How to Financially Plan for Your First Home Purchase

Are you wanting to practically start planning for a home purchase? We’ve got you covered – from down payments to debt repayment – we’ve outlined just how you can start setting goals that can make your homeownership dreams a reality.

Ready for a change in your living situation or tired of renting? Is your family growing, or do you just want a place that feels more like your own? If so, you may be looking to buy your first home. Congratulations! But before you purchase your home, it helps to prepare financially. If you’re not sure where to start, we are here to help!

For those purchasing a home with someone else, we’ll walk you through those initial conversations to have with your partner or loved one. Plus, we have focus points that can help strengthen your finances before you buy your new home, such as: budgeting, building your credit score and reducing current debt. The more you prepare and manage your finances before you buy your first home, the easier the road to achieving your dream of homeownership becomes!

Let’s jump in!

Money Conversations with Your Partner

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With whatever family dynamic you have, you’ll need to work together. Talking about buying a home can feel heavy as it’s the biggest investment most people make. But it’s important to plan ahead with your partner or loved one so you can enter the process as prepared as possible.

If you haven’t discussed finances in depth with them, this is a great time to dig a little deeper. Think about questions for your partner and yourself like):

  • Is there space in our budget to buy a home?
  • What’s our combined income per month, per year?
  • How much debt are we willing to take on?
  • How much debt do we already have?
  • How will our credit histories play into getting a home loan?
  • What does our savings look like?
  • What does our work history look like? Will our jobs change soon into purchasing?

Make sure you pick a relaxed time to have these conversations. You could talk over dinner or a board game. If you have kids who are younger, try getting a babysitter or asking a friend or family to watch them so you can really dial in.

Now, let’s look at some ways you can financially plan for a home purchase.

Budgeting for Your Home Purchase

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One of the best places to start is with how much you can realistically afford to pay on your house every month and still have money to spend on other expenses. It’s recommended for a mortgage payment to be below 36% of your monthly income. If you want to give yourself some room for things like unanticipated expenses, you might try to estimate an ideal mortgage payment at 28%.

Thinking through this may have you wanting to update your budget or combine it with someone else. If so, check out this interactive budget worksheet where you can plug in numbers, and it does the math for you! You can also check out our monthly mortgage payment calculator so you can estimate what you can afford and what your monthly payment may be.

Next, let’s look at saving up for a down payment. A good tip to prepare for buying a home is to have a savings goal for your down payment like saving a small and specific amount every month. It’s much easier to build up a down payment than trying to save one all at once. Consider choosing an amount you’d like to aim for that correlates with your home budget (Ex: $5,000 for a $80,000 home). You’ll need time for saving, so set your expectations according. At least a year is usually ideal, but if you’re focused you can make most anything work. Lastly, calculating your current debt-to-income (DTI) ratio will also help. DTI estimates how much of your gross monthly income (your money coming in) is going toward your monthly debt (your money going out, specifically to debt payments). When you apply for a mortgage loan, your debt-to-income (DTI) ratio is one of the items used to see what loan amount you qualify for. So, knowing ahead of time what your DTI is can help you prepare. All you need to do is add up your monthly debt payments and divide that by your gross monthly income (GMI).

Monitoring and Raising Your Credit Score:


When you think of applying for a loan, your first thought probably goes to your credit score. It’s a good idea to take a look at your credit score through a free credit report online before you apply. This will give you a basis of what you are working with. Credit scores directly impact the type of loan and the interest rate attached to a mortgage.

Things that can affect your credit include:

  • Payment History
  • Amounts Owed
  • Length of Credit History
  • New Credit
  • Types of Credit Used

Furthermore, let’s look at building your score as a first-time homebuyer. To begin, if you don’t have credit score we’ve got some info to help you get started. You’ll need to give yourself ample time if this is your situation, but you can do it! If you’re building on an already established score, focus on building your credit with a goal in mind. Maybe you make a goal of 30 points. Then focus on ways to get there like:

  • Paying credit bills on time each month.
  • Staying within your credit limit.
  • Pulling your report and checking for errors.

As you begin to implement these actions with your credit, you’ll see positive change over time. Putting in work on your credit will also help you when reducing debt and vice versa.

Managing Your Debt

Before buying a home, it’s important to reduce any delinquencies, such as late payments or accounts that are in collection, that appear on your credit report. Other common types of debt are car notes, student loans, or credit card debts.

The best place to begin is with a goal and a strategy. Say you want to pay off $1,500 in debt over 6 months. You might have that debt in a variety of places. So, to achieve your goal you might choose to use the two main debt repayment strategies:

  • By highest interest rate (debt avalanche strategy)
  • By smallest debt cost and working up (debt snowball strategy)

You certainly aren’t limited to these styles. You could mix them or do something that works better with your income and situation. The point is just to start seeing movement in your debt. Even if it’s small, it matters. Most people have debt, there’s nothing wrong with that. You just want to have a track record that shows lenders you are timely in your repayment, especially when it comes to purchasing a home.

Following these tips to get your finances ready for your first home purchase will set you on the path toward your homeownership goals. Once you’ve got these items organized and you’ve worked on them for a while – consider these questions before you buy!

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