There’s reason to believe that buying a home will be easier in 2025. Mortgage rates are expected to fall as the Federal Reserve continues on its path of cutting its benchmark rate. And once that happens, you may find that you’re more easily able to afford a home loan.
Plus, as mortgage rates fall, more people should be interested in selling their homes. Right now, real estate inventory is fairly low because homeowners who locked in ultra-affordable mortgage rates in 2020 and 2021 don’t want to give them up. But as mortgage rates drop, more homes could hit the market.
If you’re hoping to buy a home in 2025, now’s the time to set yourself up for success. Here are three essential moves to make that could set the stage for a home purchase in the new year.
1. Work on boosting your credit score
It generally takes a minimum credit score of 620 to qualify for a conventional mortgage. And lenders are allowed to impose a higher minimum for borrowers.
But the higher your credit score, the more likely you are to not only get approved for a mortgage, but also, snag an affordable rate on one. And if you shop around for a mortgage as a borrower with strong credit, you may find that you’re able to get plenty of offers that work for you.
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To boost your credit score, make a point to pay every bill on time, and try to reduce balances on your credit cards. Also, check your credit report for errors, because mistakes are more common than you’d think.
And you should know that it’s important to pull a copy of your credit report from each reporting bureau — Experian, Equifax, and TransUnion. It’s totally possible for each of your credit reports to contain different information.
And if even one contains a mistake that indicates you’re a less reliable borrower, like a late payment that isn’t legitimate, it could hurt your mortgage chances or leave you paying more to finance a home. Since those credit reports are yours to access for free, it pays to be thorough.
2. Try to reduce your overall debt
In addition to your credit score, mortgage lenders look at your debt-to-income ratio, or DTI, to determine whether you’re qualified for a home loan or not. The higher your DTI, the more of a red flag it raises.
A higher DTI tells lenders that you already have quite a lot of debt relative to your income. So if you’re able to reduce your debt, such as paying off credit card balances or personal loans, you can set yourself up to qualify to borrow for a home.
Typically, mortgage lenders want your DTI to be 36% or less — meaning, you spend 36% of your income or less on debt payments. You can get approved with a higher DTI, but beyond the low- to mid-40s, it gets tougher to qualify for a mortgage.
3. Save more for a down payment
In September, the median existing home sold for $404,500, says the National Association of Realtors. That’s a 3% increase from a year prior and the 15th month in a row when home prices rose on an annual basis.
Because home prices are elevated, it’s a good idea to bring more money to the table as a down payment. Doing so could mean lowering your monthly mortgage payments — and also, paying less interest on your mortgage overall. Also, if you’re able to put down 20% of your home’s purchase price at closing, you can avoid private mortgage insurance, which is an extra expense you’d otherwise have to deal with.
You may find that 2025 is a great time to purchase a home. But make these moves as soon as you can to increase your chances of not only getting approved for a mortgage, but snagging a loan you can comfortably afford.
