Buying a home is one of the largest financial investments most people ever make. Signing the bottom line on a mortgage agreement may feel like a leap — especially for first-time buyers. But by taking several small, strategic steps beforehand, you can be sure your finances are home-ownership ready. Check out the following tips from Rate on how to financially prepare for purchasing a home: 

1. Start with a mortgage review
   Schedule a quick call with a mortgage specialist. They can help you evaluate whether pursuing a home now makes sense, based on self-reported indicators of your financial health like your credit score, employment history, total savings, current debt and projected future expenses. This informal prequalification process will help you walk away with a better sense of the home purchase price you’ll likely be able to afford.
2. Maintain a healthy credit score and steady employment
   You can quality for a home loan with a credit score as low as 580. If red flags pop up during the mortgage review regarding your current credit score or employment history, take some time to focus on shoring up these key mortgage-readiness factors. The effort will be worth it: Borrowers with secure employment and strong credit can typically secure the lowest available home mortgage interest rates.
3. Seek mortgage loan preapproval
   Before placing an offer on a property, be sure to obtain a mortgage preapproval. Typically valid for 90 days, preapproval documents formally outline the maximum loan amount you’re eligible to borrow, along with your approved interest rate. This process takes a bit of planning, as it requires sharing documentation including bank statements, tax returns, credit statements and employment pay stubs. On the upside: Having preapproval in hand before you find a property you love helps avoid unnecessary lag times during home bidding. Plus, it signals to sellers that your offer is pre-vetted and financially sound.
4. Strive for a healthy debt-to-income ratio
   Be careful not to over-extend on your home purchase. Opting to buy a property priced under your maximum pre-approved loan amount can be a smart way to ensure you have enough financial wiggle room to comfortably cover your other monthly expenses. Lenders often recommend spending no more than 50% of your gross monthly income on housing costs.
5. Explore custom mortgage products
   Work with a mortgage specialist to find the specific mortgage product that best matches your financial needs. Typically there are many loan options available, from fixed-rate and adjustable-rate mortgages to Federal Housing Administration (FHA) loans for first-time homebuyers and jumbo loans for strong-credit buyers in certain high-cost living areas. By partnering with a lending expert, you can find the right fit for your current home buying goals.
6. Avoid interest rate limbo
   Many would-be homebuyers are currently sitting on the market sidelines, waiting for mortgage rates to fall — something that may or may not happen. While current mortgage rates of around 6.8% for a 30-year loan might feel high compared to the 3% or 4% rates available during the pandemic, they’re still under the historic average of 7.75%. Meanwhile, rent rates continue to rise, and renting leaves you without any equity. Don’t lose years of home equity building power in pursuit of lower borrowing rates. If you find a home you love and can afford, make an offer. You can always refinance in the future if rates drop.

Purchasing  a home is one of the largest financial investments that you will ever make. Make sure that you are financially prepared and explore the different options available to you as you get ready to purchase your new home.