The first thing to do before buying a house is to consider why you want to be a homeowner. After all, a house is a large purchase and often a long-term commitment. Perhaps you’re looking for housing that’s in a better location for your job or family or you need more space. For many, homeownership brings a lot of pride and joy, especially knowing you’re building equity! Check out our other article on renting vs. buying a home to help you decide which is best for you right now.

Let’s walk through the steps of getting your finances in order before buying a home:

1) Check your credit score

Your credit score is one of the biggest factors that determines your home loan’s interest rate. A minimum credit score of 620 is usually the requirement for most mortgages (but varies by loan type). Your credit reports determine your score—you can check your credit reports with TransUnion®, Experian®, and Equifax® for free once a year at AnnualCreditReport.com, and be sure to request that they correct any errors. At Space Coast Credit Union (SCCU), you can see your FICO® Score for free in your Online Banking account. Learn more about building your credit score here.

2) Calculate your debt-to-income ratio.

Home loan lenders will also look at your debt-to-income (DTI) ratio, which should ideally be 45% or under. Our debt-to-income calculator and worksheet can help you determine yours. Additionally, lenders often look at the last two years of your work history to check that your income is stable (generally this will involve pay stubs, W-2s, and/or tax returns).

3) Determine your monthly mortgage budget

Ideally, as a rule of thumb, you don’t want to spend more than 30% of your gross income on your monthly mortgage payment. What down payment and interest rate will help you stay within that guideline? Our mortgage calculators and our home loan estimator tool can help! Be sure to factor in the costs for homeowners insurance and property taxes. Some neighborhoods also require an HOA (Homeowners Association) fee too.

4) Save up for upfront costs.

If you haven’t already, set aside money for closing costs (typically 2.5%-3.5% of the home’s purchase price in Florida), and make sure your budget allows for any repairs. While it’s a good idea to save 20% for a down payment to avoid private mortgage insurance, you should have a separate savings account with 3-6 months’ worth of expenses for emergencies.

Once you’ve determined you’re in a good place financially for a home loan, it’s time to compare several mortgage lenders. Check out their interest rates, mortgage products, service ratings, borrower qualification requirements, and any fees they may charge. Generally, credit unions like Space Coast Credit Union will have lower home loan interest rates and fees than banks will.

You’ll find a variety of home loan types that lenders will offer—but which option suits your needs and qualifications? Here are some helpful questions to get started:

Are you looking to stay in your home for a significant number of years? The most common type of home loan is a conventional fixed-rate loan (requires a down payment as low as 5%16), which allows you to plan for a consistent principal and interest payment for the life of the loan. (Keep in mind that real estate taxes, homeowners insurance, and, if required, private mortgage insurance are also factored into your payment, and may change over time.)

Are you not planning for this to be your long-term home? Your lender may offer an adjustable-rate mortgage with a rate that’s lower than the fixed rate offering for the first 3, 5, 7, or 10 years of your loan. Even if the rate increases in years four and five on your loan (get clarity on how much it can increase each year), it very well may be better for you to choose the adjustable-rate loan. Ask your lender to help you calculate this for your specific situation.

Don’t think you can put down 20% of the home’s purchase price? An FHA loan may be for you, especially if you have less-than-perfect credit. FHA loans only require a down payment as low as 3.5%16. In some cases, a No Down Payment home loan option may be a good fit for you.

We also offer VA loans, Hero Home Loans, and a No Closing Costs option. Check out our Ultimate Guide to Mortgage Loans for more details about all the loans we offer.

Not only will a pre-approval letter provide you with documentation showing sellers and real estate agents that you’re serious about buying, it will also help you get a better idea of the price range you can afford. In fact, many realtors will not consider an offer without a pre-approval letter.

To get pre-approved, you will start by submitting a mortgage application. A loan officer will look at your credit history, income, assets, debts, etc. The lender will run a credit check and verify other documentation prior to providing a pre-approval letter with a loan amount.

If you’re shopping several lenders, don’t worry too much about the credit check. Suppose several mortgage lender requests show up on your credit report within a relatively short time (usually 45 days). In that case, they are viewed as one shopping experience and won’t count as individual credit inquiries. Most pre-approvals expire after 60-90 days, but you can provide updated information if you need a new pre-approval letter. SCCU home loan pre-approvals are valid up to 90 days—woohoo!

Keep in mind that a pre-approval is not a final loan decision. Once you’ve found a property, the lending team will request a property appraisal to ensure the property value is in line with the loan amount, and re-verify all of your paperwork one final time before closing.