Buying a home is a multistep process. Before applying for a mortgage, you'll have to get your finances in shape, choose a lender and be prepared for all the costs associated with homeownership. Here's what to expect.
1. Do a financial check-up
The first step is determining if you can afford homeownership. Make sure you've reviewed your credit score, debt and total income.
Lenders generally require a credit score of at least 620 to get approved for a home loan. To qualify for the lowest interest rates, you'll want a score above 740. Before you start looking for a house, review your credit report to dispute any possible errors and take the time to improve your score if necessary.
The next number to consider is your debt-to-income ratio (DTI). You can calculate your DTI by dividing your monthly debt payments by your monthly income before taxes. Your total debts should include credit cards, student loans and car payments, in addition to your estimated monthly mortgage payment. Most lenders require a DTI of 43% or lower to approve your application. By reducing your debt load, you should be able to improve your credit score and your DTI.
2. Set a goal for your down payment
Consider how much you're able to contribute to a down payment. If you can put down more money upfront, you'll be able to take out a smaller loan. It's often recommended to make a 20% down payment, but that's not a hard-and-fast rule.
Each type of mortgage and lender has different minimum requirements. With a conventional loan, you can put down as little as 3%. Government-backed USDA loans and VA loans, on the other hand, don't require a down payment at all (individual lenders may set their own requirements).
A smaller down payment can help you access homeownership earlier. But a bigger down payment can help you score a lower mortgage rate and save money on interest. A 20% down payment also eliminates the need for private mortgage insurance, which can add hundreds of dollars to your monthly mortgage payment.
Whatever your savings target, consider putting your down payment savings into a high-yield savings account or a high-yielding certificate of deposit (CD).
If you need help making a down payment, almost every state offers first-time homebuyer programs with some type of down payment assistance or closing cost assistance (either in the form of a grant or interest-free loan).
3. Make a realistic homebuying budget
Though it can be tempting to look at houses outside your budget, it won't help you in the long run. Before you start touring homes, figure out how much you can comfortably afford and don't go above your limit. Also factor in the following:
Monthly mortgage payment: Use CNET's mortgage calculator to estimate what your monthly payments will be based on a home's price, your down payment and current mortgage interest rates. If you take out a longer loan (like a 30-year fixed mortgage), your monthly payments will be lower, but you'll pay more in interest over time.
Closing costs: Expect to pay anywhere between 1% and 6% of your home loan amount in closing costs. These are typically paid upfront when you sign your loan, but in some cases, can be rolled into your monthly payments.
Prepaid costs: Be prepared to make an earnest money deposit within a few days of signing your purchase agreement. An earnest money deposit typically costs between 1% and 3% of the purchase price, though it could be up to 10% in a competitive market. That money is held in escrow until closing and then applied to your final bill.
Property taxes: Property taxes vary by state and county. If you're planning to buy in an area with high rates, like New Jersey, property taxes can add hundreds of dollars to your monthly bill.
Homeowners insurance: Like property taxes, the cost of homeowners insurance is typically included in your monthly mortgage payment. Insurance premiums have been on the rise nationwide and can be very expensive in areas with high concentrations of wildfires, hurricanes and other natural disasters.
Private mortgage insurance: If you're taking out a conventional mortgage loan with less than a 20% down payment, most lenders require you to pay PMI, which can add hundreds of dollars to your monthly payment. PMI is typically no longer required once you have at least 20% equity in your home.
Other fees: The cost of utilities, property maintenance and, in some instances, HOA fees all contribute to the cost of homeownership. You'll also want to factor in future renovations and repairs.
4. Choose the right type of mortgage
A 30-year fixed-rate mortgage is the most popular type of home loan, but there are others that could make the most sense for your individual situation and goals.
Mortgage types
Conventional loans are a good option for buyers with solid credit and a 10% to 20% down payment, though some require as little as 3% down. Conventional loans are widely available with most banks, credit unions and private lenders.
Jumbo loans allow you to finance more expensive home purchases but require a strong credit score and high down payment to qualify. For 2025, the conventional loan limit for a mortgage is $806,500 for single-family homes or $1,209,750 in areas with higher home values, such as Alaska or Hawaii. If you're planning on borrowing more than those limits, you'll need a jumbo loan.
Government-insured loans like an FHA loan, VA loan or USDA loan can offer unique benefits and are worth considering if you qualify for them. FHA loans offered by the Federal Housing Administration make homeownership more accessible and are easier to qualify for than conventional loans. They usually require a down payment as low as 3.5% and a minimum credit score of 580. VA loans, backed by the US Department of Veterans Affairs, allow you to buy a house without a down payment. To qualify for a VA loan, you must be an active or retired military member or a spouse of one. USDA loans, backed by the US Department of Agriculture, are for middle- and low-income families in qualifying rural and suburban areas. These loans offer lower interest rates, no down payment and more lenient credit requirements.
Loan terms
Your mortgage term is how long you'll pay your loan, such as 10 years, 15 years and 30 years. A longer loan will have smaller monthly payments because the purchase amount is spread out over a longer period. A shorter-term loan will have larger monthly payments but lower interest rates.
Adjustable vs. fixed-rate
Mortgages can be fixed-rate loans, which have the same interest rate for the duration of the mortgage, or adjustable-rate mortgages (ARMs), which have a fixed rate for a set period before switching to a variable interest rate that changes annually. Most homeowners opt for a fixed-rate mortgage for long-term predictability, but some choose ARMs to take advantage of lower interest rates during the initial introductory period before the rate adjusts.
5. Shop for mortgage lenders
Compare offers from multiple lenders before committing to one. Work with a lender who gets good reviews, understands your financial situation and makes you feel comfortable throughout the loan process. Before settling on a lender, pay careful attention to interest rates and fee repayment terms listed on the loan estimate form.
Comparing loan offers from at least two or three different lenders can also help you negotiate a lower interest rate or better loan terms and fees. Even a small difference in your interest rate could save you thousands of dollars over the life of your loan.
6. Get mortgage preapproval
Your chosen lender will check your credit score and proof of income, assets and employment to get you preapproved for a mortgage. Mortgage preapproval gives you a good idea of how much you will likely be approved to borrow. Although a preapproval letter doesn't guarantee you'll qualify for financing, it shows the seller that you have the finances in place to pass a lender's initial examination. Most preapproval letters are valid for 60 to 90 days.
Preapproval is different from prequalification, which is a quick estimate of what you can borrow based on your shared information. It's less rigorous than a preapproval and carries less weight.
7. Look for houses
After getting preapproved, you can officially start the home search process. Experts recommend working with an experienced real estate professional who can offer market expertise, legal guidance and support. If you're looking in a competitive market where homes sell quickly, and bidding wars are common, you should be prepared to act quickly.
8. Submit your mortgage application
Once you've found a house and your bid has been accepted, you can begin the formal application process. You can complete your mortgage application online, over the phone or in person, depending on your lender. The lender will get your details for a credit check and will then provide a loan estimate form within three days of the initial application.
If you decide to proceed, the lender will need to verify your finances. Compiling the necessary paperwork ahead of time could save you some stress and time. Examples of forms you may need to submit include:
- Tax returns
- Pay stubs, 1099 forms, W-2 forms
- Bank or investment account statements
- Government ID
- Authorization to pull credit reports
- Documentation of all your debts
- Employment history
- Housing history
If you're self-employed or a freelancer, expect to provide extra documentation such as:
- Two years of tax returns and business tax returns
- Business bank account statements
- Copies of your business licenses
9. Underwriting process
Next, the lender will verify that you're a qualified borrower through underwriting. Your financial health and risk level will be closely scrutinized during this step. Your lender may ask for further information or letters explaining employment gaps or money received from friends or relatives to help with down payment or closing costs.
The underwriting process is meant to answer one question: Are you likely to repay this loan? During this time, lenders are sensitive to any change in your credit profile. Avoid any big purchases, withdrawals or deposits, and don't close or open new accounts.
Your lender will also authorize a home appraisal to verify the home's value. You should schedule a home inspection to provide a deeper look at the home's condition, so you'll know if there are any issues to raise with the seller before closing. At the end of the underwriting process, you'll find out if you're approved for a home loan.
10. Close on your new home
Before you get the keys to your new home, you must finish the closing process, which technically starts when your offer is accepted. As part of closing, you'll also need to have a title search done on the property and secure the lender's title insurance as well as homeowner's insurance. Your lender will also verify that you're still employed and may even require employment verification up to the day of closing.
It can take anywhere from a few weeks to a few months before you wrap up with a final walkthrough of the property. After that, all you need to do is sign the dotted line at the closing appointment, and your funds will be transferred from escrow.
More on today's housing market
- Weekly Mortgage Forecast
- 2025 Mortgage Rate Forecast
- Homes in Short Supply: How Inventory Will Shape the 2025 Housing Market
- How the Federal Reserve's Decisions Impact Mortgage Rates
- Why Fed Rate Cuts Aren't a Cure-All for High Mortgage Rates
- Most Homebuyers Won't Budge Until Mortgage Rates Drop to 4%, CNET Survey Finds
- You Might Be Eager to Buy a House, but Homeowners Are Holding Tight to Their Mortgages
- Despite Lower Mortgage Rates, Another Refinancing Boom Isn't Likely. Here's Why
- Forget Mortgage Rates. Americans Say They Can't Even Save for a Down Payment
