What You Need to Buy a House in 2025

Buying a home is a huge milestone, but without the right preparation, it can quickly become a complicated and overwhelming process. Whether you’re a first-time buyer or returning to the market, knowing exactly what you need to buy a house this year can help you save time, money, and avoid unnecessary stress. 

So if you’re eyeing a townhome in Los Angeles, a family home in Dallas, or even a high-rise condo in Miami, being fully prepared can help get you into your next dream home with ease. From building a strong credit score to securing financing and gathering the right documents, each step is crucial to your success. This guide will break down what you need to buy a house in 2025, so you can make informed decisions and confidently step into homeownership.

What to expect for the 2025 housing market

Understanding the predictions for the 2025 housing market is a key part of preparing what you need to buy a house this year. With rising mortgage rates, fluctuating inventory levels, and climate-driven factors influencing home prices in certain regions, staying informed about market trends can help you navigate the homebuying process with greater confidence and clarity.

Home prices will steadily rise throughout the year

Home prices are projected to rise by 4% in 2025, continuing the steady growth seen in late 2024. This is due to continued demand outpacing limited inventory, meaning buyers may face higher prices as the year progresses. If you’re planning to buy, it could be wise to act sooner rather than later to avoid further price increases.

Expect mortgage rates to remain close to 7%

Redfin predicts rates will stay in the high-6% range, averaging around 6.8% throughout 2025. These higher rates are likely to continue, making homeownership more challenging for many buyers. While there’s a chance mortgage rates could dip into the low-6% range if economic conditions change, only time will tell. If you’re serious about buying in 2025, knowing what you need to buy a house and factoring in current mortgage rates is essential as you move forward.

We’ll see more home sales this year than in 2024, but it will also be a renter’s market

It’s predicted that home sales will rise in 2025, increasing anywhere from 2% to 9% year-over-year, driven by pent-up demand despite high housing costs. For buyers, this could mean steady competition as more people re-enter the market. Meanwhile, rents are expected to remain flat, and rising wages could make renting a more affordable alternative. Understanding these predicted trends can help you decide whether to buy a home or rent this year.

Is now a good time to buy a home?

Whether 2025 is a good time to buy a home depends on your personal situation and goals. Mortgage rates are expected to stay in the high-6% range while home prices continue rising, keeping affordability challenging. However, waiting for rates to drop could lead to more buyer competition and price increases. If you’re financially ready, buying now could help you secure a home before market pressures grow. Renting may still be a better short-term option for those prioritizing savings, as rents are expected to remain stable while wages rise. Ultimately, understanding your needs and the market can help you make the best decision.

Here’s what you need to buy a house in 2025:

1. Ensure you have a qualifying credit score and improve it if needed.

When it comes to buying a home, your credit score is one of the most important factors lenders consider. It plays a key role in determining the interest rate you’ll be offered, which directly impacts your monthly mortgage payments. Generally, a higher credit score—typically 740 or above—will help you secure the best mortgage rates and terms. However, you can often qualify with a lower score than you think, depending on the type of loan. For example, FHA loans allow buyers with scores as low as 580 to qualify, while VA and USDA loans might offer flexibility for veterans or rural buyers with even lower scores. 

In 2025, with mortgage rates remaining on the higher end, having a strong credit score is even more critical to keep your monthly payments manageable. If your score isn’t where you want it to be, consider taking steps to improve it before applying for a mortgage. There are a few things you can do now that can help raise your credit score so you can lock in a better interest rate.

Pay your bills on time

If you’re often late on paying bills, you might not realize the negative impact it’s having on your credit. Start paying your bills on time. Set up automatic payments or set reminders, but make sure you can meet the due dates for all your bills going forward. Establishing a history of paying your bills on time is paramount in raising your credit score.

Pay down the debt on your credit cards

One of the biggest contributing factors to your credit score is a credit utilization ratio. This ratio is determined by taking your average expenditures on all your credit cards each month and dividing them by your total credit limit. Lenders want to make sure you’re not close to maxing out your credit cards and prefer to see a credit utilization ratio of 30% or less.

Don’t apply for new lines of credit or close old ones

Opening new lines of credit is not going to help you increase your score, and in many ways, it can do the opposite. Applying for new credit cards produces unneeded hard inquiries into your credit history, which also negatively affects your credit. Closing unused credit cards can also have negative consequences, as this shows that you’re limiting the credit available to you, increasing your credit utilization ratio.

Dispute any inaccuracies on your credit report

After you get your credit report, you may notice several inaccuracies that can be dragging your credit score down. The good news is that you can dispute these errors, and a professional can help get them wiped from your credit report, so your credit score can bounce back.

Keep in mind that lenders also consider other factors like your income, debt-to-income ratio, and down payment, so a strong credit score isn’t the only thing that matters when you’re figuring out what you need to buy a house.

2. Have a healthy debt-to-income ratio (DTI)

Another key component banks consider when issuing loans is your debt-to-income ratio. The debt-to-income ratio is a lender’s way of comparing your monthly housing expenses and other debts with how much you earn.

So what is a healthy debt-to-income ratio when applying for a home loan? The short answer is the lower the better, but no more than 43%, or you may not qualify for a loan at all. There are two DTIs to consider as well.

The Front-End DTI: This DTI typically includes housing-related expenses such as mortgage payments and insurance. You want to shoot for a front-end DTI of 28%.

The Back-End DTI: This DTI includes all other debts you may have, such as credit cards or car loans. You want a back-end DTI of 36% or less. A simple way to improve this DTI is to pay down your debts to creditors.

How do you calculate your DTI ratio? You can use this equation for both front-end and back-end DTIs:

DTI = total debt / gross income

3. Calculate how much home you can afford to set a realistic budget

The best way to determine what you need to buy a house is to figure out how much house you can afford. Though online calculators don’t necessarily account for all of your monthly expenditures, they are a great tool for understanding your larger financial situation. 

After you figure out what you can comfortably afford, you can start your online search for houses and begin to narrow down which home trends are most important to you. Are you looking at specific neighborhoods? How many bedrooms do you want? Do you need a large yard, big deck, swimming pool, man cave, she-shed, etc.?

Understanding what you can afford in the area you want to buy will help keep you grounded and focused on what you need in a house versus what might be nice to have.

4. Save for a down payment

While a 20% down payment has long been the traditional benchmark, many homebuyers today opt for lower amounts, depending on the type of loan they choose. For example, FHA loans allow for a down payment as low as 3.5%, making homeownership more accessible for buyers with limited savings. Conventional loans can also offer down payments as low as 3%, but keep in mind that if you put down less than 20%, you’ll likely be required to pay private mortgage insurance (PMI) to protect the lender. On the other hand, if you qualify for a VA or USDA loan, you may be able to purchase a home with no down payment at all. Additionally, there are various down payment assistance programs and first-time homebuyer grants available that can further reduce the amount needed upfront.

While a larger down payment can help reduce your monthly mortgage payments and potentially secure better loan terms, it’s not always necessary, and there are various loan programs to consider. It’s important to carefully evaluate your financial situation and long-term goals to determine how much you should save for a down payment when considering what you need to buy a house this year.

5. Build up your savings for closing costs and other expenses

Lenders prefer to see a strong savings account and other assets, such as 401(k)s, CDs, or after-tax investments, that can provide financial security in case of emergencies. Not only are these savings essential for your long-term financial security, but they also play a key role in covering the various expenses associated with buying a home. In addition to your down payment, you’ll need to budget for closing costs, which can range from 2% to 5% of the home’s purchase price. These costs, along with potential expenses for home inspections, appraisals, and moving, can quickly add up. A healthy savings account ensures you’re financially prepared for these additional costs and helps you avoid any surprises during the home-buying process.

Though some costs can be wrapped into a home loan and monthly mortgage payment, such as sales tax and home insurance, there are several other costs that cannot be included in the home-buying package and need to be paid for out of pocket.

These items can range in price depending on the area, size, and cost of the house you’re buying. Here is a list of extra costs you should consider (not all-inclusive):

• Home appraisal fee
• Home inspection fee
• Geological study
• Closing costs*
• Property taxes**
• Home insurance**
• Utility hookup/start fees
• Home remodeling/updating expenses
• Existing propane gas
• Moving costs

*Closing costs can sometimes be wrapped into the home loan, depending on the agreement with your lender.

**Property taxes and home insurance can be paid separately, or your lender could include them in your monthly mortgage payment.

6. Proof of income and solid employment history

A solid employment history and proof of income are key factors in what you’ll need to buy a house. Lenders typically prefer buyers with a stable income and a consistent employment record, as these demonstrate reliability and the ability to manage mortgage payments. Generally, lenders look for at least two years in the same job or within the same industry to ensure a steady income stream. You’ll also need to provide documentation of your income, such as pay stubs, tax returns, or bank statements, to show you can afford the mortgage. If you’ve recently changed jobs or experienced periods of unemployment, it may not automatically disqualify you, but it could raise questions about your financial stability. The more consistent your work history and proof of income, the more confident lenders will be in your ability to handle the financial commitment of homeownership.

7. Find a knowledgeable real estate agent

There are several ways to find and choose the right real estate agent for you. Many people rely on recommendations from friends and family, while others look to online reviews. While both of these scenarios work well and can land you a great real estate agent, the reason these agents rise above the others as the best of the best is because of their intentions.

A good agent isn’t trying to get you into a house as quickly as possible so they can earn a commission. Instead, you want an agent that will act as your guide through the home buying process while having your best interests in mind. A good agent will be able to tell you what you need to buy a house, and if they think a house is a good fit for you, or if you should keep looking. They should be expert negotiators and guide you through all the questions you have when buying a house.

8. Shop around to find the right mortgage lender for you

Finding the right mortgage lender is crucial for a smooth homebuying experience. Start by comparing rates, as the lower the rate, the more you can save or afford. Shopping around is key, but don’t just focus on rates—also consider reviews and a lender’s track record for closing times. A reliable lender will offer competitive rates, clear communication, and a streamlined process, which can save you weeks in the homebuying process. Ask about their average time to close after an offer is accepted to gauge efficiency. Take the time to explore your options and choose a lender who aligns with your needs and financial goals.

9. Apply for a mortgage pre-approval

Getting pre-approved for a mortgage shows sellers that you’re a serious buyer and helps you understand how much house you can afford. To get pre-approved, lenders will review your financial situation, including your credit score, income, savings, and debt. This process gives you a clear idea of what you’re qualified for and can help you avoid wasting time looking at homes outside your budget. Keep in mind that pre-approval isn’t a guarantee of loan approval, but it’s an important first step that can make you more competitive in a busy housing market.

10. Prepare your documents 

When it comes to what you need to buy a house, having the necessary documents prepared in advance can save you a lot of time and stress. Throughout the homebuying process, you’ll be asked to provide a variety of documents at different stages, from getting pre-approved to closing on the property. Gathering these documents early on ensures that you can move quickly when needed, which is especially helpful in a competitive housing market.

Here’s a list of some of the key documents that you will want to prepare:

1. Proof of Identity: Government-issued ID (Driver’s License or Passport)
2. Proof of Income:
   • Recent pay stubs (usually from the last 30 days)
   • W-2 forms from the last two years
   • Tax returns from the last two years (1040 forms)
   • Bank statements from the last two to three months
   • Additional income sources (e.g., bonuses, alimony, or rental income)
3. Employment Information:
   • Employer name and contact info
   • Job history (for the last two years)
4. Credit History:
   • Authorization to pull your credit report (typically required by the lender)
5. Assets and Savings:
   • Recent bank statements
   • Investment account statements (e.g., 401k, IRAs, or other assets)
   • Documentation of large deposits or non-payroll income
6. Debt Information:
   • Statements for any outstanding loans or credit cards
   • Student loan statements, auto loans, personal loans, or mortgages
7. Down Payment Documentation:
   • Proof of down payment funds (e.g., gift letter if funds are from family or friends)
8. Rental History (if applicable):
   • Contact information for your current or past landlords, and possibly rental payment history

What you need to buy a house in 2025

Buying a home in 2025 requires preparation, but with the right steps—like improving your credit score, managing your debt, and building savings—you can position yourself for success. By understanding your financial situation and working with trusted professionals, you’ll be better equipped to navigate the market and make informed decisions that align with your long-term goals.

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