Buying your first home involves more moving pieces than almost any other purchase you'll make — credit checks, down payments, closing costs, inspections, and a lender's math you've probably never had to think about before. Skip a step and you either get denied at the worst possible moment or overpay for years. Here's the checklist in the order it actually matters, with real numbers attached to each step.
1. Check and Improve Your Credit Score
Your credit score determines both whether you qualify and what interest rate you pay — and the rate gap is enormous. On a $350,000, 30-year fixed mortgage:
| Credit Score Range | Typical Rate | Monthly Payment | Total Interest (30 yrs) |
|---|---|---|---|
| 760-850 | 6.3% | $2,166 | $429,800 |
| 700-759 | 6.5% | $2,212 | $446,300 |
| 680-699 | 6.7% | $2,258 | $462,900 |
| 660-679 | 6.9% | $2,305 | $479,700 |
| 620-639 | 7.4% | $2,424 | $522,600 |
That's a $93,000 difference in total interest paid between the top and bottom credit tiers on the exact same loan amount. Before house hunting, pull your credit report (free at annualcreditreport.com), dispute any errors, and pay down revolving balances — even a 20-30 point bump can move you into a better pricing tier.
2. Figure Out Your Real Down Payment Options
The "you need 20% down" advice is outdated for most first-time buyers. Actual minimums:
- Conventional loan: 3-5% down for many first-time buyer programs
- FHA loan: 3.5% down with a 580+ credit score, or 10% down with 500-579
- VA loan (eligible veterans/service members): 0% down
- USDA loan (eligible rural areas): 0% down
The catch: below 20% down on a conventional loan, you'll pay Private Mortgage Insurance (PMI), typically 0.5-1.5% of the loan balance annually, until you build 20% equity. On a $300,000 loan at 1% PMI, that's $3,000/year — or about $250/month — added to your payment.
3. Know Your Debt-to-Income Ratio (DTI) Before You Apply
Most lenders cap total DTI (including your new mortgage) at 43%, with the best rates going to buyers under 36%. Example: gross monthly income of $7,000, with $400 car payment and $200 student loan payment already committed. That leaves room for a mortgage payment (principal, interest, taxes, insurance) of roughly $2,410/month to stay under 43% DTI — which corresponds to a home price in the $350,000-$390,000 range depending on rate and taxes.
4. Budget for Closing Costs Separately From the Down Payment
This trips up more first-time buyers than any other line item — closing costs are on top of the down payment, not included in it. Expect 2-5% of the loan amount, covering appraisal fees, title insurance, loan origination fees, attorney fees, and prepaid property taxes/insurance.
Down payment: $17,500
Closing costs (est. 3%): $9,975
Cash needed at closing: ~$27,475 — not just the down payment alone.
5. Get Pre-Approved, Not Just Pre-Qualified
Pre-qualification is a rough, self-reported estimate that takes minutes and means little to a seller. Pre-approval involves the lender actually verifying your income, assets, and credit, and results in a conditional commitment letter. In competitive markets, sellers frequently won't seriously consider offers without one — it signals you can actually close.
6. Don't Forget Ongoing Costs Beyond the Mortgage
- Property taxes: vary widely by location, often 0.5-2.5% of home value per year
- Homeowners insurance: typically $1,200-$2,000/year for a median-priced home, more in disaster-prone areas
- Maintenance: a commonly cited rule of thumb is 1% of home value per year set aside for repairs and upkeep
- HOA fees (if applicable): can range from $50 to $500+/month depending on the property