3 Money Skills You Need To Master Before You Buy a House

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Buying a home will likely be the biggest financial move you ever make, and one that could have a lasting impact on both your life and bank account. If you buy the right home at the right price, it could put you on the road to permanent financial security. Make a mistake, though, and you might find yourself in a financial hole for many years to come.

That’s why it’s important to develop certain financial skills before buying a house. Even if you earn a good living and have a lot of money saved up, you still need to make the right money decisions — and that takes both research and experience.

If you’re new to house hunting, here are three money skills you need to master before you buy a home.

Credit Strength

Unless you have a ton of cash saved up, you’ll need to qualify for a home loan to finance the purchase of a new house. In nearly all cases, you’ll need a very good credit score to get approved for a loan. The standard is the FICO score reported by the three main credit reporting agencies: Equifax, Experian and TransUnion.

You’ll typically need a FICO score of 620 to finance a home purchase, according to Rocket Mortgage. To get there, you’ll want to master the following credit skills before buying a house:

• Paying your bills on time.
• Opening new credit accounts and building an excellent payment history.
• Maintaining a favorable credit utilization ratio — this means making sure the amount of credit you owe is a relatively small percentage of the amount of credit available (those with the highest credit scores tend to have ratios of less than 20%, according to Experian).

Saving

It’s one thing to put aside a little money every paycheck to build an emergency fund or fund a summer vacation, but it’s another to save enough for a down payment on a new home. In the latter case, you’ll need to master savings skills in a way that allows you to sock away a lot more money than you would otherwise.

To get an idea of how much you need to save up for a down payment, it helps to know how much money you’ll need to borrow. The median U.S. home sales price was $358,967 as of September 30, 2024, according to Zillow. For a 20% down payment, you’ll need to save up nearly $72,000 for an average-priced home.

Even if you qualify for a much lower down payment, such as 5% or 10%, you’re still looking at a down payment of $18,000 or $36,000, respectively.

Budgeting

Chances are you’re already familiar with the importance of budgeting, but this skill becomes even more important once you’re a homeowner. In terms of monthly budget items, you’ll still need to account for expenses such as utilities, groceries, college loans, car payments and savings. In addition to those, you’ll now have to add a mortgage payment to replace your rent payment, along with new expenses such as property taxes, homeowners insurance and, if applicable, HOA fees. You’ll also have to pay for your own home repairs, improvements and upgrades.

Here are some key figures to keep in mind:

• The monthly mortgage payment on a typical single-family home with a 20% down payment was $2,137 during the 2024 third quarter, according to the National Association of Realtors.
• Average annual property tax bills range from a low of $803.59 in Alabama to a high of $9,119.74 in Illinois, according to Rocket Mortgage.
• A recent analysis from Forbes Advisor found that the average homeowners insurance costs $1,678 a year for a policy with $350,000 of dwelling insurance, which equals $139.83 a month.

Mastering budgeting skills can help ensure you don’t get in over your head when you buy a home. A good rule of thumb is to buy a less expensive house than you can afford so you’ll have plenty of money in reserve to deal with unexpected expenses.

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