Buying your first home? You’re probably wondering how to prepare for a mortgage without making expensive mistakes. The process can feel overwhelming, but it really comes down to a few key steps. If you’ve been scrolling through listings, imagining yourself in that dream house, but stressing about credit scores, income requirements, and down payments, you’re not alone Learn the essential steps to prepare for a mortgage.
Most first-time buyers ask the same questions:
- How much home can I actually afford?
- What credit score do I need to qualify?
- How much should I save for a down payment?
- What’s the best mortgage option for me?
- How do I avoid getting ripped off by lenders?
If any of these sound familiar, keep reading. Let’s go step by step so you’re ready when it’s time to get that pre-approval letter.
Step 1: Know Your Budget Before a Lender Tells You
Before a bank says how much they’ll lend you, figure out what you’re actually comfortable spending. Just because you qualify for a certain loan amount doesn’t mean you should take it. Lenders focus on what you can pay on paper, not what fits your lifestyle.
A good rule of thumb? Your monthly home payment (including mortgage, property taxes, homeowners insurance, and HOA fees if applicable) shouldn’t eat more than 28-30% of your gross monthly income.
Use this simple formula:
(Gross monthly income) x 0.28 = Max recommended home payment
Example: If you make $6,000 per month before taxes:
$6,000 x 0.28 = $1,680
That means you should aim for a mortgage where your total monthly cost lands under $1,680.
Step 2: Check Your Credit Score (It Matters More Than You Think)
Your credit score is a big deal when applying for a mortgage. Lenders will decide your interest rate based on how risky they think you are as a borrower.
Here’s the breakdown of what most lenders consider:
| Credit Score | Loan Impact |
|---|---|
| 760+ | Best rates available |
| 700-759 | Great rates, but not the very best |
| 620-699 | Higher rates, may need a bigger down payment |
| Below 620 | Limited loan options, possible denials |
Check your credit for free through sites like Credit Karma or Experian. If your score needs work, start by:
- Paying off past-due accounts
- Lowering your credit card balances
- Avoiding new credit inquiries before applying
- Fixing errors on your credit report
Step 3: Start Saving for a Down Payment + Closing Costs
Let’s talk cash. You’ll need money upfront for a down payment and closing costs.
Standard down payments vary by loan type:
- Conventional Loan: 3-20% down
- FHA Loan: 3.5% down
- VA Loan: 0% down (for veterans)
If you’re eyeing a $300,000 home, that means you’ll need at least:
But don’t forget closing costs. Expect to pay 2-5% of the home price to cover lender fees, inspections, and title costs. On a $300,000 home, that’s another $6,000 – $15,000.
Pro tip: Some homeowners and lenders offer closing cost assistance. Make sure to ask before signing anything.
Step 4: Get Pre-Approved (Not Just Prequalified)
Prequalification and pre-approval aren’t the same thing. A prequalification is just an estimate of what you might qualify for. It’s not based on a deep dive into your finances.
A pre-approval means a lender has reviewed your financials and is ready to give you a loan (pending final review). This makes sellers take you seriously.
To get pre-approved, you’ll need:
- Proof of income (pay stubs, tax returns)
- Credit report
- Bank statements
- Proof of employment
- Debt statements (credit cards, loans, etc.)
Lenders will provide a pre-approval letter stating how much they’ll lend you. This letter tells sellers you’re a serious buyer.
FAQs
How much money do I need to buy a house?
It depends on the loan type, but at minimum, you’ll need 3-3.5% of the home price for a down payment plus another 2-5% for closing costs.
What credit score is needed for a mortgage?
Most loans require at least a 620 credit score, but for the best interest rates, shoot for 700+.
Should I go with a 15-year or 30-year mortgage?
It depends on your budget. A 15-year mortgage saves you money on interest, but the payments are higher. A 30-year mortgage has lower payments but costs more in interest over time.
How do I know which loan is right for me?
Research different loan programs or talk to a lender. FHA is great for first-time buyers with low credit, while conventional loans work well if you have solid credit and savings.
Where can I learn more about the buying process?
Check out our blog for more home-buying tips and mortgage insights.
Conclusion
buying your first home involves careful preparation, especially regarding your mortgage. Understanding your budget, checking and improving your credit score, saving diligently for a down payment and closing costs, and getting pre-approved for a mortgage are crucial steps. By following these guidelines, first-time homebuyers can navigate the process confidently, avoid costly mistakes, and ultimately achieve their dream of homeownership. Remember to research different loan options and seek professional advice when needed to make informed decisions.
