Get Financially Ready
Understanding your financing options is the first step toward homeownership. Let's explore what you need to know about pre-qualification, loan types, and getting approved for a mortgage.
Note: Financial guidelines change periodically. This is general information. Always verify current requirements with a qualified lender.
Pre-Qualification vs. Pre-Approval
Understanding the difference is crucial for a successful home buying experience
Pre-Qualification
A quick, informal estimate of how much you might be able to borrow based on self-reported financial information. It's a good starting point but not a guarantee.
- Quick process (often same-day)
- No credit check required
- Helps establish budget range
- Good first step for planning
Pre-Approval
A formal, verified commitment from a lender stating they will loan you a specific amount. This carries much more weight with sellers and is often required to make offers.
- Verified financial review
- Credit check included
- Stronger position with sellers
- Locks in interest rate (often 60-90 days)
Common Loan Types
Each loan type has its own requirements and benefits. Here's what you need to know.
Conventional
Traditional loans not backed by the government. Typically require higher credit scores and down payments.
3-20%
620+
Best for: Buyers with good credit and stable income
FHA
Government-backed loans with more flexible requirements. Popular with first-time buyers.
3.5%
580+
Best for: First-time buyers or those with lower credit
VA
Loans for veterans and active military members with excellent terms and no down payment.
0%
620+
Best for: Veterans and active military
USDA
Rural development loans for properties in eligible areas with no down payment required.
0%
640+
Best for: Rural property buyers
Document Checklist
Being prepared with the right documents will speed up your pre-approval process significantly. Gather these items before meeting with a lender.
Pro Tip
Create a folder (physical or digital) with all these documents organized. Having everything ready can speed up your approval by days or even weeks.
What You'll Need
- Pay stubs from the last 30 days
- W-2 forms from the past 2 years
- Federal tax returns from the past 2 years
- Bank statements from the past 2-3 months
- Investment account statements
- Photo ID (driver's license or passport)
- Social Security card
- Proof of additional income (if applicable)
- Rental history or mortgage statements
- Gift letter (if using gifted funds for down payment)
Improving Your Credit Score
Small improvements can make a big difference in your mortgage rate
Pay On Time
Payment history is the biggest factor. Set up autopay to never miss a due date.
Lower Utilization
Keep credit card balances below 30% of your limit. Below 10% is ideal.
Don't Close Old Accounts
Length of credit history matters. Keep old cards open even if unused.
Avoid New Credit
Don't open new accounts or make large purchases before applying for a mortgage.
Financing FAQs
How much house can I afford?
A general rule is that your monthly housing costs should not exceed 28% of your gross monthly income. Your lender will provide a specific number based on your complete financial picture.
What's the difference between interest rate and APR?
The interest rate is the cost of borrowing the principal. APR includes the interest rate plus other loan costs, giving you a more complete picture of the loan's total cost.
Should I get a fixed or adjustable rate mortgage?
Fixed rates offer predictable payments for the life of the loan. Adjustable rates start lower but can change. If you plan to stay long-term, fixed is usually safer.
Can I buy a home with student loan debt?
Yes! Many buyers have student loans. Lenders look at your debt-to-income ratio. If your payments are manageable relative to your income, homeownership is still achievable.
How soon should I get pre-approved before house hunting?
Pre-approval letters are typically valid for 60-90 days. Get pre-approved when you're ready to start actively looking at homes.