Step 1: Financial Readiness Checklist
- Emergency fund: 3–6 months of expenses in a separate HYSA (fully funded before proceeding)
- Down payment: 5–20% of target home price saved (separate from emergency fund)
- Credit score: 680+ for reasonable rates; 740+ for best rates
- Stable income: 2+ years in the same field; income sufficient for 28–30% PITI/gross
- Debt-to-income: total monthly obligations < 43% of gross income with the new mortgage
Buying a home without a funded emergency fund is one of the highest financial risks first-time buyers take. The first year of homeownership is when maintenance surprises are most likely (inspection didn’t catch everything). Without an emergency fund, a $6,000 furnace failure becomes immediate credit card debt.
Step 2: Market Research
Calculate your local P/R ratio: current median home price ÷ (median comparable rental × 12). Under 15: proceed. 15–20: careful analysis needed. Above 20: strong case for renting and investing.
Step 3: Run the Calculator
With specific homes in mind, run the full calculator. Enter: realistic purchase price, your down payment, current rate, equivalent rental cost, expected tenure, local appreciation rate (use conservative: 3–4%), and investment return on the alternative (7%).
Step 4: Get Pre-Approved (If Buying)
Pre-approval (not just pre-qualification) requires: submitting tax returns, pay stubs, bank statements, and getting an actual credit pull. Pre-approval gives you a realistic maximum loan amount and makes offers credible to sellers.
Step 5: Budget All Costs Before Committing
Before making an offer: budget monthly PITI + property taxes + insurance + estimated maintenance. If this total exceeds 32% of gross income, you’re stretching. Budget 3–6 months of this full amount as an additional reserve beyond your emergency fund.
Start with Step 3 — Run the Calculator
The calculation is the foundation of the decision. Get it right before anything else.