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What Is Needed To Buy A House? Here’s What You Should Know

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Published on December 22, 2023
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Before you start the journey to finding your dream home, it’s important to know the essentials you’ll need to buy a house. Purchasing a home is one of the biggest financial investments you’ll make in life, so it’s wise to be as prepared as possible before jumping in.

Let’s unpack the basic requirements for buying a house and explore some key items to consider throughout the home buying process – particularly when it comes time for lender approval.

What Do You Need To Buy A House?

A lender will evaluate your finances and qualifications as a borrower based on a range of criteria before you’ll be approved for a mortgage to buy a house. The first step, though, is having a good financial plan from the start.

While it might be tempting to focus on the furniture you’ll buy or the color of paint you should choose for your new walls, home decor details like this should take a backseat. First, concentrate on the criteria a lender will use to judge your finances and your ability to make mortgage payments.

The Requirements To Buy A House

The requirements for loan approval vary based on the lender, your loan program and other variables.

With that, let’s look at the items in your financial profile that a lender will typically evaluate, along with the benchmarks you’ll likely need to hit for each one.

1. Credit Score

A good credit score and credit report are crucial when you’re looking to buy a house. Although credit score requirements will vary depending on your lender and loan type, a solid credit score will make it easier to be approved for financing. A good credit score can also help you secure a reasonably good interest rate and loan term.

You’ll typically need a credit score of at least 620 for conventional loan approval, but other loan programs have more relaxed credit score requirements.

To improve your credit score before buying a house, we recommend paying all your bills on time, keeping your credit card balance well below your credit limit, and not opening any new accounts.

2. Debt-To-Income Ratio (DTI)

Your debt-to-income ratio (DTI) is another key consideration for a lender when deciding whether to approve you for a mortgage. Lenders use your DTI to determine if you can successfully take on additional debt – specifically, your monthly mortgage payment. The lower your DTI, the more comfortably you’ll be able to pay your mortgage.

For a conventional mortgage, lenders generally prefer a DTI of no higher than 43%. This means that the total amount you spend on monthly debt payments, including your mortgage payment, can’t exceed 43% of your gross monthly income. It’s possible that your DTI can be higher for some government-backed loans. But the lower your DTI, the better.

If you need to bring down your DTI, avoid taking on any new debt and pay off your existing debt as quickly as possible.

3. Proof Of Income And Finances

When you apply for a loan, mortgage lenders are required to verify that you have an income that’s large enough and stable enough to afford your monthly mortgage payments. Lenders will assess numerous financial documents to determine if you’re able to take on more debt. These documents most often include bank statements, pay stubs, tax returns, an employment verification letter, and W-2 or 1099 forms.

Keep in mind: If you’re self-employed or currently out of a job, qualifying for a mortgage is still a possibility. You may have to jump through some extra hoops, though.

4. Down Payment

Your down payment is a percentage of the purchase price that you’ll pay upfront when you close on a home. The bigger your down payment, the smaller your loan amount will be and the less you’ll pay to your mortgage lender each month.

Minimum down payment requirements range from zero down on some government-backed loans to as much as 10% down, or even more, on jumbo loans. You can apply for down payment assistance to potentially get help with your down payment and/or closing costs.

5. Closing Costs

Closing costs are fees that cover various expenses associated with the completion of your real estate transaction. The buyer and seller both typically pay closing costs, but you as the buyer may be able to negotiate with the seller to have them pay a portion of your closing fees.

Fees typically associated with closing costs include title insurance, appraisal fees, home inspection fees, loan origination fees and attorney fees. You can expect to pay 3% – 6% of the loan amount in closing costs unless the seller agrees to pitch in on the amount you owe.

6. Mortgage Lender And Loan Type

Critical to buying any home is picking the right mortgage lender and loan type for your situation. When deciding on a lender, you’ll want to see what they can offer you based on your financial standing. Along with finding out the interest rate and loan term you can expect, consider reading online reviews about a lender’s customer service. Or maybe reach out to friends and family members for recommendations on a lender.

The best lender for your needs will depend in part on the loan programs they offer. When exploring various home loan options, be sure to research who’s an eligible borrower, down payment and credit score requirements, and the interest rates commonly associated with this type of loan (either high or low). Also check to see whether you’re a better candidate for an adjustable-rate or fixed-rate mortgage.

Types Of Loans

The loan type you choose will depend on various factors. Here are three of the most common loan options.

  • Conventional loans: A conventional loan is backed by Fannie Mae or Freddie Mac, rather than directly by the federal government, and may allow for a down payment as low as 3% of the purchase price. To avoid private mortgage insurance (PMI), however, you’ll need to put down at least 20%.
  • FHA loans: Backed by the Federal Housing Administration, an FHA loan offers a relaxed credit score requirement relative to a conventional loan. With a credit score of just 580, you’ll make a down payment of only 3.5%. With a credit score between 500-579, you’ll need to make a 10% minimum down payment.
  • VA loans: A VA loan is backed by the U.S. Department of Veterans Affairs and is specifically for active-duty service members, veterans, surviving spouses, and National Guard and U.S. Army Reserve members who all meet certain requirements for eligibility. VA loans come with no down payment requirement and typically have a slightly lower interest rate compared to conventional loans.

7. Mortgage Preapproval

While not technically a requirement for buying a home, getting an initial mortgage approval – often known as a mortgage preapproval – is of the utmost importance. With this approval, a lender lets you know how much house you can afford after they’ve looked at your credit score, income and some other financial information. An initial approval is highly recommended because it shows sellers that you’re serious about buying and have the financial backing to purchase a home up to a certain amount.

If you end up getting denied for an initial mortgage approval, try not to be discouraged. Talk with your lender about specific ways you can improve your chances of getting a mortgage in the future.

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Practical Tips For Buying A House

Although the actions we’ll recommend next aren’t a must for a home purchase, they can be a tremendous help if you want to buy a house with as few bumps in the road as possible. Here’s a breakdown of three steps worth taking and why they’re worth the time and effort.

Create A Budget

Creating a budget for a home purchase can help you set realistic goals when you go house hunting. If you know how much house you can afford, you’ll have a better understanding of the types of houses worth considering and the mortgage loan option that’s right for you.

While the purchase price is important, knowing how much you’ll need to put toward a down payment, closing costs and homeownership expenses can also benefit you. We also recommend budgeting for an emergency fund when you’re looking to buy a home.

Find A Real Estate Agent

Although buying a home without a real estate agent is possible, an agent’s market knowledge and expertise make working with an agent a wise choice. Real estate agents not only have access to the multiple listing service (MLS), but they also typically have a network of professionals to lean on for pocket listings. They might also know of other home purchase opportunities that you as the buyer couldn’t otherwise access.

Real estate agents should be equipped to handle any negotiations throughout the home buying process, provide advice on the housing market and help with navigating paperwork as needed.

Research The Housing Market

It’s always a good idea to be aware of what’s going on in the real estate market before you purchase a piece of property. Knowing the current interest rates and what to look out for in the current housing market can play in your favor.

It’s also important to know if you’re in a buyer’s market or a seller’s market because this can significantly influence whether it’s the right time to buy.

The Bottom Line: Know What’s Needed To Buy A House Before Getting Started

Buying a house can feel complicated if you’re not familiar with the real estate market or home buying process in general. Having a few tips to consider and a basic understanding of what’s required can help get you on the right path to homeownership. This, along with the help of a real estate agent and doing personal research on the housing market, will put you in a better position when you begin your home buying journey.

Ready to begin building equity and live in your dream home? You can get started on your mortgage application today and connect with one of our Home Loan Experts to discuss your financing options.

Find A Mortgage Today and Lock In Your Rate!

Get matched with a lender that will work for your financial situation.

Get Started

Victoria Araj

Victoria Araj is a Section Editor for Rocket Mortgage and held roles in mortgage banking, public relations and more in her 15+ years with the company. She holds a bachelor’s degree in journalism with an emphasis in political science from Michigan State University, and a master’s degree in public administration from the University of Michigan.