How to Finance a Home

Financing a home can feel overwhelming, especially if it’s your first time buying. Breaking the process into clear, actionable steps makes it easier to understand and helps you avoid costly mistakes. This guide summarizes the 8 key steps to financing a home.

Before talking to lenders or touring homes, take an honest look at your financial situation. Calculate your comfortable monthly housing budget, factoring in principal, interest, taxes, insurance (PITI), HOA fees, utilities, and maintenance.

Check your credit score and history — higher scores can mean lower interest rates and better loan terms. Review your debts, income, and savings for a down payment and reserves. If needed, work on improving your credit by paying down debt, making on-time payments, and disputing inaccuracies before applying.

Once you know your financial picture, translate it into a realistic price range. Use a mortgage calculator to model different scenarios for loan terms, interest rates, and down payments.

Remember that just because a lender approves you for a certain amount doesn’t mean you need to spend that much. Aim for a payment that leaves room in your budget for other expenses and savings goals.

Mortgages aren’t one-size-fits-all. Compare the main types of home loans:

• Conventional loans: Available in fixed or adjustable rates, with conforming and non-conforming (jumbo) limits.
• Government-backed loans: FHA (low down payment), VA (for eligible service members and veterans), and USDA (for qualifying rural or suburban buyers).
• Special programs: State and local assistance, assumable mortgages, or occupation-based programs.

Review pros and cons, including down payment requirements, credit score minimums, and potential risks like balloon payments or prepayment penalties. Understanding your options helps you choose the best fit for your budget and long-term goals.

Preapproval shows sellers you’re serious and gives you a clear idea of what you can afford. To get preapproved, gather required documents such as ID, income statements, tax returns, bank statements, and details about your debts and assets.

Unlike prequalification, preapproval involves a hard credit check and document verification. You can (and should) get preapprovals from multiple lenders within a short window to compare rates and terms without multiple credit score impacts.

Even small differences in interest rates and fees can add up to thousands of dollars over the life of a loan. Compare loan estimates from at least three lenders, looking at:

• Interest rate and APR
• Lender fees and closing costs
• Options for buying points to lower your rate
• Loan terms and flexibility

Ask about rate-lock options, timelines, and customer service. Choose a lender who offers competitive terms and communicates clearly throughout the process.

Once you find a home, work with your agent to make a competitive offer. Include your preapproval letter to strengthen your position with the seller.

Negotiate key terms such as seller concessions toward closing costs or mortgage points, and confirm your financing contingency timeline. When the offer is accepted, you’ll sign the purchase agreement and typically deposit earnest money into escrow.

After your offer is accepted, your loan goes through underwriting — the lender’s detailed review of your finances and the property. This step includes:

• Appraisal to confirm the home’s value
• Title search to verify ownership and clear any liens
• Employment and income verification
• Final review of your credit and debt-to-income ratio

You’ll receive a Loan Estimate and must formally indicate your intent to proceed. Avoid taking on new debt or changing jobs during this stage, as it can derail your approval.

Three days before closing, you’ll receive a Closing Disclosure outlining your loan terms, monthly payment, and cash-to-close amount. Review it carefully and address any errors immediately.

At the closing table, you’ll sign documents such as the Mortgage Note, Deed of Trust, and any required occupancy certificates. You’ll also pay your down payment and closing costs, unless those are rolled into your loan or covered by seller credits. Once funds are disbursed and the deed is recorded, you’ll get the keys to your new home.

Financing a home is a step-by-step process that moves from financial readiness and budgeting to loan research, preapproval, lender selection, underwriting, and closing. By understanding each stage, preparing documents in advance, and keeping your finances stable, you can move through the process with confidence and avoid common pitfalls.