Want To Buy a Home in 2025? 11 Things You Need To Do Now
If you’re buying a home in the next year or so, there are many things you should start doing to prepare for the process. After all, homeownership is exciting but the process itself can be lengthy and complicated. The more prepared you are, the smoother — and potentially quicker — the process will be.
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From checking your credit and researching financing options to getting preapproved for a loan and finding the right lender, here are the top things you should do right now if you want to buy a home in the coming year.
Familiarize Yourself With the Terminology
If you’re not buying a home right away, you have some time to become familiar with the terminology. Many of these terms — like APR, interest rates, or prepayment penalties — can be confusing. By learning what these terms mean now, as well as how they might affect you, you can clear up any confusion early on.
Take your time to learn the difference between APRs and interest rates. Research the different loan terms and the advantages and disadvantages of each. Consider spending an hour or so a week learning about these things until you’ve got a clear understanding of them.
Check with sites like the Consumer Financial Protection Bureau (CFPB) for more information about the homebuying process and the commonly used terms.
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Build Your Credit Score
Having good credit is key to getting the financing you need. The better your credit score is, the better your approval odds will be. Plus, good credit can typically get you better rates and terms — all good things for your future self.
But if you don’t have good credit, now’s a good time to start improving it.
Make sure you pay your debts on time. Avoid applying for multiple new lines of credit or loans, especially if you plan to apply for a mortgage loan in the next year. Pay down any existing debts to reduce your credit utilization — that is, how much of your available credit you’re currently using.
You should also check your credit report to see which areas need the most work — and which are in good standing.
“Obtain a copy of your credit report and assess your credit score–a higher credit score results in better mortgage rates,” said Leo Peak, a realtor with Peak Family Real Estate Group. “If improvements are needed, take proactive steps to address any issues.”
You can get a free copy of your credit report at Annual Credit Report.
Lower Your Debt-to-Income Ratio
Your debt-to-income ratio, or DTI, is a percentage based on your debt obligations and income. You can calculate this by adding up your monthly debts — like your credit card payments and auto loans — and dividing that number by your gross monthly income.
Say, for example, you spend $1,500 a month on all monthly debts and earn $4,000 a month before taxes. Your DTI would be 37%.
The higher your DTI, the less likely a lender is going to want to lend you money. The reason for this is quite simple: The more of your money that’s tied to your other obligations, the less confidence a lender will have in you being able to pay back a new loan.
If your DTI is currently on the higher side, take this time to start paying off what you owe. Alternatively, you can increase your income as this will also lower your DTI.
“My advice would be to prioritize reducing debt obligations. It’s a common misconception among homebuyers that credit scores and income are the sole factors affecting their purchasing power. In reality, the debt-to-income ratio plays a substantial role in determining how much home one can afford,” said Michael J. Vestuto, real estate professional at Vestuto Realty Group — Platinum Real Estate Professionals.
Save Up For a Larger Down Payment
Different types of home loans have different requirements, but you’ll typically need to have some money for a down payment when applying for financing. The more you have saved up, the better your chances of getting the loan you need.
A larger down payment might also help you get a lower interest rate. And if you want to buy a more expensive home, paying more money upfront can increase your ability to do so.
“Building up a larger savings for your down payment will give you flexibility in how much you can buy, and may give you a cushion for unplanned expenses,” said Jay Zigmont, Ph.D., CFP®, Founder of Childfree Wealth.
If you’re getting a conventional home loan, you’ll also need a minimum down payment of 20% to avoid private mortgage insurance (PMI). This is an additional monthly or upfront expense — sometimes both — that’s designed to benefit the lender.
Research Different Loan Options and Terms
There are many types of home loans and repayment terms available, so do your research to see which works best for you.
Common mortgage loan types include VA loans, USDA loans, FHA loans, conventional loans, and jumbo loans. Each loan type has its own eligibility requirements.
For example, USDA and VA loans generally do not have a minimum down payment requirement. However, you’ll need to meet additional requirements to qualify. Conventional loans, meanwhile, often come with a low down payment requirement but cap out at $726,200 in many counties.
While reviewing your options, consider the repayment terms as well. The most common terms are for 15 or 30 years. This means you’ll pay back the loan over that period — unless you make additional payments and can pay it off early. You might find shorter terms as well.
Compare APR and Interest Rates
Each lender will set its annual percentage rates (APRs) and interest rates. The interest rate is a percentage of the loan. It’s essentially the cost of borrowing money from a lender. The APR includes the interest rate plus any additional fees.
Generally, the higher the rate, the more money you’ll be paying back in interest over the life of the loan. You can usually get a lower rate if you have a larger down payment, good credit, and a low DTI.
Another thing to keep in mind is that mortgage loans may come with either a fixed or adjustable rate. The interest rate on a fixed-rate loan never changes. An adjustable rate may fluctuate over time. The interest rate type can affect your monthly payment and whether or not it changes.
Set a Realistic Homebuying Budget
You should also set a clear homebuying budget based on your current and anticipated financial situation, as well as your future goals and needs.
“Next, focus on budget planning. Assessing how much house you can afford is more than calculating potential mortgage payments,” said Daniel Smith, CEO and Founder of Keepingly. “Buyers must account for additional expenses such as property taxes, insurance, maintenance costs, and any homeowners association fees that might apply. Comprehensive budgeting will give a realistic picture of what buyers can afford without stretching finances too thin.”
Consider Getting Preapproved
Preapproval gives you a clearer picture of what you might qualify for and at what rates. This can help you identify any weak points in your application that you can then fix.
Getting pre-approved isn’t a guarantee that you’ll get a loan. But it can show sellers that you’re serious about purchasing a home.
If you’re not worried about weaknesses in your application, you might want to wait to get preapproved until you’re closer to buying a home. That’s because any preapproval letter you get will typically expire after a few months. If you do it too early, you’ll need to repeat the process later.
Consider State Programs
Certain state programs are out there to make buying a home easier and more affordable. This includes down payment assistance and closing cost assistance programs. Many of these are geared toward low-income households or first-time buyers, but it doesn’t hurt to see what’s available.
Factor In Extra Costs
A down payment is only one expense in the homebuying process. You might also have to pay closing costs before you can finalize the transaction.
Other costs to consider include moving costs, minor maintenance or repairs, and new furniture or home decor. You’ll also generally need to purchase homeowners insurance.
Start preparing for these things now by setting aside a little extra money in your homebuying fund each month. That way, you’ll be ready to get a home when the time comes.
Find a Real Estate Agent or Broker
Having a real estate agent or broker at your side can make the process so much easier, so start researching your options now.
“Future home buyers will want to connect with a mortgage broker who can advise them on documents they will want to prepare,” said Marisa Simonetti, real estate professional with Simonetti Real Estate Team. “Home buyers don’t want to wait until the last second to have their dream home slip away from them.”
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