Preparing for your first mortgage and home is a significant undertaking, but it’s manageable if you plan in advance. First, you should check your credit scores to see where you stand. You may be able to get a mortgage with a credit score of around 580 to 620, but you won’t get the best interest rates.
If you have time before buying, do your best to get your credit score to 740 or higher. Most mortgage lenders offer the best rates for people with excellent credit scores.
Next, you should be saving for a down payment and closing costs. Certain loan programs don’t require a down payment and others only need a small down payment.
VA and USDA loans could require no down payment. FHA loans may allow down payments of as little as 3.5%. Be careful with these loan types, though. They may carry other costs that make your mortgage more expensive, such as private mortgage insurance (PMI). In some cases, you may not be able to remove PMI without refinancing your loan, which can be costly.
Conventional mortgages with a 20% or higher down payment tend to offer better rates and fees. You generally won’t have to pay PMI with a larger down payment, either. This could save you a significant amount on your monthly mortgage payment.