Home Buying Basics

The Biggest Purchase You Will Probably Ever Make

For most people, buying a home is the largest financial transaction of their life. A $350,000 house with a 30-year mortgage at 7% will cost you roughly $838,000 in total payments by the time it is paid off. That is not a reason to avoid buying. It is a reason to understand exactly what you are signing up for before you sign anything. This lesson walks through the home buying process from first conversation with a lender to the moment you get the keys. No jargon without explanation, no steps skipped.

Pre-Qualification vs Pre-Approval

These two terms sound similar but carry very different weight. A pre-qualification is a quick, informal estimate of how much you might be able to borrow. The lender asks about your income, debts, and assets, but does not verify anything. It takes 15 minutes and means almost nothing. A pre-approval is the real thing. The lender pulls your credit, verifies your income with pay stubs and tax returns, confirms your employment, and reviews your bank statements. You get a letter stating a specific loan amount the lender is prepared to offer. In competitive markets, sellers will not even look at an offer without a pre-approval letter. Get pre-approved before you start touring homes.

• Pre-qualification: informal estimate, no document verification, not binding
• Pre-approval: full credit pull, income and asset verification, binding commitment from lender
• A pre-approval letter typically lasts 60-90 days before it expires
• Multiple mortgage credit inquiries within a 14-45 day window count as a single hard pull on your credit

What Lenders Actually Look At

Lenders evaluate you on four main criteria. Credit score sets your interest rate and determines whether you qualify at all. Conventional loans typically require a 620 minimum, FHA loans go as low as 580, and the best rates go to borrowers above 740. Debt-to-income ratio (DTI) measures your monthly debt payments divided by your gross monthly income. Most lenders cap this at 43%, though some allow up to 50% on FHA loans. Employment history should show at least two years of steady income in the same field. Gaps or recent job changes raise flags. Down payment size determines your loan type, whether you pay PMI, and your monthly payment amount. These four factors interact. A higher credit score can partially offset a higher DTI. A larger down payment reduces the loan amount and can compensate for a lower score.

The Home Buying Timeline

From the day you start looking to the day you close, expect 2-3 months in a normal market. It can stretch longer in competitive markets or with complicated financing. The typical flow: get pre-approved (1-2 weeks), tour homes and make an offer (varies wildly, could be days or months), enter contract and deposit earnest money (1-3% of purchase price), home inspection (within 7-10 days of contract), appraisal ordered by lender (1-2 weeks), underwriting review (2-3 weeks), final walkthrough (day before or day of closing), closing (1-2 hours of signing). The inspection and appraisal are critical checkpoints. The inspection protects you from buying a money pit. If the inspector finds major issues (foundation cracks, roof failure, mold, outdated electrical), you can negotiate repairs, ask for a price reduction, or walk away. The appraisal protects the lender. If the appraised value comes in below the purchase price, the lender will not fund the difference. You either renegotiate, cover the gap out of pocket, or the deal falls apart.

• Pre-approval: 1-2 weeks
• House hunting and offer: days to months
• Under contract to closing: 30-45 days typical
• Inspection contingency: 7-10 days to complete and negotiate
• Appraisal: ordered by lender, takes 1-2 weeks

Closing Costs: The Expense Nobody Warns You About

On top of your down payment, you will pay closing costs of 2-5% of the purchase price. On a $300,000 home, that is $6,000 to $15,000 in cash due at closing. Closing costs include loan origination fees (0.5-1% of loan amount), title insurance, attorney fees, recording fees, prepaid property taxes, prepaid homeowner's insurance, and prepaid mortgage interest for the remainder of the month. Some of these are negotiable. Some are not. Your lender is required to provide a Loan Estimate within three business days of your application, itemizing expected costs. Compare Loan Estimates from multiple lenders. The interest rate is not the only number that matters.

What NOT to Do During the Mortgage Process

Once you are pre-approved and under contract, the lender monitors your financial profile until closing. Any significant change can kill the deal. Do not open new credit cards or take on new debt. The credit inquiry and new balance will change your DTI and potentially your credit score. Do not make large purchases (cars, furniture, appliances) on credit. Do not change jobs or quit your job, even for a higher-paying position. Lenders want employment stability. Do not move large sums of money between accounts without a clear paper trail. Unexplained deposits trigger fraud reviews. Do not co-sign anyone else's loan. These are not suggestions. Each one has torpedoed real closings.