Preparing to Purchase or Refinance a Home in 2025

After a volatile 2024, most experts and trusted forecasts from the Mortgage Bankers Association predict a more stable market in the new year.  

If you’re planning to buy or refinance a home in 2025, starting your preparations now can make the process smoother and less stressful. Homeownership is an exciting goal, but one that requires careful planning to ensure success. 

Here’s a guide to help you prepare for a successful home-buying or refinancing experience: 

Understand Home Buying Terms 

Take advantage of the time before starting the homebuying process to familiarize yourself with important financial and real estate terms. Words like “APR,” “interest rates,” and “closing costs” may sound intimidating, but understanding them can empower you to make informed decisions during the homebuying process. Research the differences between loan options and repayment terms to ensure you’re aware of how they might impact your finances.  

Strengthen Your Credit Score 

A strong credit score is critical for securing favorable mortgage terms. When applying for mortgage financing, lenders evaluate your credit scores to determine loan eligibility, interest rates, and terms. To improve your credit: 

• Make all payments on time. 

• Avoid opening new lines of credit or taking on additional debt in the months leading up to your mortgage application. 

• Lower your credit utilization by paying down existing debts. 

Check out our blog to learn how to increase your credit score by 100 points in just 45 days. 

Reduce Your Debt-to-Income Ratio (DTI) 

Your DTI ratio measures your total monthly debt payments against your gross monthly income. A lower DTI demonstrates financial stability and increases your appeal to lenders. To improve your ratio: 

• Pay off high-interest debt. 

• Avoid accumulating new debt. 

• Consider increasing your income through additional work or side gigs if possible. 

To learn more about DTI ratios and other income requirements, read our guide to mortgage income requirements. 

Save for a Down Payment 

While down payment requirements vary depending on the type of loan, having a larger down payment offers several advantages. A larger upfront payment can lower your monthly mortgage costs, improve your loan terms, and help you avoid additional expenses like private mortgage insurance (PMI). Begin setting aside funds regularly to build a strong financial foundation for your purchase. 

Discover additional down-payment strategies and options for first-time homebuyers. 

Explore Loan Options 

Researching different loan types and repayment terms can help you find the best fit for your needs. Common loan options include VA, FHA, USDA, conventional, and jumbo loans, each with unique eligibility requirements and benefits. Understanding how loan terms, such as 15-year versus 30-year options, affect your overall payments is equally important. 

Compare Interest Rates and APRs 

Interest rates and annual percentage rates (APRs) significantly influence the cost of your loan. A lower rate often translates to substantial savings over the life of the mortgage. You may qualify for better rates by having strong credit, a large down payment, and a low DTI. 

Want to see what your rate could be? Get a free, no-obligation personalized rate quote from Summit Mortgage. 

Additionally, consider whether a fixed or adjustable-rate mortgage aligns better with your long-term financial plans. Fixed rates remain consistent throughout the loan term, while adjustable rates may fluctuate based on market conditions. 

Create a Realistic Budget 

Establish a clear budget based on your income, savings, and future goals. Include not only the mortgage payment but also other homeownership costs such as property taxes, insurance, maintenance, and potential homeowners association (HOA) fees. A well-rounded budget will help you determine what you can afford without overstretching your finances. 

Explore what your monthly mortgage payment could look like using Summit’s mortgage calculator. 

Prepare for Pre Approval 

Getting preapproved for a mortgage can provide valuable insight into how much you can borrow and at what terms. While a preapproval doesn’t guarantee final loan approval, it signals to sellers that you’re a serious buyer. If you’re not immediately ready to purchase, consider waiting to get preapproved until closer to when you plan to start house hunting, as preapproval letters typically expire after a few months. 

When you’re ready to get started, a Summit Loan Officer can help you obtain a preapproval letter.  

Look Into State Assistance Programs 

Many states offer programs to assist buyers with down payments, closing costs, or other expenses. These resources are often targeted toward first-time buyers or low-income households but may also benefit other buyers depending on program eligibility. 

Account for Additional Costs 

Remember that buying a home involves more than just the down payment. Closing costs, moving expenses, minor repairs, and furniture purchases are other costs to plan for. Start setting aside extra savings each month to cover these additional expenses. 

Final Thoughts 

Taking proactive steps now can position you for a successful home buying or refinancing experience in 2025. By building your credit, managing your finances, and learning about the process, you’ll be well-prepared to achieve your homeownership goals. 

Ready to get started? Find a Summit Loan Officer to help you navigate your home buying journey.