Preparing Your Finances for Homeownership

OVFCU helping homeowner with finances

Financing the purchase of property is often the biggest financial commitment for many people. Given the size of most mortgages and the length of the commitment, it’s wise to start getting your finances in order before you even begin looking at homes.

Being financially prepared not only boosts your chances of mortgage approval but can also lead to better loan terms and more affordable payments.

Build a Realistic Homebuying Budget

A good first step is determining roughly how much home you can comfortably afford. It’s important to keep in mind that the costs go beyond just the monthly mortgage payment. You also need to consider property taxes, homeowner’s insurance, utilities, and maintenance.

A common piece of advice is to keep your total housing costs under 28–30% of your gross monthly income.

From there, review your current income and expenses. If you haven’t already, now is a great time to build a monthly budget that includes savings goals and trims unnecessary spending. Use this budget to see how much you can reasonably set aside each month toward a future down payment and closing costs.

Start Saving Early (and Strategically)

Saving for a down payment takes time, especially if you’re aiming for a 10% or 20% down payment. Fortunately, not all home loans require large down payments. Some FHA loans allow as little as 3.5%, and VA or USDA loans may require no down payment at all if you qualify.

Having more money upfront can reduce your monthly payment and eliminate the need for private mortgage insurance (PMI). Although PMI can increase your monthly costs, it’s not necessarily permanent. Lenders automatically remove it once you’ve built enough equity (at least 22 percent), but you can also submit a formal request or refinance to get rid of it a little earlier.

Be sure to also factor in closing costs, which can range from 2% to 5% of the purchase price. Some people who are saving for a home purchase choose to set up a separate dedicated savings account, so they can easily track progress and be less tempted to spend those dollars.

Focus on Improving Your Credit Score

Your credit score plays a major role in your mortgage rate and loan approval. The higher your score, the more favorable your terms will be. Here are a few ways to improve it:

  • Pay bills on time – Your payment history is the most important factor in your score.

  • Reduce credit card balances – Aim to keep credit utilization below 30%.

  • Avoid new credit inquiries – Don’t open new credit lines or take on new loans in the months leading up to your application.

  • Check your credit report – Look for errors that could be dragging down your score and dispute them if needed.

Improving your credit takes time, but the payoff can be substantial over the life of a mortgage.

Manage Existing Debt

Before you take on a mortgage, it’s smart to reduce or eliminate as much existing debt as possible. High balances on credit cards or large car payments can raise your debt-to-income ratio (DTI), which lenders use to determine how much of your income is already spoken for each month. A lower DTI improves your chances of approval and helps you qualify for a larger loan or better rate.

Paying down debts can also free up room in your budget for future home expenses, like repairs or new furniture.

Avoid Major Financial Changes

It’s important to maintain stability in your finances in the months leading up to your home purchase. That means:

  • Avoid large purchases (like cars or expensive appliances) that could affect your savings or credit.

  • Keep your job stable, as a recent job change can raise questions for lenders.

  • Don’t close old credit accounts, as they help improve your credit age and utilization.

The goal is to show lenders that you've been a consistent, low-risk borrower for many years.

Apply for Mortgage Pre-Approval When You're Confident in Your Financial Situation

Once you’ve built up your savings, fine-tuned your credit, and know how much you can afford, getting pre-approved for a mortgage is the next step. Pre-approval helps you shop with confidence and shows home sellers you’re a serious buyer.

At Ouachita Valley FCU, we offer personalized guidance to help homebuyers in Monroe and the Ouachita Parish area understand their mortgage options. We’re always ready to help members take the next step toward homeownership with confidence. You can call us at 318.387.4592 for more information about our home loan options or to learn about becoming a member.

Brenda McMullen