First-time homebuyer - conventional loan

A conventional loan is a mortgage that is not insured or guaranteed by a federal government agency (unlike FHA, VA, or USDA loans). Instead, conventional loans are backed by private lenders and typically sold to Fannie Mae or Freddie Mac on the secondary market.

55 steps across 12 sections

1. Check Your Financial Readiness (Months Before)

  • Review credit reports from all 3 bureaus (AnnualCreditReport.com)
  • Dispute any errors; pay down credit card balances below 30% utilization
  • Save for down payment + closing costs + reserves (2-6 months of mortgage payments)
  • Avoid major financial changes: no new credit accounts, no job changes, no large purchases

2. Get Pre-Approved (1-3 Days)

  • Shop multiple lenders (at least 3) for best rates — multiple inquiries within 14-45 days count as one credit pull
  • Submit financial documents: pay stubs, W-2s, tax returns, bank statements, ID
  • Receive a pre-approval letter stating your maximum loan amount
  • Pre-approval is typically valid for 60-90 days

3. Find a Home and Make an Offer (Varies)

  • Work with a real estate agent
  • Stay within your pre-approved budget
  • Submit offer with pre-approval letter
  • Negotiate and execute purchase agreement (typical deadline: 10-14 days for fully executed contract)

4. Formal Loan Application (Day 1 of Closing Process)

  • Submit full mortgage application to your chosen lender
  • Lender provides Loan Estimate within 3 business days
  • Review Loan Estimate carefully: interest rate, monthly payment, closing costs, APR

5. Home Inspection (Days 1-14)

  • Hire a licensed home inspector ($300-$500 typically)
  • Inspect for structural issues, roof, HVAC, plumbing, electrical, foundation, pest damage
  • Negotiate repairs or credits with seller based on findings
  • Note: Inspection is optional but strongly recommended; it is NOT required by the lender

6. Home Appraisal (Days 7-21)

  • Lender orders an independent appraisal to confirm the home's market value
  • Cost: $350-$600 (paid by borrower)
  • If appraisal comes in low: renegotiate price, make up the difference in cash, dispute the appraisal, or walk away
  • Conventional appraisals are generally less strict than FHA appraisals

7. Underwriting (Days 14-35)

  • Underwriter reviews all documentation: income, assets, credit, property, title
  • May request additional documents ("conditions") — respond promptly
  • Underwriter issues: Approved, Approved with Conditions, Suspended, or Denied
  • Title search conducted to verify clean title; title insurance ordered

8. Closing Disclosure (3 Days Before Closing)

  • Lender provides final Closing Disclosure with all loan terms and costs
  • Mandatory 3-day waiting period before closing (TRID rule)
  • Compare Closing Disclosure to original Loan Estimate for any significant changes
  • Wire closing funds (never wire based on email instructions alone — always verify by phone)

9. Final Walk-Through (Day Before or Day of Closing)

  • Verify the property is in the agreed-upon condition
  • Confirm all negotiated repairs were completed
  • Ensure no new damage or issues

10. Closing Day (1-2 Hours)

  • Sign all loan documents
  • Pay down payment and closing costs (typically via cashier's check or wire transfer)
  • Receive keys (in most states, after recording)
  • Title transferred to your name

11. Conventional 97 (Fannie Mae / Freddie Mac)

  • Down payment: 3% minimum
  • Credit score: 620 minimum
  • Income limits: None — any income level qualifies
  • Occupancy: Primary residence only
  • Buyer requirement: At least one borrower must be a first-time homebuyer
  • PMI: Required (standard conventional PMI rates)
  • Best for: Buyers who earn too much for income-restricted programs but want a low down payment

12. HomeReady (Fannie Mae)

  • Down payment: 3% minimum
  • Credit score: 620 minimum
  • Income limits: Household income must be at or below 80% of the Area Median Income (AMI)
  • AMI thresholds increased for 2026; check Fannie Mae's AMI lookup tool by address
  • Occupancy: Primary residence only
  • Special features:
  • Reduced PMI costs compared to standard conventional loans
  • Allows boarder income (rental from a roommate) to count toward qualifying income
  • Allows non-occupant co-borrower income
  • $2,500 lender credit for first-time homebuyers with incomes at or below 50% of AMI (new as of 2026) — can be applied toward down payment or closing costs

Common Mistakes

  • Not getting pre-approved before house hunting
  • Only shopping one lender
  • Making large purchases or opening new credit before closing
  • Draining savings for the down payment
  • Skipping the home inspection

Pro Tips

  • Start credit repair 6-12 months before buying
  • Use the 3% down programs strategically
  • Make extra principal payments from day one
  • Get your appraisal gap strategy ready
  • Request a Closing Disclosure review before the 3-day period

Sources

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