Preparing Your Finances Before You Start House Hunting

Request your credit reports from all three major bureaus at AnnualCreditReport.com — the only federally authorized source for free reports. Review each one carefully for errors: incorrect account balances, accounts that are not yours, or late payments that were actually made on time.

Dispute inaccuracies directly with the reporting bureau in writing. Bureaus are generally required to investigate within 30 days. Even a modest score improvement can affect the interest rate a lender offers you, so starting this process early matters.

Most conventional mortgage lenders look for a minimum FICO score, commonly in the mid-600s range, though requirements vary by loan type and lender. Higher scores typically unlock more favorable rates. The factors that influence your score most heavily include payment history, credit utilization (the share of available credit you are using), and the age of your accounts.

To improve your score before applying: pay down revolving balances, avoid closing old accounts, and make every payment on time. These changes take time to register — ideally begin at least six months before you plan to apply.

Your debt-to-income (DTI) ratio is the percentage of your gross monthly income that goes toward recurring debt payments — think student loans, car payments, credit card minimums, and any other obligations. Lenders use this figure to gauge how much additional debt (a mortgage) you can realistically carry.

Most conventional lenders prefer a DTI below 43%, though some loan programs allow higher ratios with compensating factors. To lower your DTI, either increase income or reduce outstanding debt. The Saving & Debt hub offers actionable strategies for paying down balances systematically.

Lenders evaluate three categories of savings: your down payment, closing costs, and cash reserves. A down payment below 20% on a conventional loan typically requires private mortgage insurance (PMI), which adds to your monthly costs. Closing costs commonly run 2%–5% of the loan amount and must be covered at settlement.

Beyond those immediate needs, many lenders want to see reserves — funds left over after closing that would cover several months of mortgage payments. Document the source of your funds carefully; large unexplained deposits can raise underwriting questions and delay approval.

Lenders typically require two years of steady employment history. Prepare: recent pay stubs (last 30 days), W-2s or 1099s for the past two years, and federal tax returns. Self-employed borrowers generally need to show two years of tax returns plus a profit-and-loss statement.

If you recently changed jobs within the same field, that is usually acceptable. A career change to a different industry shortly before applying can complicate underwriting — discuss your situation with a lender or HUD-approved housing counselor before proceeding.

Pre-approval involves a lender formally reviewing your credit, income, assets, and debts — and issuing a conditional commitment for a specific loan amount. It is distinct from pre-qualification, which is a looser, unverified estimate. In most competitive markets, sellers expect a pre-approval letter before taking an offer seriously.

Comparing offers from multiple lenders within a short window (typically 14–45 days depending on the credit-scoring model) generally counts as a single inquiry for credit-scoring purposes — so shopping around does not heavily penalize your score. Once you have your letter in hand, you are ready to begin your search in earnest.