Pennies & More

Guides / Mortgages and home

Getting mortgage-ready

Getting approved for a mortgage, and getting a good rate, depends mostly on four things you can work on months ahead: your credit, your debts compared with your income, your savings, and a steady record of income.

The key ideas

Credit history
Pull your free credit reports from all three bureaus at AnnualCreditReport.com, fix any errors, and keep paying every bill on time. Higher scores usually qualify for lower rates.
Debt-to-income ratio (DTI)
Lenders add up your monthly debt payments, including the new mortgage, and divide by your gross monthly income. A common guideline is a total DTI of 36% or less, though some loan programs allow more.
Down payment and cash to close
Beyond the down payment you need money for closing costs and reserves. Keep the money in an account where you can document where it came from.
Steady income
Lenders usually want to see about two years of consistent income. If you can, avoid changing jobs or becoming self-employed right before you apply.
Preapproval
A preapproval is a lender's written estimate of what you could borrow, based on a check of your credit and documents. It is stronger than a prequalification and helps when you make an offer.

Questions to ask yourself

  • What monthly payment can I afford comfortably, not just the maximum a lender approves?
  • How much will property taxes, homeowners insurance and any HOA fees add each month?
  • Do I qualify for any first-time buyer or down payment assistance programs in my state?

Free help

HUD-approved housing counselors
Free or low-cost homebuyer counseling. Find one through HUD or by calling 800-569-4287.
CFPB "Buying a House" tools
Step-by-step guides and a checklist from the Consumer Financial Protection Bureau at consumerfinance.gov.

This guide is general education for US households, based on how things typically work. Rules, rates and program details change and vary by lender and state. It is not individual financial, legal or tax advice, and it isn't an offer of credit. Pennies & More isn't paid by any lender or company mentioned here.