Financial Readiness and Budgeting for Homeownership

Down payment is only part of the cash equation. You also need closing costs, prepaid homeowner's insurance, prepaid property taxes into escrow, and a reserve for anything that comes up in the first few months of ownership.

The exact amounts vary by loan type and purchase price. Your lender will give you a Loan Estimate early in the process that spells out every dollar. Do not rely on rough guesses -- get that document and read it.

Lenders pull all three bureaus (Equifax, Experian, TransUnion) and typically use the middle score. Different loan programs have different minimum score thresholds, and a higher score often means a better interest rate.

Beyond the score, lenders look at payment history, total debt load, how long accounts have been open, and recent hard inquiries. If your score needs work, most loan officers can walk you through a rapid rescore or a 60-to-90-day improvement plan.

Your debt-to-income ratio (DTI) compares your monthly debt obligations to your gross monthly income. Lenders look at two versions: front-end DTI (just the new housing payment) and back-end DTI (housing plus all other debt).

Each loan program has its own DTI limits. The best thing you can do before you apply is pay down revolving debt and avoid taking on new installment loans. Even a modest reduction in monthly obligations can shift what you qualify for.

Get pre-approved before you search, not after. Your approval amount is a ceiling, not a target. Factor in property taxes (Maricopa County rates vary by city), HOA fees if applicable, homeowner's insurance, and utilities before you decide what monthly payment is actually comfortable.

I tell buyers to run two numbers: the maximum the lender will give you, and the payment that lets you still sleep at night. Those two numbers are rarely the same, and the second one is the one that matters.