Do not finance a couch. Do not change jobs. Do not open a new credit card the week before closing. Underwriters pull your credit again right before you sign, and any of these moves can kill your loan in the final 48 hours.
Here’s the real timeline: financial underwriting first, house shopping second, closing costs third, final walkthrough last. Most first-time homebuyer checklists get this order backwards. They send you shopping before your numbers are locked. That’s how people fall in love with a house they can’t actually close on.
This guide walks the phases in the order a lender, not a real estate blog, actually cares about.
Phase 1: Financial Underwriting (The Real Math)
Skip the vague “check your budget” advice. Underwriters run two hard numbers: your debt-to-income (DTI) ratio and your credit score. Both decide your interest rate before you ever see a listing.
The 28/36 Rule
- 28%: Your monthly housing payment (mortgage, taxes, insurance) should not exceed 28% of your gross monthly income.
- 36%: Your total monthly debt, including the mortgage, car loans, student loans, and credit cards, should not exceed 36% of gross monthly income.
If you earn $7,000 a month, your housing payment tops out around $1,960. Your total debt load, including that payment, tops out around $2,520. Some lenders stretch to 43% or 45% DTI for strong borrowers, but 28/36 is the safe target that gets you better rates.
Credit Score Requirements
- 620: Minimum for most conventional loans.
- 580: Minimum for an FHA loan with 3.5% down.
- 740+: Where you start unlocking the best interest rates on a conventional loan.
Every hard credit pull can knock a few points off your score. Multiple mortgage inquiries within a 14-45 day window (depending on the scoring model) count as a single pull, so shop lenders in a tight window, not over three months.
Why the Pre-Approval Letter Comes Before Anything Else
A pre-approval letter is a lender’s written commitment based on verified income, assets, and credit. A pre-qualification is a guess based on what you told them over the phone. Sellers and their agents know the difference.
Do not tour homes without a real pre-approval letter in hand. Agents will not submit your offer without one, and sellers will not take it seriously.
What the lender verifies for pre-approval:
- Two years of tax returns or W-2s
- Recent pay stubs
- Two to three months of bank statements
- Proof of your down payment savings source (gifted funds need a paper trail)
Phase 2: Shopping & The Escrow Layer
Once your offer is accepted, your money and your house both go into a legal holding pattern called escrow. This is where deals actually die if you don’t know what you’re looking at.
Earnest Money: What It Is and How Much to Expect
Earnest money is a good-faith deposit that proves you’re serious about the purchase. It gets held in an escrow account and applied toward your down payment or closing costs at closing.
- Typical range: 1% to 3% of the purchase price.
- On a $400,000 home, expect to lock up $4,000 to $12,000.
- In hot markets, some buyers offer more to strengthen their bid.
You get this money back if you walk away for a reason covered by your contract’s contingencies. You lose it if you back out for a reason that isn’t.
The Home Inspection Contingency
This is your legal right to back out, or renegotiate, based on what an inspector finds. Never waive it unless you fully understand the risk you’re taking on.
Three non-negotiable things to verify before you let this contingency expire:
- Structural foundation. Hairline cracks are normal. Stair-step cracks, doors that won’t close, or sloping floors are not. A foundation repair can run $10,000 to $40,000+.
- Electrical panel age and type. Homes with older Federal Pacific or Zinsco panels are known fire risks. Many insurers won’t write a policy until it’s replaced, and replacement runs $2,000 to $4,000.
- Sewer line condition. A standard inspection does NOT check this. Pay $200 to $400 extra for a sewer scope, especially on homes over 20 years old. A collapsed line costs $5,000 to $25,000 to replace.
Get a specialist on any of these three if the general inspector flags a concern. General home inspectors are generalists, not structural engineers or licensed electricians.
Phase 3: Closing Costs & Hidden Fee Breakdown
Your down payment is not your total cash needed. Closing costs typically run 2% to 5% of the loan amount, on top of the down payment. Here’s where that money actually goes.
| Fee Category | What It Covers | Typical Cost |
|---|---|---|
| Loan origination fee | Lender’s cost to process and underwrite your loan | 0.5%–1% of loan amount |
| Appraisal fee | Independent valuation confirming the home is worth the loan | $400–$700 |
| Title insurance | Protects against ownership disputes or claims on the property | $1,000–$4,000 (one-time) |
| Property tax escrow | Prepaid taxes held in your escrow account | 2–6 months upfront |
| Homeowners insurance | Required by the lender before closing; first year often prepaid | $1,200–$2,500/year |
| Recording fees | Government fee to officially record the deed | $50–$250 |
| Credit report fee | Lender pulling and verifying your credit | $30–$50 |
Ask your lender for a Loan Estimate within three days of applying. It’s a federally required document that breaks down every single one of these line items before you commit.
Rule of thumb: budget 3% of the purchase price, separate from your down payment, sitting in liquid cash before you make an offer.
Phase 4: The Final 48 Hours
The final walkthrough happens 24 to 48 hours before closing. Its only job is to confirm the house is in the same condition as when you agreed to buy it, and that agreed-upon repairs actually happened.
Test every one of these, in person, before you sign anything:
- Flush every toilet in the house.
- Run every faucet and check water pressure.
- Turn on every burner on the stove, plus the oven.
- Open and close every door and window.
- Test every light switch and outlet.
- Run the dishwasher, washer, and dryer through a short cycle.
- Check for repair receipts on anything the seller agreed to fix.
- Confirm the seller removed their belongings, unless items were written into the contract.
- Check that utilities are still on so you can actually test everything above.
If something’s broken or a repair wasn’t completed, you can request a credit at closing or ask the seller to fix it before you sign. Once you sign, your leverage is gone.
FAQ
What credit score is needed to buy a house? 620 is the practical minimum for most conventional loans, though FHA loans allow scores as low as 580 with 3.5% down. Below 580, expect higher rates or a co-signer requirement.
What should you not do before buying a house? Don’t change jobs, finance a car or furniture, open new credit cards, or make large unexplained cash deposits. Any of these can trigger a second underwriting review and delay or kill your closing.
How much extra cash should you save for closing costs? Budget 2% to 5% of your loan amount, separate from your down payment. On a $350,000 loan, that’s roughly $7,000 to $17,500 in additional cash you need on hand.