First-Time Homebuyer Guide: From Pre-Approval to Closing

Buying a first home is a sequence of about a dozen decisions, and most of the expensive mistakes happen in the first three: how much to borrow, which loan to use, and which lender to trust. This guide walks the process in order, from checking your budget to receiving the keys, so you know what is coming at each stage and what to ask.

It is written for US buyers who have never gone through a purchase. After reading it, you should be able to estimate a comfortable monthly payment, compare the main loan types, understand the paperwork you will receive, and avoid the most common surprises at closing.

Step 1: Work out what you can afford

Lenders will tell you the most they will lend. That number is a ceiling, not a recommendation. Start from the other direction: what total monthly payment fits your life?

The Consumer Financial Protection Bureau (CFPB) suggests adding up principal, interest, property taxes, mortgage insurance, homeowner's insurance, any extra insurance such as flood coverage, and homeowners association (HOA) fees. Then set aside money for maintenance, repairs and utilities, which the CFPB notes can be significant, and for emergency savings.

Lenders also look at your debt-to-income ratio (DTI): all your monthly debt payments divided by your gross monthly income, which is income before taxes. Different loan products and lenders set different DTI limits, so ask each lender what theirs are.

Here is a hypothetical example. Say you earn $6,500 a month before taxes and pay $600 a month toward a car loan and student loans. You are considering a home with a total housing payment of $1,900.

Before this feels comfortable, check it against your real take-home pay. A ratio that passes a lender's test can still leave little room after taxes, groceries and savings.

Step 2: Get your credit and cash in order

Pull your credit reports well before you apply. Errors on a report can raise your rate or delay approval, and fixing them takes time. Our guide to reading your credit report and disputing errors shows how.

Then list the cash you will need on top of your down payment:

• Closing costs, the fees paid to finish the loan and transfer the property. Your Loan Estimate lists them line by line.
• Inspection and appraisal fees, which are often paid before closing.
• Moving costs and immediate repairs.
• Reserves, meaning savings you keep after closing so a broken water heater does not become a credit card balance.

Avoid opening new credit accounts, financing furniture, or changing jobs while your application is in progress. Lenders can re-check your credit and income before closing.

Step 3: Choose a loan type

Four loan families cover most first-time buyers. Eligibility and fees change, so confirm current terms with a lender and the agency pages in the Sources.

The CFPB says FHA loans tend to cost more than conventional loans for borrowers with good credit and a 10 to 15 percent down payment, while for lower credit scores or smaller down payments FHA can often be cheaper. It recommends getting quotes for both and comparing total costs rather than relying on a rule.

Size matters too. For 2026, the Federal Housing Finance Agency set the baseline conforming loan limit for one-unit properties at $832,750 in most of the country, and it is adjusted every year. Loans above the limit are called jumbo loans and usually follow different rules.

If you are weighing a fixed rate against an adjustable rate, read our explainer on fixed-rate vs. adjustable-rate mortgages before you pick.

Step 4: Get pre-approved and shop lenders

A pre-approval is a lender's written estimate of what it would lend you, based on your documents. It is different from a casual prequalification and carries more weight with sellers. Expect to provide pay stubs, tax returns or W-2s, bank statements, and ID.

Then compare offers. Federal rules require lenders to give you a standardized Loan Estimate soon after you apply, which makes side-by-side comparison practical. The CFPB recommends applying with at least three lenders before choosing. Compare the interest rate, the APR (which combines rate and fees), points, and the closing costs on page two.

Ask each lender how long the rate can be locked, what the lock costs, and what happens if closing is delayed. A HUD-approved housing counselor can review your numbers and explain your options, and the CFPB maintains a search tool to find one. Ask what, if anything, the agency charges.

Step 5: Find a home and make an offer

Set search filters by total monthly payment, not just list price. Property taxes and insurance vary widely between neighborhoods and states, and an HOA can add a monthly fee that counts toward your DTI.

When you make an offer, the contract usually includes contingencies, which are conditions that let you back out under defined circumstances. Common ones cover the inspection, the appraisal, and your financing. Waiving them may make an offer look stronger, but it shifts risk onto you. A local real estate agent or attorney can explain what your state's standard contract includes, since customs differ by state.

Step 6: Inspection, appraisal and underwriting

After your offer is accepted, three checks happen, often at the same time.

1. Home inspection. You hire an inspector to examine the structure, roof, plumbing, electrical and heating systems. Attend if you can. The report gives you grounds to negotiate repairs, a credit, or a lower price, or to walk away if your contract allows.
2. Appraisal. The lender orders an independent estimate of the home's value. If it comes in below the price, you may need to renegotiate, bring more cash, or exit under the appraisal contingency.
3. Underwriting. The lender verifies your income, assets, debts and the property. Respond to document requests quickly, because delays here are the most common cause of late closings.

Also get quotes for homeowner's insurance, since the lender requires proof of coverage. In some areas you may need flood insurance, which standard policies exclude.

Step 7: Closing

Federal rules require your lender to give you the Closing Disclosure at least three business days before you sign. The CFPB explains that this window lets you compare it with your Loan Estimate, ask questions, and consult a lawyer or housing counselor.

Use it. Check that the loan amount, interest rate, monthly payment and fees match what you were quoted. Query anything that changed. Shortly before closing, do a final walk-through to confirm agreed repairs were made and the home is in the expected condition.

At closing you sign the loan documents and deed paperwork, pay your cash to close (usually by wire or cashier's check, as instructed), and receive the keys. Confirm wiring instructions by phone using a number you already trust, because fraudsters send fake instructions by email near closing.

Common mistakes

• Shopping at the maximum approval. Leave room in the budget for repairs, rising insurance and taxes, and life changes.
• Applying with only one lender. Offers can differ meaningfully, and the Loan Estimate exists to make comparison easy.
• Draining all savings for the down payment. A smaller down payment with a cash cushion can be safer than the reverse.
• Skipping or rushing the inspection. Hidden defects can cost far more than the inspection fee.
• Making big purchases or opening credit before closing. It can change your DTI and jeopardize approval.
• Ignoring the rent-or-buy question. If you may move within a few years, run the numbers first with our guide to renting vs. buying a home.

Frequently asked questions

Do I need 20% down?

No. Many buyers put down less, and FHA loans allow as little as 3.5%, while VA and USDA loans can require no down payment for eligible buyers. A smaller down payment generally means a larger loan and, on many loan types, mortgage insurance.

What is the difference between pre-approval and a Loan Estimate?

A pre-approval is a lender's assessment of how much you can borrow, used when shopping for homes. A Loan Estimate is a standardized form with the actual terms and costs of a specific loan, which you receive after applying.

Can the seller pay my closing costs?

Sometimes. The CFPB cautions that you still bear the cost, because seller-paid costs usually come with a higher purchase price or a trade-off such as skipping repairs.

Are there programs for first-time buyers in my state?

Many states and local housing finance agencies offer down payment help or special loans, and eligibility rules vary. Ask a HUD-approved housing counselor or your state housing finance agency what is available where you live.

Next steps

1. Calculate your DTI and a monthly housing budget you would be comfortable with after taxes and savings.
2. Check your credit reports and fix any errors before applying.
3. Request Loan Estimates from at least three lenders and compare rate, APR and closing costs.
4. Schedule a session with a HUD-approved housing counselor to review your plan.