Getting Your Finances Ready Before You Start Your Home Search

This is Post 2 in our 6-part series on buying a home in a challenging market. Start with Post 1 here.

You've decided you want to buy a home. That's exciting! And it's the right first step. But before you start scrolling through listings or scheduling showings, there's something more important to do first: get your finances in order.

In a competitive market, buyers who are financially prepared move faster, feel more confident, and win more often. Every situation is different, and the best way to prepare is to meet with a local lender to learn the exact steps you need to take to get your finances ready to buy a home. 

Step 1: Know Your Credit Score

Your credit score is one of the most important factors in determining if you'll qualify for a mortgage and the interest rate you will receive.  Your interest rate has a massive impact on your monthly payment and total cost of the loan.

Here's a general picture of how credit scores affect mortgage rates:

• 760+ — You'll typically qualify for the best rates available
  
  
• 700–759 — Good rates, minor impact
  
  
• 640–699 — Higher rates, larger monthly payment
  
  
• Below 640 — May have difficulty qualifying for conventional loans
  
  

Check your credit score before you start your search. If your score needs work, a good lender can tell you exactly what to do to improve it and how long it will take. Sometimes, a few simple moves like paying down a credit card balance or disputing an error can make a meaningful difference.

Step 2: Understand How Much You Can Afford

A common mistake buyers make is starting with the question "How much will the bank lend me?" The better question is "How much am I comfortable spending every month?"

Your mortgage payment is just one piece of your monthly housing cost. Make sure you're accounting for:

• Principal and interest — What you're actually paying the mortgage company
  
  
• Property taxes — These vary by county and city. You can find the current Abilene tax rates here
  
  
• Homeowner's insurance — required by lenders to protect against the loss or catastrophic damage of the home. Rates vary depending on provider and location. Some areas in Abilene may also require you to have flood insurance.
  
  
• HOA fees — if applicable in your neighborhood. These are typically used to pay for the upkeep of common areas in the neighborhood (community pools, neighborhood entrances, etc.).
  
  
• Maintenance and repairs — You never know what could break in a home. It’s always smart to set some money aside in case a large repair need arises.

A lender can give you a maximum loan amount. Your own budget tells you what's actually comfortable. Both numbers matter. You don't want to be stuck in a situation where you are "house poor", meaning you can afford to stay in your house, but not much else!

Step 3: Save for More Than Just the Down Payment

Many buyers focus entirely on saving a down payment — and then get caught off guard by the other costs involved in buying a home. Here's what to plan for:

Down payment: This varies by loan type. Conventional loans typically require 3–20% down. FHA loans require as little as 3.5%. VA loans (for eligible military buyers) require $0 down. USDA loans also offer zero-down options for qualifying rural and suburban properties.

Closing costs: Generally, 2–5% of the purchase price. On a $250,000 home, that's $5,000–$12,500. These cover loan origination fees, title insurance, appraisal, and other transaction costs.

Moving expenses: Don't forget to budget for the actual move! You’ll have to consider the cost of movers, deliveries, and utility setups.

Cash reserves: Lenders like to see that you'll have money left in the bank after closing. Having 2–3 months of mortgage payments in savings strengthens your application.

Step 4: Get Pre-Approved — Not Just Pre-Qualified

There's an important difference between pre-qualification and pre-approval, and it matters a lot in a competitive market. 

Pre-qualification is a quick estimate based on information you provide. It takes minutes and doesn't require documentation. It's a starting point, and not much more.

Pre-approval is a thorough review by a lender of your actual income, assets, employment history, and credit. It results in a letter stating exactly how much you're approved to borrow. Sellers take pre-approved buyers far more seriously than pre-qualified ones.

In a competitive market, making an offer without a pre-approval letter is like showing up to an interview without a resume. Get it done before you start looking at homes.

Check out this blog post for a more in-depth comparison: Pre-qualification vs. Pre-approval: What's the Difference?

Step 5: Choose the Right Loan for Your Situation

There are several mortgage types available to buyers, and the right one depends on your situation:

• Conventional loan — Most common; good for buyers with solid credit and a 3–20% down payment
  
  
• FHA loan — Lower credit score and down payment requirements; good for first-time buyers
  
  
• VA loan — Exclusively for eligible active duty, veterans, and surviving spouses; no required down payment, no PMI, competitive rates
  
  
• USDA loan — Zero down payment for properties in eligible rural and suburban areas; strict household income requirements. 
  
  
• Texas-specific programs — The Texas State Affordable Housing Corporation (TSAHC) and Texas Department of Housing offer down payment assistance programs for first-time buyers and qualifying buyers
  
  

Not sure which loan is right for you? We work with trusted local lenders every day and are happy to connect you with someone who can walk you through your options.
For more in-depth breakdowns, check out this blog post: Different Types of Mortgages: Finding the Right Fit for Your

You're More Ready Than You Think

Many buyers put off starting the home-buying process because they don't feel financially ready. Sometimes that's accurate — and it's good to know where you stand. But often, buyers are closer to ready than they realize.

The only way to know for sure is to have an honest conversation with a lender and a real estate agent you trust. That conversation is free, there's no obligation, and it gives you a clear picture of exactly where you stand.

We're happy to be that starting point. Give us a call.

Next in the series: How to Find the Right Home Without Losing Your Mind 

Previous in the series: What Does a "Challenging Market" Really Mean for Home Buyers in Abilene, TX?

Have questions about financing?

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