Homebuying Guide: Steps to Owning Your Dream Home

• Have a stable income and savings. Lenders like borrowers with a steady income history and enough savings to cover the down payment and closing costs.

• Check your credit score. 620 is the minimum credit score for conventional loans, while FHA loans can accept 500 with a 10% down payment; 580 with a 3.5% down payment.

• Calculate your Debt-to-Income Ratio (DTI). Lenders like borrowers with DTI below 36% for conventional loans, while FHA loans can go up to 43% depending on other qualifying factors.

• Check Your Credit Score. Your credit score is a key factor in determining mortgage eligibility and loan terms. Conventional loans require a 620 minimum credit score, while FHA loans can accept 500 with a 10% down payment; and 580 with a 3.5% down payment. A higher credit score can get you better interest rates and save you money in the long run. Check your credit report for errors and fix any issues like late payments or high credit card balances before applying for a mortgage.

• Follow the 28/36 rule. To make sure your mortgage is affordable, spend no more than 28% of your gross monthly income on housing expenses (principal, interest, taxes, and insurance) and no more than 36% of your income on total debts including credit cards, car loans and student loans. For example, if your monthly income is $5,000, your housing costs should not exceed $1,400 and your total debt payments should be under $1,800.

• Calculate your expenses and income. Start by adding up all your monthly income, including wages, bonuses, and any other income. Then add up all your regular monthly expenses like rent, utilities, groceries, insurance, transportation, and entertainment. The remaining amount is what you can allocate towards housing and debt but make sure you leave a buffer for savings and unexpected expenses.

• Research property prices in your area. Use Zillow and Realtor.com to check median home prices in your target areas. Compare these prices to your budget to see what type of homes are within your means. Don’t forget to factor in additional costs like HOA fees, property taxes, and maintenance when evaluating affordability.

• Fixed-Rate Mortgages. Stable monthly payments and fixed costs for the entire loan term (15 or 30 years). Best for long-term buyers. Higher initial rates but no rate increases.

• Adjustable-Rate Mortgages (ARMs). Lower rates for a fixed period (e.g. 5/1 ARM). Best for buyers who plan to sell or refinance before rates adjust. Payments can increase significantly.

• FHA Loans. Low down payment (3.5%) and for those with lower credit scores. Higher overall cost due to mortgage insurance premiums. Good for first-time buyers with limited funds.

• VA Loans. No down payment, no PMI, and competitive rates for eligible veterans and active-duty military. Requires proof of service or eligibility certificate.

• USDA Loans. For rural and suburban buyers, no down payment and low rates. Property must be in a USDA-approved area and income limits apply.

• Conventional Loans. Higher credit scores and down payments (5-20%). PMI applies if the down payment is less than 20%. For buyers with good credit and savings.

• Jumbo Loans. For high-cost properties above conforming loan limits. Excellent credit (700+), low DTI (43%), and larger down payments (10-25%). For luxury or high-cost properties.

• Down Payment. The down payment is the upfront portion of the home’s purchase price paid by the buyer. FHA loans require a 3.5% minimum while conventional loans require 5-20%. A 20% down payment eliminates PMI and reduces long-term costs. Larger down payments also increase equity and may get better loan terms.

• Closing Costs. These are additional expenses to finalize the home purchase, typically 2-5% of the home’s price. Closing costs include appraisal fees, title insurance, loan origination, and legal documentation. Buyers should budget for these costs separately from the down payment to avoid financial strain during closing.

Gather your documents to verify your financial situation and speed up the mortgage application process. These are typically bank statements, tax returns, W-2s, pay stubs, and credit reports. Having these documents organized ahead of time will make the application process smoother.

• Check loan type compatibility. Make sure the lender offers the type of loan you need (jumbo, FHA, VA, USDA). Not all lenders offer all loan types and choosing one that specializes in your desired loan can make the process easier and get better terms.

• Research. Look for reviews and feedback on the lender’s reputation, transparency, and customer service. Pay attention to common complaints like hidden fees, poor communication, or delays in closing.

• Verify. Check the lender’s licensing and standing through NMLS or your state’s regulatory agency to make sure they meet legal and professional standards.

• Customer service. Choose a lender who is responsive, clear, and will answer all your questions. Good communication can prevent confusion or delays during the mortgage process.

• Narrow it down to 3 lenders. Based on your research, choose 3 lenders that meet your needs and preferences. Focus on their loan type compatibility, reputation, and customer service. This will be the basis for comparing mortgage offers in the next step.

• Consider extras. Some lenders (banks) may offer discounts or perks to existing customers. Evaluate these to see if it fits your financial goals.

With your budget, DTI, verified credit score, and chosen loan type, and having chosen several lenders, you are ready to compare mortgage offers. Request quotes from the selected lenders, and make sure to compare the same loan type, term, and amount across all offers.

Look at both the interest rate and Annual Percentage Rate (APR) which includes fees and other costs. Get all quotes on the same day, as rates can change daily. Use the competing offers to negotiate better terms or lower fees with your preferred lender. Also, consider buying mortgage points - upfront payments to lower your interest rate - if you plan to stay in the home long-term.

Apply to 2-3 lenders from your shortlist to get pre-approved which verifies the loan amount you qualify for and gives you a clear picture of your financial situation. Pre-approval makes you a stronger buyer and shows sellers you are a serious buyer and can get financing. It also allows you to compare rates and terms from multiple lenders so you can choose the best for you.

Before closing, make sure the property has a clean title by doing a title search through a reputable company. This will ensure there are no existing liens, claims, or ownership disputes that can jeopardize your purchase. Title insurance will give you additional protection against any future title issues that may arise, protecting your investment and ownership rights.

This is your last chance to make sure the property is in the condition agreed upon before closing. Verify all repairs have been done, and inspect the home for any new damage or issues that may have arisen since your last visit. Check all included appliances and systems, plumbing, HVAC and electrical are working. This will make sure the property meets your expectations and no surprises after the purchase is done.

• Sign all docs. During the closing, you will sign a bunch of legal and financial documents, loan agreement, title transfers, and property deeds to finalize the purchase.

• Pay closing costs. Closing costs are 2-5% of the purchase price and may include: loan origination fees, appraisal fees, title insurance, escrow or settlement fees, property taxes, homeowners insurance premiums, prepaid interest, recording fees, and any transfer taxes required by the local government. These will make the transaction complete and legal.

• Get the keys to your new home. Once all docs are signed and payments are processed, the seller will transfer the ownership, and you will get the keys to your new property.