How to Get Financially Ready to Buy a Home

You’ve dreamed about your first home for years. A place to call your own, your name on the mailbox and keys in your hands.

But before you can kick off your shoes and enjoy home ownership, you’ll first need to navigate one of the most complex financial decisions you’ll ever make. From mortgage terms to credit checks to closing costs, the process can feel like a maze, especially if you’ve never done it before.

To help you move forward with confidence, we’ve broken the home-buying process down into three distinct phases: preparation, finding the right home, and making the purchase. Each phase comes with its own set of important decisions and potential pitfalls — and this guide is here to walk you through them.

To start, let’s look at getting financially ready: checking your credit, setting your budget and building the foundation you’ll need to buy with confidence.

Get your finances in order
Falling in love with a home is easy, but being financially ready to buy requires some groundwork. Unfortunately, many first-time buyers jump straight into listings, only to hit a wall when it’s time to apply for a loan. Getting your finances in order early helps you avoid financing and loan approval issues, and puts you in a much stronger position when it’s time to make an offer.

Before you set your sights on the perfect place, take time to check your credit, understand how much home you can realistically afford and start saving for upfront costs. It’s not the most glamorous part of the journey, but it’s what makes the rest possible.

Check your credit score
Your credit score plays a major role in whether you qualify for a mortgage and what interest rate you’ll get. The higher your score, the better your terms are likely to be. Lenders use your score to evaluate how risky it is to lend you money, so even small improvements can make a big difference.

Here’s how to get started:

• Request your free credit report from a reputable source.
• Review it for errors. Incorrect account info or outdated records can drag down your score.
• Improve your score by paying down debts, making on-time payments and avoiding new credit applications before you buy.

And if your score is lower than expected, don’t panic. Many first-time buyers need time to strengthen their credit before applying. Your Relationship Manager at Comerica can help you understand your scores and what steps to take next.

Calculate how much home you can afford
Before you start house hunting, it’s important to understand what fits comfortably within your budget — both now and in the long run.

Lenders use a debt-to-income (DTI) ratio to help determine what loan amount they feel comfortable lending you based on your monthly financial obligations. This number gives you and your lender a clearer picture of what you can afford without stretching too much.

Here’s how it typically works:

DTI compares your monthly debt payments to your pre-tax monthly income. For example, if you earn $5,000 per month and pay $1,500 toward debts like student loans, car payments, or credit cards, your DTI is 30%. This is within the range many lenders look for.

But mortgage payments aren’t the only costs to plan for. Be sure to also factor in:

• Property taxes and homeowner’s insurance
• HOA fees (if applicable)
• Utilities
• Maintenance and repairs

As a general guideline, many financial experts recommend keeping total housing costs below 30% of your pre-tax income.

Start saving for upfront costs
Many first-time buyers are surprised by the range of upfront expenses. Planning ahead can help you avoid last-minute stress or delays when it’s time to make an offer.

Here are some key costs to budget for:

• Down payment. Depending on your loan type, this ranges from 3% to 20% of the home’s purchase price.
• Closing costs. Typically, it is 2% to 5% of the home price. These cover lender fees, title insurance, appraisal fees and more.
• Moving expenses. Don’t forget the cost of movers, rental trucks, packing supplies, and utility setup.
• Emergency fund. Even after closing, unexpected repairs or maintenance can pop up. It’s smart to set aside funds so you’re not caught off guard.

Consider keeping your home-buying funds in a high-yield savings account or flexible-rate CD. These options help your money grow while keeping it accessible when you need it.

Get pre-approved for a mortgage
Once your finances are in order, getting pre-approved is the next best step.

A mortgage pre-approval is a letter from a lender outlining how much you’re qualified to borrow, based on an initial review of your financial information. It gives you a realistic price range to shop within and shows sellers that you’re a serious, qualified buyer.

To get pre-approved, your lender will typically review:

• Proof of income (recent pay stubs, W-2s or tax returns)
• Proof of assets (bank and investment account statements)
• Employment verification
• Credit history
• Debt-to-income ratio

Comerica can help you explore different loan types and determine what best fits your budget and long-term plans.

Reach out to our Mortgage Lending team at Comerica and talk with one of our representatives to get started with your home buying journey.

Already searching for your home? Check out our next article in the series for finding and inspecting the right home. We break down what to look for at open houses, how to evaluate neighborhoods and when to bring in a professional.