspection results can help you and your realtor negotiate with the seller to either cover the costs of repairs, lower the home’s purchase price, or simply walk away from the transaction if the home is found to have some serious structural problems.

Other professionals that you may need in your team include: a financial advisor who will ensure you’re prepared for the financial responsibilities of homeownership, a home appraiser who will determine the value of the property for sale, and a real estate attorney who will review documents and agreements carefully for your peace of mind.

Finally, remember that any significant milestone in your life requires time and patience, including your journey to homeownership. Remember to set realistic expectations while staying committed to your goals. Be prepared for the ups and downs of the process, especially if you're in a competitive market where bidding wars are common and your offer might get rejected. Avoid rushing into a decision and trust that the right property that fits your needs and financial capability will eventually come along.