There are more financing options and strategies available than ever before.
HomeEquityQuiz is here to help you understand them and prepare for your first purchase.

How to Prepare for Your First Home Purchase

Before you start touring homes, make sure you’ve covered these essentials:

1. Save for Your Down Payment

Aim to save at least 20%, especially if you’re planning to purchase in a higher price range.
Some lenders may allow as little as 3% down, but smaller down payments may mean:

• Higher monthly payments

• Mortgage insurance costs

• Stricter credit requirements

Example:
5% down on a $200,000 home = $10,000.

To reach your down payment faster, consider:

• Setting aside tax refunds and bonuses

• Automating a savings plan

• Using budgeting apps to track progress

2. Improve Your Credit Score

A strong credit score can dramatically lower your interest rate.

Before applying for a mortgage:

• Review your credit reports and dispute any errors

• Pay down existing debts

• Avoid late or missed payments

• Do NOT open new credit lines (loans, credit cards) during the mortgage process

New credit inquiries can lower your score and jeopardize your approval.

3. Determine How Much Home You Can Afford

Most lenders allow a debt-to-income ratio (DTI) up to 45%.
This means all of your monthly debts — including your future mortgage payment — cannot exceed 45% of your gross monthly income.

Even if you're approved for a higher amount, consider your actual budget, lifestyle, and other expenses. The goal is to avoid becoming “house poor.”

For the best long-term return, plan to stay in the home for at least three years.

4. Research Your Mortgage Costs

Many first-time buyers underestimate the additional costs involved in financing a home.

Common costs include:

• Property taxes

• Mortgage insurance

• Title search and recording fees

• Lender fees

• Closing costs (typically 2%–5% of the loan amount)

Ask your lender for a full breakdown so you know exactly what to expect.

5. Shop for the Best Mortgage Package

Your mortgage options are never limited to just one program. Consider the major paths:

Conventional Loans

• Backed by Fannie Mae/Freddie Mac

• Down payments as low as 3%

FHA Loans

• Insured by the Federal Housing Administration

• Minimum 3.5% down

VA Loans

• Backed by the Department of Veterans Affairs

• No down payment required for qualifying veterans and service members

While lower down payment loans are attractive, remember:
Less down = higher monthly payments + possible mortgage insurance costs.

A 30-year fixed mortgage gives you the lowest monthly payment, while shorter terms offer lower interest rates but higher monthly payments.