April 1, 2025 | Sexton Real Estate Group
Saving for a down payment can be a challenging endeavor. High debt-to-income ratios and increasing interest rates add to the difficulty. Most Americans would find it difficult to save for the average 20% down payment. Without adequate preparation, this goal is a daunting one to accomplish.
Monthly debts, no matter the type, such as student debt or credit card debt, play into mortgage eligibility through a limited amount of disposable income. As interest rates continue to be volatile, affordability in the long term will be even more difficult to obtain without adequate loan terms.
By recognizing these roadblocks, you’ll know what to expect and be better equipped to overcome these financial hurdles on your path to homeownership. In this field guide, we’ll explore real-life strategies for overcoming these roadblocks and getting on the path toward homeownership.
Key Takeaways
- Not surprisingly, saving for a down payment is the biggest obstacle. Plan achievable savings milestones, research down payment assistance programs, and seek other funding sources such as family contributions.
- That’s why managing debt is vital. Focus on paying off high-interest debt first. Work on consolidating debts to make repayment easier. Create a dent in your monthly debt payments while considering a mortgage payment.
- Keeping a good credit score will open more doors to different types of financing. Check your credit report for mistakes, raise your score before applying, and establish good credit practices.
- Know all the costs of homeownership. In addition to the mortgage payment, factor in taxes, insurance, maintenance, utilities, and any emergencies, too.
- Pre-approval makes you a more powerful buyer. Compile your financial documents, know your financial parameters and uncover any potential roadblocks to afford homeownership before it’s too late.
- Maintain an unbiased perspective, determine what you need, and closely research communities and prospective homes to set yourself up for success.
Pre-Approval: First Step to Home Buying
If you’re thinking about buying a home, the first step should be getting pre-approved for a mortgage. It’s more than a formality, it’s the vital first step in the entire process. Getting pre-approved provides you with a clear financial picture on your affordability.
It communicates to sellers that you’re a serious buyer. The lender has essentially issued you a short-term green light. This approval typically is good for 60 to 90 days and is contingent on a full review of your financing.
Why Pre-Approval Matters
Pre-approval clarifies your budget by showing what loan amount you qualify for, helping you narrow your search to homes within reach. Sellers usually prefer offers from pre-approved buyers because it indicates you’ve already passed one crucial financial test.
This can make for a more rapid closing process since much of the necessary verification is already completed. Getting pre-approved helps spot future financing hurdles ahead of time, allowing you to resolve problems—such as waiting a few months to boost your credit score.
One thing’s for sure—a high credit score of 760 or above will save you thousands each year in interest. The lower the score, the more you pay every month.
Gather Financial Documents
The pre-approval process involves a deep dive into your overall financial picture. Essential documents include:
- W-2 wage statements and/or tax returns for the last two years
- Most recent pay stubs, which should include gross income and year-to-date income
- Bank statements from all accounts
- Proof of additional income, such as bonuses or alimony
Keep in mind that lenders pull your credit report, and they will recheck this right before closing. Getting these documents in order ahead of time helps set the stage for a seamless process and makes you a more attractive buyer.
Avoid Emotional Home Buying
A home is probably the largest single purchase you’ll ever make—and it’s hard to make a rational decision when emotions get involved. As such, feeling excited is only to be expected. Keeping your head on straight will save you from making rash decisions that undermine your long-term goals and financial stability.
To prevent them from pulling you off track, you want to have a plan and a set of objective criteria established from Day One.
Stay Objective, Analyze Needs
Create a list of your needs and wants vs. What would be nice to have. Your must-haves might be a minimum number of bedrooms, close to your place of work, or in a particular price range. Nice-to-haves might include a big backyard or hardwood floors.
Continue to hone in on your list as you view homes. Avoid emotional attachments like the lovely curb appeal or colorful, Pinterest-style décor knocking you off course.
Give yourself time to decompress after each property showing. Ask yourself: Does it meet my must-haves? How does it stack up against the others I’ve looked at? The method leaves room for you to make considered decisions instead of emotional ones.
Below are some questions to guide you:
- Does the home fit within my budget comfortably?
- How does the layout work for my daily routine?
- Are there any costly repairs or updates needed?
Don’t Overlook Neighborhood
Your surrounding area helps determine your quality of life. That neighborhood, and everything that comes along with it. Visit the neighborhoods you’re interested in and do your homework on schools, public transportation, and nearby amenities.
Try to visit at a variety of times to get a sense of traffic, noise, and safety. Key features to assess include:
- Crime rates and safety.
- Proximity to amenities like grocery stores or parks.
- Future property value trends.
Shop Around for Mortgage Lenders
Choosing the right mortgage lender is one of the most important parts of the home-buying process. Negotiating a better mortgage rate can save you thousands of dollars over your loan’s life. Taking the time to compare lenders, understand loan terms, and ask detailed questions ensures you’re making the best financial choice.
Compare Rates and Terms
Mortgage rates and terms can vary widely from lender to lender. Line up quotes from a minimum of three to five lenders to help frame your search for the best fit. Just one more quote can help you save an average of $1,500, and five more quotes could save you $3,000.
That’s why understanding interest rates is such an important part of your mortgage decision. Consider whether a fixed or adjustable-rate mortgage makes more sense for your long-term financial goals. With fixed rates your monthly payments stay the same, but with adjustable rates your payments start lower but will change as interest rates rise and fall.
Don’t just look at rates—compare loan terms like repayment periods and closing costs. Compare all mortgage fees using the standardized Loan Estimates and negotiate at every stage. A bullet list of factors to compare includes:
- Interest rates and APR
- Loan terms (15, 20, or 30 years)
- Closing costs and fees
- Prepayment penalties
Understand Loan Options
One size does not fit all. Loans are like clothes—different loan types fit different situations. FHA loans, for example, require a minimum down payment of just 3.5% with a 580 credit score.
Conventional loans can provide more favorable terms for borrowers with solid credit scores. Go over your options with a loan officer to see which one will work best with your financial goals. Here’s a quick breakdown:
- Lower down payments, more accessible for first-time buyers.
- Conventional Loans: Typically better rates, higher credit requirements.
- Exclusive to veterans, often with no down payment.
Protect Your Credit Score
Your credit score will greatly impact whether you qualify for a mortgage and what kind of terms you’ll get. Lenders use this number to determine how healthy you are financially, so protecting your score is critical. Understanding how your credit score is impacted and taking proactive steps to maintain it can make a big difference when you’re ready to buy a home.
Monitor Your Credit Score Regularly
By keeping an eye on your credit score, you can avoid any unexpected surprises when the time comes to apply for a mortgage. Ongoing monitoring allows you to identify and respond to mistakes or fraudulent account activity as soon as possible.
Whether it’s through the free credit reports offered by AnnualCreditReport.com or alerts from any of the apps that monitor your credit, these services can help you stay informed. By carefully looking at your report, you’ll be able to make sure that all accounts listed are accurate and dispute any errors in information in a timely manner.
Avoid New Credit Applications
Yet applying for new credit cards or loans can drop your credit score in the short term. When lenders check your credit for new applications, they conduct hard pulls.
These inquiries are considered hard inquiries and can drop your score by several points. Instead, focus on taking good care of the credit you already have. For example, if you find you need more money, explore other options such as using savings or cutting back on discretionary spending.
Alternatives to new credit:
- Cash-back rewards or loyalty point programs can help you make purchases you need without costing you additional money.
- Only borrow from family members or friends you can trust to lend money — and who will establish clear repayment terms.
- Take stock of any underutilized assets you should offload to reduce budgetary pressure.
Pay Bills On Time
That’s because timely bill payments are one of the most important factors in determining your credit score. After all, late payments can remain on your credit report for over 7 years, hindering your chances of obtaining a mortgage.
Put calendar reminders in place or use automatic payments through your bank to make sure you don’t miss a due date. In addition, make a habit of reviewing your credit report to confirm that all of your payments are being properly reflected.
Strategies for better bill management:
- Consolidate due dates to align with your pay schedule.
- Keep an emergency fund to cover unexpected bills.
- Use budgeting apps to track upcoming payments.
Pace Yourself, Don’t Rush
Shopping for a home is a big financial commitment, and moving slowly will help arm you with the tools to make smart choices. Moving too quickly in the process can cause buyer’s remorse. This is even more so the case when those unforeseen costs appear or the home just doesn’t work for you.
In fact, Bankrate’s recent report found that 56% of aspiring homeowners can’t save enough for a down payment. They reported high costs of living and lack of income as their top barriers. Considering all that’s at stake, pacing yourself means you won’t take on an avoidable financial burden.
Thoroughly Inspect Properties
A real estate professional’s inspection is not optional. It helps uncover lurking issues such as structural damage or outdated electrical systems that could run you into the thousands to repair down the line. When you are visiting properties, be on the lookout for even clear signs of aging.
Check for signs of issues like cracks in the walls, water stains, or broken appliances. Consider using the leverage of harsh inspection reports to prepare for negotiations and push for repairs or ask for a price reduction. Failing to take this important step now can lead to thousands of dollars spent each year on maintenance, taxes, and insurance, wreaking havoc on your family’s budget.
Key areas to inspect:
- Roof and foundation condition
- Plumbing and electrical systems
- HVAC functionality
- Signs of pest infestations
Review All Documents Carefully
Taking the time to carefully read all mortgage and legal documents thoroughly before signing is crucial. Make sure you read all the terms, especially interest rates and penalties, to avoid unexpected consequences.
When clarity is missing, flexibility in the finances of a household can be lost, leading to the accumulation of more debt. File all materials properly to refer back to them as needed.
Key documents to review:
- Loan agreements
- Title reports
- Purchase agreements
- Closing disclosures
Calculate Affordability Realistically
Realistically calculating what you can afford is key to overcoming financial hurdles when purchasing a home. So it’s really not about the price tag. It’s about making a budget that you can actually live by, one that works in concert with your lifestyle and income.
Simplifying the process into smaller steps makes it easier to understand and more importantly keeps you from unexpected surprises.
Factor in All Monthly Expenses
Affordability is more than just the mortgage payment. Property taxes, homeowners insurance, and routine maintenance are costs that come with the territory that you must work into your monthly picture.
For example, let’s say a $300,000 home is expected to have per year property tax bill around $3,000. That works out to only $250 per month in total.
Consider utilities, including electricity, gas, water, and internet. Together, these can contribute to an increase of $300–$500 or more on a monthly basis, depending on where you live and how you use energy.
It’s smart to put money aside every month for emergency repairs like a new water heater or roof repair. A buffer of $100-$200 a month can absorb these surprises without breaking the bank.
Expenses to include in your calculations:
- Mortgage payment (principal and interest)
- Property taxes
- Homeowners insurance
- Utilities (electricity, gas, water, internet)
- Maintenance and repairs
- HOA fees (if applicable)
- Emergency fund contribution
Use Online Affordability Calculators
Online calculators make it easy to estimate affordability at the click of a button. Avoid overly simplistic measures. Use tools such as NerdWallet’s Home Affordability Calculator and Zillow’s affordability tool.
Just enter your income, debts, and down payment to find out what you can really afford! Run the scenarios you want to explore, like interest rate fluctuations, to see what would happen if that occurred.
We found that cross-checking results from several different calculators will help you feel certain your numbers are accurate.
Plan for Upfront and Hidden Costs
When purchasing a new home, it’s important to plan for up-front and hidden costs to avoid financial stress down the road. Beyond the initial purchase price, these costs dramatically affect your budget over the long-term.
Estimate Moving Expenses
Relocating and establishing your new home takes more than just the moving truck. Hiring professional movers or renting a truck can cost several hundred to thousands of dollars, depending on the distance and size of your move.
Packing materials—boxes, tape, packing paper, bubble wrap—can be a considerable cost as well, especially for larger households. Be sure to factor in utility connection fees and deposits. This includes your electricity, water, and internet services at your new address.
Key moving expense categories to consider:
- Movers or truck rental fees
- Packing materials and supplies
- Utility deposit and connection fees
Account for Property Taxes
Property taxes can be a huge portion of your monthly housing costs. Look up tax rates as you’re exploring your desired neighborhoods, since these can differ drastically.
Be aware that property taxes may go up in the future as a result of market reassessments or local action.
Resources for property tax information:
- Local county assessor’s office
- Online tax calculators
- Real estate professionals
Budget for Homeowners Insurance
Homeowners insurance is important to protect this investment and is an unavoidable cost. Premiums are usually between 0.25% and 1% of your home’s full value—per year.
Shop around to see which providers offer you competitive rates and the level of coverage you need.
Key considerations for homeowners insurance:
- Coverage limits and exclusions
- Deductibles and monthly premiums
- Discounts for security systems
Prepare for Maintenance and Repairs
Routine maintenance, whether it’s HVAC maintenance or gutter cleaning, helps avoid damage and unnecessary deterioration. Budget for sudden expenses, like a roof leak or refrigerator stop working.
Common maintenance costs to budget for:
- Lawn care and landscaping
- Pest control services
- Annual system inspections
Conclusion
For these households, purchasing a home may seem like an insurmountable jump. With some thoughtful planning and a strong vision of your goals, you can avoid making it overwhelming. Know where you stand financially, be realistic with your budget, and don’t be afraid to look at all your available loan options. Repair, maintain, and protect your credit to prepare yourself for homeownership! It’s not just about finding the perfect house—it’s about making sure you’re ready for the financial commitment that comes with it. Each move you make today—from getting pre-approved to knowing what you can afford—prepares you for an easier journey tomorrow. Homeownership doesn’t have to be intimidating—especially if you come into it with the right perspective. Invest the energy to be thoughtful and strategic, and you’ll be primed to go big. Looking to learn more about the home buying process? Begin with your first action step.
Frequently Asked Questions
What are the most common financial roadblocks to buying a home?
The biggest barriers are low credit scores and lack of savings for a down payment. Furthermore, high debt-to-income ratios and unforeseen upfront costs are major financial hurdles. Planning ahead and budgeting for the unexpected can go a long way toward surmounting these obstacles.
Why is pre-approval important when buying a home?
Pre-approval demonstrates to lenders and sellers you’re committed. Beyond assisting with your budget, it saves you time and energy while making your eventual offer more competitive in the current housing market.
How do I avoid emotional home buying?
Create a plan and follow it. Know the difference between what you need and what you want. Emotional decisions can cause you to put in higher offers or purchase a home that doesn’t make sense financially.
Why should I shop around for mortgage lenders?
Not all lenders provide the same rate and terms. By shopping around, you can save tens of thousands over the life of your mortgage. It’s the only way to ensure that you get the right deal for your financial circumstances.
How can I protect my credit score when buying a home?
Continue to pay bills on time, don’t open any new lines of credit, and keep credit card balances low. Having a good credit score will help you obtain the best mortgage rates.
What costs should I plan for aside from the down payment?
Be prepared for closing costs, home inspection visits, property taxes, and insurance—not to mention any repairs and renovations you want to do. Those hidden costs can be hefty, so be sure to include them in your house budget.
How do I calculate how much home I can afford?
Use the 28/36 rule: Spend no more than 28% of your income on housing and no more than 36% on total debt. This prevents them from being financially stretched.
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With over 25 years of experience in the real estate market, our team of dedicated agents is committed to helping you find the perfect home. From the vibrant urban neighborhoods of Oakland to the peaceful suburbs of Lafayette, we are here to match you with the right property and guide you through every detail—from your first tour to the final paperwork.
Ready to take the first step toward homeownership? Contact us today for your free consultation, and let Sexton Group Real Estate help you make your dream home a reality!
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