How to get a home loan as a first-time home buyer

For many people, buying a home is only possible with a mortgage. Because a home loan involves borrowing hundreds of thousands of dollars, it’s completely different from a car loan or a credit card, and lenders don’t take that risk lightly. To get approved, buyers need to meet certain requirements to prove they can manage the debt over 20 or 30 years.

That usually means combing through a buyer's income, savings, and credit history to lower the risk of a missed payment. Since securing a loan requires passing these financial checks, buyers should understand exactly what lenders are looking for and the steps they should take to successfully get a home loan.

Key takeaways:

• Getting a home loan starts with your finances. Lenders will look at your credit score, income, savings, employment history, and debt-to-income ratio to decide how much you qualify to borrow.
• Credit score requirements vary by loan type. Many borrowers may need a minimum score of 580 for government loans or 620 for a conventional loan, though specific lender requirements can vary.
• Preapproval can help you compete as a buyer. Unlike prequalification, mortgage preapproval will check your credit and look more in-depth at financial documents, which can make your offer more credible to sellers.

1. Build and protect your credit

Your credit profile is one of the first things a lender looks at when you apply for a home loan, and it’s one of the few variables you can change beforehand (give yourself at least a few months to see a difference). Your credit history helps lenders assess risk and affects which loan options and interest rates are available to you. Even a 20- to 40-point difference in your score might get you a better rate, which can save you thousands over the life of the loan.

• Start with your credit reports. Pull reports from all three bureaus – Equifax®, Experian®, and TransUnion® – for free at AnnualCreditReport.com. You're entitled to free weekly access from all three for your latest score. Look closely at each report, and if you see any errors, make sure to dispute them.
• Then work on your score. Here are some of the most reliable ways to strengthen your credit before applying:
  • Pay every bill on time. Payment history is the single largest factor in your score. Make sure your accounts are current and paid, then keep on top of them.
  • Pay down revolving balances. High credit utilization drags scores down. Getting card balances below 30% of their limit (but lower is better) can improve your score quickly.
  • Avoid opening new accounts. Every new hard inquiry creates a small dip in your credit score. Before applying for a mortgage, keep any credit activity minimal in the months before you apply.

2. Know what you can afford

The amount a lender approves you for and the amount that fits your budget are not always the same number.

A good place to start is with a home affordability calculator. This tool looks at your income, credit score, down payment, and debt-to-income ratio to estimate monthly housing costs. You also can use a mortgage calculator to estimate your monthly payment. But beyond the mortgage payment, make sure you’re looking at the full cost of ownership:

Upfront costs:

• Down payment: Varies by loan type and credit score, and might require mortgage insurance (see table below)
• Closing costs: The national average sits around $4,661, but it’s recommended to set aside between 3% – 6% of the loan amount to make sure everything’s covered. You can use a down payment and closing costs calculator for a better estimate.
• Moving expenses and immediate repairs: These vary in cost but can be significant depending on your situation

Monthly costs:

• Principal and interest
• Property taxes
• Homeowners insurance
• HOA fees, if applicable

Ongoing ownership costs:

• Maintenance and repairs (a common rule of thumb: 1% – 4% of the home’s value yearly)
• Utilities
• Furnishings and decor

Cash reserves:

Beyond the down payment and closing costs, plan to keep 3 to 6 months of mortgage payments in savings after you close. It’s not always required for most buying a single-family home, but lenders might want to see that you won't be financially stretched during the first few months of homeownership, which can sometimes come with surprise expenses.

3. Choose your loan type and lender

The type of loan you choose can affect your down payment, borrowing limits, mortgage insurance, and overall loan cost. Because different lenders offer different rates and specialize in specific programs, shopping around is highly recommended.

Loan types

Home loans are often grouped by whether they’re conventional, jumbo, or government-backed.

Conventional loans: These are private loans that are not insured by the federal government. Many conventional loans are conforming loans, meaning they follow rules set by Fannie Mae and Freddie Mac. Some loan programs allow down payments as low as 3%, and loan limits are based on your location.

Jumbo loans: If you need to borrow more than the standard conforming limit allows, you’ll need a jumbo loan. Because these loans are larger and riskier for banks, lender requirements are often stricter and may include stronger credit, larger down payments, and more cash reserves.

Government-backed loans: These mortgages are insured by federal agencies to help buyers who might not qualify for a conventional loan due to lower credit scores or smaller down payments. FHA, VA, and USDA loans fall under this category.

In addition to the loan type, you will also need to select your loan structure:

• Fixed vs. adjustable rates: A fixed rate stays the same for the life of the loan, while an adjustable rate can shift up or down over time.
• 15- vs. 30-year terms: A 15-year loan can reduce total interest paid, but usually comes with higher monthly payments, while a 30-year loan lowers your monthly payment but takes twice as long to pay off.

Down payment and credit score rules by loan type

How to compare lenders

Even with a government-backed loan, you usually apply through a private lender. Some lenders even specialize in different loan types. Shopping around and checking in with at least three lenders is a great way to find savings. Here's what to look at:

• Interest rate vs. APR: The interest rate is the yearly cost of borrowing the loan amount, expressed as a percentage, and it does not include loan fees or other charges. The annual percentage rate (APR) is all encompassing: it includes the interest rate plus certain costs of getting the loan, such as points, mortgage broker fees, and other charges. When comparing lenders, look at the interest rate, APR, and closing costs all together.
• Closing costs and lender fees: Closing costs include lender charges (like origination fees) and third-party services (like appraisal and title). These can vary by lender, even for the same loan amount, rate, and loan type. A lower interest rate may come with higher upfront costs, which can reduce or even cancel out the monthly savings. Ask every lender for an itemized estimate so you can compare total cash-to-close, not just the monthly payment.
• Rate lock options: A mortgage rate lock keeps your interest rate from changing between the loan offer and closing, as long as you close within the lock period and there are no major changes to your application. This is important because rates change all the time, even daily. Before choosing a loan offer, ask how long the rate lock lasts, whether it costs extra, what happens if closing is delayed, and whether the lock affects points or lender credits.
• Customer support and application experience: A mortgage comes with paperwork, document requests, review periods, and closing deadlines. That makes lender communication an important consideration, especially for first-time buyers. Before choosing a lender, ask how documents are submitted, how quickly the loan team typically responds, who your main point of contact will be, and whether the lender is confident it can meet your closing timeline. A low rate may not be enough on its own if slow communication or missed deadlines puts your closing at risk. 

4. Get preapproved

Before you start touring homes, you'll want a mortgage preapproval letter in hand. This letter shows that a lender has looked at your finances and is tentatively willing to lend you up to a certain amount. It is not a guaranteed loan offer, but it can show sellers that you are likely to be able to get financing.

• Prequalification vs. preapproval: Prequalification is an early estimate of how much you may be able to borrow based on information you provide. It can be useful early in the home shopping process, but it is usually just a starting point. Preapproval involves a closer look at your finances and might need verified information, such as your income, assets, credit, and other details. Because lenders use these terms differently, ask what the letter is based on and whether your financial information has been verified.

To get preapproved, you'll submit documents to a lender that usually include pay stubs, W-2s, tax returns, bank statements, and identification. Multiple mortgage inquiries within 45 days usually count as a single hard pull, so shopping with more than one lender during that period generally doesn’t impact your credit score multiple times.

5. Start touring homes

With preapproval secured, you can move into the fun part: searching for a home.

Find a real estate agent

A buyer's real estate agent can help you with the home search and purchase process, from finding properties and scheduling showings to preparing an offer, negotiating terms, and coordinating next steps before closing.

In a typical buyer-agency relationship, the agent represents the buyer’s interests, but agency rules and representation options vary by state and by agreement. Before you start touring homes, ask what type of representation the agent offers, what services are included, how the agent is compensated, and whether you’ll need to sign a written buyer agreement.

A good buyer's agent will:

• Help you find the right homes. They set up listing alerts based on your criteria, know which neighborhoods fit your budget, and often have access to homes before they hit major listing sites.
• Give you an honest read on properties. A good agent will tell you when a home is overpriced, when a floor plan is harder to resell, or when something in a neighborhood might affect your decision.
• Negotiate on your behalf. When it's time to make an offer, your agent looks at comparable sales, advises on pricing strategy, and handles back-and-forth with the seller's agent.
• Keep the deal on track. From coordinating the inspection to reviewing the title report to tracking contingency deadlines, your agent manages a long list of details so nothing slips through.

Create a list of wants, needs, and must-haves

Before you start touring, get specific about what matters to you in a home and what you can live without. David Kindness, a personal finance expert and CPA in San Diego, recommends grounding that list in the practical details that affect day-to-day livability: like bedroom count, yard space, commute time, and school districts.

Once you have your priorities clear, he says, bring them to your agent early: “You might not find a home with everything on your list, but knowing what you care about most will help you make a better choice.”

6. Make an offer

Once you find a home worth buying, here's how the offer process works:

1. Set your purchase price. Work with your agent to review recent sales of similar homes in the neighborhood. Combine their data with your budget and current market conditions to find a fair number. Overbidding just to win and overextending what you can actually afford are two very different problems.
2. Choose your contingencies. Contingencies are protective clauses that allow you to walk away from a home with your money if something goes wrong. Common contingencies hinge on the home inspection, final mortgage approval, or the property appraising for the agreed-upon price. Waiving these might make your offer look better to a seller, but it also removes your legal protections.
3. Include an earnest money deposit. Earnest money is a small percentage of the purchase price that’s paid upfront to show a seller you’re serious about the home. When you close on the house, this money goes directly toward your down payment or closing costs. But if you back out for a reason not covered by your contingencies, the seller keeps this money.
4. Submit the formal offer. Your real estate agent or real estate attorney will draft and submit the legal paperwork, ensuring all necessary deadlines and buyer protections are clearly written into the contract.
5. Be ready to negotiate. Don’t expect the seller to accept your first offer right away. Counteroffers are a completely normal part of the process. Once both parties agree on the price and details, you’ll sign a formal purchase agreement that you’ll take to your lender to start the loan process.

7. Apply for your mortgage

With a signed purchase agreement in hand, the next step is to officially apply for your home loan. When you submit your application, you’ll receive a Loan Estimate within three business days from the lender that outlines the estimated interest rate, monthly payment, and closing costs for the loan. This doesn’t mean you’re approved yet, but gives you a chance to decide if you want to move forward with that lender.

To apply for a home loan, a lender needs six key pieces of information:

• Property address
• Estimated property value
• Name of the borrower
• Credit (your Social Security number, used to pull your credit report)
• Income
• Loan amount

If you decide to continue, lock in your interest rate, if you haven't done so already. Interest rates change every day, and a rate lock guarantees your specific interest rate won’t go up between the day you apply for the loan and the day you close on the house.

Here’s a heads up of what lenders will be looking at during the application process:

Income and job history

Lenders don't usually look for a specific income amount, but whether your income is stable, documented, and likely to continue, and whether you can afford the mortgage along with your other monthly obligations.

They usually want documentation of:

• At least 2 years of tax returns
• Recent W-2s and pay stubs
• 1099s or business returns if self-employed
• Documentation for alimony, child support, or other ongoing income

Credit score

A lender will also need your Social Security number to pull your credit. Your credit score can affect your loan options, interest rate, and overall borrowing costs. A high score shows you manage debt responsibly and can get you lower interest rates, while a low score from missed payments, defaults, or bankruptcies makes you a riskier borrower to lenders.

Explaining extenuating circumstances

If your credit history was affected by a serious hardship, such as a medical emergency, job loss, divorce, bankruptcy, or foreclosure-related event, you may be able to submit a letter of explanation with supporting documents. A past hardship may not automatically disqualify you, but the lender will review the full application and supporting documentation. 

DTI ratio

Your debt-to-income (DTI) ratio measures how much of your gross monthly income goes toward debt payments (including credit cards, student loans, car loans, and your future mortgage). For example, if you earn $6,000 a month before taxes and your total monthly debt payments equal $2,400, your DTI is 40%.

Conventional loans generally prefer a DTI below 36% (though some stretch to 45% with strong credit and cash reserves), or up to 50% through automated underwriting. FHA loans can occasionally accept ratios up to 57% depending on credit score and other lower risk factors. However, the lower your DTI, the more comfortable lenders feel approving your loan.

Assets

When lenders review your assets – like checking, savings, investment, and retirement accounts – they're trying to answer two questions: do you have enough for the down payment and closing costs, and will you have anything left afterward? Some loan programs or lenders may view limited funds as added risk.

Expect to provide:

• Up to 60 days of account statements for any account being used to document assets
• Documentation for large or unusual deposits: large or unusual deposits may need a paper trail. Lenders need to know the money isn't a loan (which would affect your DTI) or a gift with repayment expectations.
• Proof of recently sold assets: if you sold a car, liquidated investments, or received a gift toward the down payment, make sure to back it up with a title transfer, transaction record, or gift letter.

Property type

You’ll need to tell the lender whether the home will be your primary residence, a second home, or an investment property. A primary residence is the home you plan to live in, and the occupancy matters because it can affect mortgage eligibility, pricing, and loan terms. The lender will also want the address of the home you’re hoping to buy, as well as how much you’re requesting to borrow to pay for it.

8. Underwriting

Once your application is submitted, your file moves into underwriting, which is the formal review process that determines whether your loan gets approved.

Underwriting

Underwriting is the formal review process where a financial expert verifies your income, credit, debt, assets, and the property details. An underwriter goes through everything your lender collected during the application process and may come back with requests for additional documents or written explanations for anything in your file that needs clarification. Responding quickly and completely to these requests is one of the most effective things you can do to keep the process on track. 

The full mortgage process often takes several weeks, and underwriting is one of the key steps between application and closing. During or after underwriting, you may receive an approval, a conditional approval, or a denial. A conditional approval means the lender needs you to satisfy certain requirements before the loan can close, such as providing more documentation, resolving a credit issue, or meeting appraisal-related conditions.

Closing Disclosure

At least 3 business days before closing, your lender sends a Closing Disclosure, which is a standardized five-page document that lays out the final, binding terms of your loan. It covers your loan type, interest rate, monthly payment, total closing costs, and how much cash you'll need to bring to the closing table. It also shows whether your interest rate can rise after closing, whether you have a prepayment penalty, and whether the loan includes an escrow account for taxes and insurance.

As soon as you receive this document, compare it line-by-line to your original Loan Estimate. Most numbers should be the same or very close (some fees might be legally required to stay within a certain range). If you spot anything unexpected or major changes, contact your loan officer right away to get answers before closing day.

9. Close on your new home

Closing is when you'll sign the documents that finalize your loan and transfer the legal title of the home, then pay your remaining costs and get the keys.

What you'll usually pay at closing

Your total cash to close has two main parts: your down payment and your closing costs. The down payment is often the larger of the two and goes toward the purchase price. Closing costs cover the fees required to finalize the loan, and are a mix of lender charges and third-party services. What you’ll owe at closing is listed on your Closing Disclosure, and often includes:

• Down payment
• Loan origination fee
• Appraisal fee
• Title search and title insurance
• Prepaid interest
• Prepaid property taxes and homeowners insurance
• Initial escrow setup
• Recording fees
• Attorney fees (where applicable)

Closing-day checklist

Closing will take about an hour or two and takes place at a title company, escrow office, attorney's office, or even remotely with electronic notarization. You’ll need to have the following on hand:

• Government-issued photo ID: A driver's license or passport works, but make sure it's current.
• Final funds: Your down payment and closing costs, paid with a cashier's check or wire transfer. Personal checks won’t be accepted for amounts this large.
• Your Closing Disclosure: Bring a copy and compare it to the documents in front of you before you sign.
• A list of questions for the closing agent: If anything was unclear in your Closing Disclosure or final loan documents, this is your last opportunity to get answers.

FAQ

What credit score do I need to get a home loan?

The specific credit score you need depends on the type of loan you’re applying for, but you generally need a score of at least 580 to 620 to get started, though some lenders accept slightly lower scores. For example, government-backed FHA loans allow for a credit score as low as 580 with a 3.5% down payment, while traditional conventional loans usually need a minimum score of 620. While these are usually the minimum scores to get a mortgage, borrowers with higher scores – usually 740 or above – might qualify for lower interest rates, which saves a lot of money over time.

How much income do I need for a mortgage?

There is no single income number required to buy a home because lenders care a lot more about your debt-to-income (DTI) ratio, which looks at your debt in comparison to your monthly pretax income. Most lenders want to see your total debt payments at 36% or less of your monthly gross income. Usually, the income you need for a mortgage comes down to the price of the home, down payment, loan type, interest rate, monthly debts, property taxes, insurance, and other housing costs.

How long does it take to get a home loan?

On average, it takes between 30 and 45 days to officially close on a home loan once a seller accepts your offer. During this time, your lender is verifying all your financial paperwork, ordering a home appraisal to determine the property's actual value, and completing the final underwriting checks. To help keep the process on track, respond to lender requests right away and avoid big financial changes, like changing jobs or opening a new credit card, while your loan is processing.

Can I get a home loan if I have existing debt?

You can still get a mortgage if you already have existing debt like student loans or a car payment. Lenders don’t expect you to be completely debt-free; they just want to make sure your total monthly financial commitments are manageable. When you apply, they will look at how much of your paycheck goes toward current debt payments, and if you still have enough left over to comfortably cover a house payment, your debt shouldn’t stop you from getting approved. Paying down existing debt, avoiding new credit, and improving your credit score before you apply could even help strengthen your mortgage application.

What's the difference between prequalification and preapproval?

While they sound the same, prequalification and preapproval are actually two very different steps in the home buying process. Prequalification is a quick, informal estimate based on basic financial details you tell a lender, which gives you a rough idea of what you might be able to borrow. Preapproval, on the other hand, is an official letter a lender provides you to show to a seller that shows they performed an actual credit check and went over your financial documents. This letter shows sellers a lender is tentatively willing to lend you the funds to purchase a home.

The bottom line: Preparation is a good mortgage strategy

Getting a home loan has a lot of steps involved, but overall, the process can be straightforward once you know what to expect. The buyers who move through mortgage approval most smoothly tend to be the ones who started thinking about it ahead of time: building credit before they needed it, saving beyond the down payment, comparing lenders before falling in love with a house, and keeping their documents organized once underwriting begins.

If you're not sure where you stand today, whether on credit, affordability, or loan options, talking to a Home Loan Expert at Rocket Mortgage is a simple way to find out.

¹Client will be required to pay a 1% down payment, with the ability to pay a maximum of 3%, and Rocket Mortgage will cover an additional 2% of the client’s purchase price as a down payment, or $2,000. Maximum grant amount is $7,000. Offer valid on primary residence, conventional loan products only. Maximum loan amount of $350,000. Cost of mortgage insurance premium passed through to client effective January 2, 2024. Offer valid only for home buyers when qualifying income is less than or equal to 80% area median income based on county where property is located. Not available with any other discounts or promotions and cannot be retroactively applied to previously closed loans or loans that have a locked rate. This is not a commitment to lend. Rocket Mortgage reserves the right to cancel/modify this offer at any time. Additional restrictions/conditions may apply.

²Rocket Mortgage is a VA-approved lender, not endorsed or sponsored by the Dept. of Veterans Affairs or any government agency. 

The 3% down payment option is only available on certain conventional loan products and is not available in all states. Additional terms and conditions may apply.

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