Module 1: Know Your Numbers

Before you tour a single house, get your money right. Everything in this course builds on these four numbers.

Lesson 1.1: Your Credit Score Is Your Opening Bid

Your credit score doesn't just decide whether you get a loan. It decides your interest rate, and your interest rate decides your monthly payment for the next 30 years. A half-point difference in rate on a $350,000 loan costs you roughly $35,000 over the life of the loan. That's not a rounding error — that's a car.

Here's how lenders actually see the tiers:

  • 760+: The VIP line. Best rates available.
  • 700–759: Good. You'll get solid offers.
  • 670–699: Fine, but you're paying more than you should be.
  • 620–669: Expensive territory. FHA loans live here.
  • Below 620: Brutal. Some FHA lenders go down to 580 (or even 500 with 10% down), but the terms hurt.

The good news: your score is fixable, and small moves work fast. The two biggest levers are credit utilization (how much of your available credit you're using — get it under 30%, under 10% is even better) and payment history (one missed payment stings for years, so put everything on autopay yesterday).

Quick wins, in order of impact:

  1. Pay down credit card balances. This can move your score in a single billing cycle.
  2. Don't close old cards — that kills your available credit and spikes your utilization.
  3. Don't open new credit before buying. That car loan can wait.
  4. Dispute errors on your reports. About a third of reports have one.
  5. Stop applying for store cards to save 10%. Just stop.

Start this 3–6 months before you plan to buy. Credit repair isn't overnight, but it's not a multi-year saga either.

One more lever people sleep on: if a family member has an old card with perfect payment history, being added as an authorized user can import that history onto your report. It's not magic, but it's free. And re-pull your score monthly while you're preparing — watching it climb keeps you motivated, and you'll catch identity theft or errors early instead of at the worst possible moment.

Do this now: Pull your score from one free source today (your bank, Credit Karma, whatever) and write the number down. You can't improve what you don't measure.

Lesson 1.2: DTI — The Number That Actually Decides Your Loan

Forget what you think matters. Lenders care about one ratio above all: debt-to-income, or DTI. It's your total monthly debt payments divided by your gross monthly income. That's it. That's the number standing between you and a set of keys.

Lenders look at two versions:

  • Front-end DTI: just your housing costs (mortgage, tax, insurance, HOA) divided by gross income. They want this at or under 28%.
  • Back-end DTI: ALL your monthly debts — housing plus car loans, student loans, credit card minimums, personal loans — divided by gross income. They want this at or under 36%, though many lenders stretch to 43–45%.

Let's run real numbers. You earn $6,000/month gross. You pay $400 for the car, $300 in student loans, $200 in credit card minimums. That's $900 in non-housing debt — a 15% back-end DTI before housing even enters the picture. Now add an $1,800 housing payment and you're at $2,700 / $6,000 = 45%. Most conventional lenders will show you the door.

Three ways to fix a bad DTI, ranked by speed:

  1. Kill small debts entirely. Paying off a $200/month payment helps more than chipping at a big balance.
  2. Don't add new debt. Financing furniture or a car in the six months before buying is self-sabotage.
  3. Raise income. A raise, a side gig, a bonus — lenders count stable, documented income.

Notice what's not on the list: "earn dramatically more overnight." DTI is a math problem, and math problems have boring solutions.

Two fine-print notes. First, lenders use gross income, not take-home — which flatters the math in their favor. Your real budget (Lesson 1.4) should use take-home pay. Second, lenders only count income they can document. That cash side gig? Invisible unless it's on your tax returns. If you're buying within the next year, start documenting every income stream now — future-you's loan file depends on it.

Do this now: Add up every monthly debt payment you have — minimums count — divide by your gross monthly income, and write down your back-end DTI. If it's over 40%, you have work to do before house hunting.

Lesson 1.3: The Emergency Fund Is Non-Negotiable

Your down payment is not your savings. Read that again. After you close, you need 3–6 months of living expenses sitting in cash, separate from everything else. This is non-negotiable, and here's why: houses break, and there's no landlord to call anymore.

The water heater dies in month two. That's $1,500. The furnace gives up in January. That's $5,000. A pipe bursts behind a wall. You get the idea. None of these are hypothetical — they're the standard first-year homeowner experience. Without a cushion, every repair goes on a credit card at 24% interest, and now your "investment" is eating you alive.

Rules for the emergency fund:

  • Keep it boring. High-yield savings account. Not invested, not in crypto, not "working for you." Its job is to sit there.
  • Separate from the down payment. Label the account "House Emergency Fund" so you never confuse the two.
  • Don't touch it for the down payment. If draining it is the only way to close, you're buying too much house.

How to build it: automate a transfer every payday, even if it's small. Cut one spending category ruthlessly for six months (dining out is the usual suspect). Tax refunds and bonuses go straight in.

Here's the uncomfortable truth: if you can't build an emergency fund, you're not ready to buy. Renting with savings beats owning without them, every time.

Where do first-timers usually find this money? The boring places: pausing retirement contributions above the employer match for 6–12 months, selling stuff you don't use, and banking every windfall — tax refunds, bonuses, birthday checks from grandma. And once you've built it, keep it sacred after closing. The first year of ownership is exactly when you'll need it most.

Do this now: Open (or rename) a high-yield savings account called "House Emergency Fund" and set up an automatic transfer for your next payday. Amount doesn't matter yet — the habit does.

Lesson 1.4: What You Can Afford vs. What the Bank Says You Can Afford

The bank will happily approve you for the maximum payment you can theoretically survive. That's their job — bigger loan, more interest. Your job is to figure out what you can actually afford without becoming house poor and miserable.

Start with the 28/36 rule from Lesson 1.2, then go further and build the real number. Let's price a $350,000 house with 10% down at a 7% rate:

  • Principal & interest: ~$2,096/month
  • Property tax: ~$300/month (varies wildly by area — more on that in Module 3)
  • Homeowner's insurance: ~$150/month
  • PMI: ~$150/month (under 20% down)
  • Subtotal: ~$2,696/month
  • Maintenance reserve (1% rule): ~$292/month
  • True cost: ~$2,988/month

That's nearly $900/month more than the mortgage payment alone. This is the number most first-time buyers never calculate — and it's the number that determines whether you thrive or just survive.

Now the sleep-well test: after housing, can you still save at least 10% of your income, eat food you like, and have a life? If the house payment turns you into someone who stares at the thermostat and declines every dinner invitation, you bought too much house.

A good target: take the bank's max monthly payment, subtract 10–15%, and call that your ceiling. Boring? Yes. That's the point. The best house is one you can afford to actually live in.

One more filter: the job-loss test. If one income disappeared for three months, could you still cover housing? Dual-income households should run the numbers on a single income. It's not pessimism — it's how you buy a house that survives real life, not just the loan application. And remember: the bank's approval is a ceiling, not a target. Nobody ever regretted buying slightly less house than they qualified for.

Do this now: Take your gross monthly income, multiply by 0.28, and write down that number. That's your starting ceiling for total housing costs. Now subtract 10% — that's your target. House hunting starts here, not on Zillow.