Getting Mortgage-Ready
Start preparing 6-12 months before house hunting. Check your credit score (aim for 620+ minimum, 740+ for best rates), pay down debt to lower your DTI ratio below 43%, save for a down payment (3-20%), and avoid opening new credit accounts. A strong financial foundation can save you tens of thousands over the life of your mortgage.
Understanding Mortgage Types
Conventional loans require 3-20% down and good credit. FHA loans need just 3.5% down with a 580+ score. VA loans offer 0% down for military families. USDA loans provide 0% down for rural properties. Each has different PMI rules, rate structures, and qualifying criteria that can significantly impact your total cost.
The Pre-Approval Process
Get pre-approved before house hunting. You'll need 2 years of tax returns, recent pay stubs, bank statements, W-2s, and ID. Pre-approval shows sellers you're serious and locks in a rate for 60-90 days. Get pre-approved with 2-3 lenders to compare — all inquiries within a 45-day window count as one credit pull.
How Much House Can You Afford?
The 28/36 rule says spend no more than 28% of gross income on housing and 36% on total debt. On a $75,000 salary, that's about $1,750/month for mortgage, taxes, and insurance — supporting roughly a $300,000-350,000 home depending on rates, taxes, and down payment. Don't forget maintenance costs (1-2% of home value annually).
Down Payment Strategies
20% down avoids PMI ($100-300+/month on a $300K home) but isn't always necessary. FHA requires just 3.5%. Many state and local programs offer down payment assistance grants or low-interest second mortgages. Some employers offer homebuying assistance programs. Calculate whether the PMI cost justifies waiting to save more.
Closing Costs Explained
Closing costs run 2-5% of the loan amount ($6,000-15,000 on a $300K loan). Major costs include loan origination fees, appraisal ($400-600), title insurance ($1,000-3,000), attorney fees, escrow deposits, and recording fees. Negotiate seller concessions to cover part of closing costs, especially in a buyer's market.
First-Time Buyer Programs
Federal programs include FHA loans, VA loans, and the HomeReady/Home Possible conventional programs with 3% down. Many states offer first-time buyer grants, tax credits, and below-market rate loans. Check HUD's list of state programs at hud.gov. These programs can save $5,000-20,000+ on your purchase. Compare rates on MaboRates.
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