Home purchase loans
Buying a home starts with the right loan for your budget, your down payment and how you earn your income. Here's how the process works, what you'll need, and which loans buyers use most, from conventional and FHA to VA, jumbo and self-employed options.
Ready to see what you could buy?
Answer a few quick questions and see which loans fit. A licensed loan officer confirms your options.
Loans buyers use most
How buying a home with a mortgage works
Most home purchases follow the same path. You check your budget and credit, get preapproved so sellers take your offer seriously, find a home and make an offer, then finish the loan while the home is under contract.
- Set your budget. Lenders look at your income, your monthly debts and your credit. Our affordability calculator gives you a starting range, and the debt-to-income calculator shows how lenders weigh your debts.
- Get preapproved. A loan officer reviews your income, assets and credit and tells you how much you can borrow and with which loan.
- Make an offer. Your preapproval letter goes with your offer. Once the seller accepts, the home is under contract.
- Apply and compare costs. After you apply, the lender must send you a Loan Estimate within three business days. It lists your rate, payment and closing costs in a standard format, so you can compare offers.
- Close. At least three business days before closing you receive a Closing Disclosure with the final terms. Compare it with your Loan Estimate, then sign and get your keys.
How much you need for a down payment
You may need less than you think. Twenty percent down avoids mortgage insurance on a conventional loan, but it isn't required to buy.
- Conventional: some programs, such as Fannie Mae's HomeReady and Freddie Mac's Home Possible, allow qualifying buyers to put down as little as 3 percent. Below 20 percent down you usually pay private mortgage insurance until you build enough equity.
- FHA: 3.5 percent down with a credit score of 580 or higher, according to HUD.
- VA: eligible borrowers with full entitlement can often buy with no down payment.
- USDA: no down payment for eligible buyers in eligible areas, with household income limits.
Remember closing costs too. They are separate from the down payment and show up on your Loan Estimate. The down payment planner helps you set a savings goal.
First-time home buyers
First-time buyers often compare a low down payment conventional loan with an FHA loan. A conventional loan can cost less over time if your credit is strong, because its mortgage insurance can be removed later. FHA can be easier to qualify for if your credit is still building, or if you've had a credit setback.
Some programs require a homeownership education course, and many let you use gift money from family toward the down payment, subject to each program's rules. A loan officer can show both options side by side with your actual numbers, so you can see the payment and the total cost before you choose.
Buying when you're self-employed or investing
If you own a business or work as a contractor, your tax returns may show less income than you actually earn after write-offs. Bank statement loans, profit and loss loans and 1099 loans qualify you on other documents instead.
Buying a rental? A DSCR loan qualifies the property on its rent rather than your personal income. These loans usually cost more than a conventional loan, so it pays to compare both paths if you could qualify either way.
What to gather before you apply
- Recent pay stubs and W-2s, or business bank statements and tax returns if you're self-employed
- Two months of bank and investment statements for your down payment and reserves
- A photo ID
- Details on your monthly debts, such as car loans, student loans and credit cards
- If someone is giving you money toward the down payment, their name and the amount
Don't share Social Security or account numbers in a chat or by email. Your loan officer collects sensitive documents through a secure process.
Common questions
How much house can I afford?
It depends on your income, your monthly debts, your down payment and the rate you get. Lenders usually look at your debt-to-income ratio, which compares your monthly debts, including the new house payment, with your gross monthly income. The affordability calculator gives you a quick range, and a loan officer can confirm it.
Do I need 20 percent down to buy a home?
No. Some conventional programs allow 3 percent down for qualifying buyers, FHA allows 3.5 percent with a credit score of 580 or higher, and VA and USDA loans can require no down payment for eligible borrowers. With less than 20 percent down on a conventional loan you usually pay private mortgage insurance.
What is the difference between prequalified and preapproved?
A prequalification is a quick estimate based on what you tell a lender. A preapproval goes further: a loan officer reviews your documents and credit before telling you how much you can borrow, which makes your offer stronger with sellers.
Will checking my options hurt my credit?
No. Answering Mortza's questions does not pull your credit. A loan officer will ask before running a credit check as part of a preapproval or application.