Key takeaways
- Your purchase budget is set by three numbers: monthly payment capacity, cash available for down payment and closing, and your debt-to-income ratio.
- Get fully underwritten pre-approval, not a pre-qualification. Sellers treat the two very differently.
- Closing costs typically run 2% to 5% of the purchase price on top of your down payment.
- The inspection period is your leverage window. Almost every renegotiation happens there or nowhere.
Start with the three numbers that set your budget
Affordability is not a feeling, it is an arithmetic constraint with three inputs. The first is monthly capacity: what you can pay every month without starving your savings rate. The second is liquid cash, which has to cover the down payment, closing costs, moving, and a reserve you do not touch. The third is your debt-to-income ratio, which is the number the lender actually cares about.
Most conventional lenders will approve a total DTI up to about 45%, sometimes 50% with strong compensating factors like large reserves or a high credit score. FHA is more permissive. But approval and wisdom are different things. A payment that consumes 43% of your gross income leaves very little room for a roof, a job change, or a bad year. Run the numbers in our affordability calculator at both the lender's ceiling and at 28% of gross income, then decide where in that range you want to live.
Get underwritten pre-approval before you tour anything
A pre-qualification is a conversation. A pre-approval is a credit pull plus income and asset documentation. A fully underwritten pre-approval — sometimes called an upfront underwrite or a TBD approval — means an actual underwriter has reviewed your file and the only open item is the property itself. In a competitive market that distinction can be worth more than several thousand dollars of offer price.
Shop at least three lenders. Credit scoring models treat all mortgage inquiries inside a 14 to 45 day window as a single event, so rate shopping does not compound damage to your score. Compare the Loan Estimate forms line by line rather than comparing quoted rates, because fee structures differ enormously. Our loan comparison calculator handles the points-versus-rate tradeoff.
Understand what your offer actually promises
A purchase contract is a collection of promises with escape hatches attached. The earnest money deposit signals seriousness and is typically 1% to 3% of price. Contingencies — inspection, appraisal, financing, and sometimes sale of your current home — define the conditions under which you can leave with that deposit intact.
Waiving contingencies makes an offer stronger and materially riskier. Waiving the inspection means accepting unknown condition. Waiving the appraisal contingency means committing to cover any gap between contract price and appraised value in cash. In a hot market buyers do both; understand precisely what you are exposed to before you sign. Read our guide to purchase contracts and contingencies.
Use the inspection period deliberately
The inspection is not a pass-fail test. It is an information-gathering window that produces leverage. A general inspection costs $400 to $800 and takes two to four hours; specialists for sewer scope, roof, structural, or pest add a few hundred dollars each and are frequently worth it on older housing stock.
When the report comes back, separate items into three buckets: safety and structural defects, deferred maintenance you were going to inherit anyway, and cosmetic issues. Ask for repairs or credits on the first bucket. Asking for everything makes sellers dig in. Read more in home inspections explained.
Closing: the last thirty days
Between contract and closing the lender orders the appraisal, the title company runs the title search, and your file goes through final underwriting. Do not change anything about your financial life during this window — no new credit cards, no car loans, no job changes, no large unexplained deposits. Lenders re-pull credit days before closing and deals die here regularly.
You will receive a Closing Disclosure at least three business days before closing. Compare it against your original Loan Estimate. Certain fees cannot legally increase, others can move within tolerance. On closing day you sign, funds are wired, the deed records, and you get keys. Estimate your cash to close with our closing cost calculator.
Frequently asked questions
How much do I really need for a down payment?
Not 20%. Conventional loans go to 3% for qualified first-time buyers, FHA to 3.5%, and VA and USDA to zero for eligible borrowers. Below 20% you pay mortgage insurance, which raises the monthly payment but lets you buy years earlier. Whether that tradeoff is worth it depends on your local rent versus appreciation math.
What credit score do I need to buy a house?
FHA technically allows 580 with 3.5% down and 500 with 10% down, though most lenders overlay a 620 minimum. Conventional loans generally start at 620, but pricing improves sharply at 680, 720, and 760. The difference between a 660 and a 760 score can be more than half a percentage point on your rate.
How long does the whole process take?
Budget 30 to 45 days from accepted offer to closing on a financed purchase, plus however long house hunting takes. Cash purchases can close in two weeks. VA and USDA loans sometimes run longer due to appraisal requirements.
Should I use a buyer's agent?
Representation is genuinely useful for a first purchase, but compensation structures changed materially after the 2024 NAR settlement. Buyer agency agreements now specify compensation upfront and it is directly negotiable. Ask what the agent will do, what they charge, and whether the seller is offering compensation.
Sources & further reading
- Consumer Financial Protection Bureau, Buying a House guide
- U.S. Department of Housing and Urban Development, FHA Single Family Handbook 4000.1
- Fannie Mae Selling Guide, Eligibility Requirements
Figures and rules change. Verify current requirements with the issuing agency or a licensed professional before acting.