Give yourself three to six months to prepare to buy a house. In that window you have four jobs, clean up your credit, build your cash, set a payment budget you can actually live with, and get preapproved, and the cash target is the one most buyers get wrong. You do not need 20% down: Fannie Mae’s HomeReady and Freddie Mac’s Home Possible programs both start at 3% down, and FHA financing goes to 96.5% of the price (3.5% down) for borrowers at a 580 credit score or above.

What trips people up is the money that isn’t the down payment: the Consumer Financial Protection Bureau puts closing costs at 2% – 5% of the purchase price on top of it, and lenders want to see something left in the account afterward.

Learn how preparing to buy a house works, including what credit score you need, how much to save across three separate buckets, where a down payment can legitimately come from, and how preapproval turns a guess into a number sellers take seriously.

Key takeaways:

• Credit comes first: Most conventional lenders look for a 620 score and FHA reaches 580 with 3.5% down (500 – 579 requires 10% down), so pull your reports early. Balances you pay off today may take a full billing cycle to reach the bureaus.
• Budget for three buckets, not one: On a $300,000 home that’s roughly $9,000 down at 3%, another $6,000 – $15,000 in closing costs at 2% – 5%, and a cash reserve you don’t spend at the table.
• Preapproval sets your real range: Shop it, don’t settle for it. Scoring models bundle mortgage inquiries made inside a 14- to 45-day window into a single inquiry, and Align Lending’s one application reaches more than 75 wholesale lenders.

What does preparing to buy a house involve?

Preparing to buy runs on a three- to six-month clock, and the four workstreams, credit, cash, budget, and documentation, run in parallel, not in sequence. Start them together and the later stages of the home buying process get boring, which is exactly what you want with a contract deadline attached. Here’s how the runway typically breaks down:

Timing	What you’re doing	Why it matters
6+ months out	Pull all three credit reports, dispute errors, pay balances down, open a dedicated savings account	Creditors report about once a month, so score gains need cycles to show up
3 months out	Set a payment budget, stop opening new credit, let large deposits season	Lenders in Align’s network typically review your two most recent months of statements
1 – 2 months out	Gather pay stubs, W-2s, tax returns; get preapproved; choose your agent	Most listing agents won’t present an offer without a preapproval letter
Under contract	Change nothing financially, no new accounts, no financed furniture, no job moves	Underwriters re-verify credit and employment before closing

Preparation also decides how hard you can push later. The buying strategies that win a competitive market, a short closing window, a larger earnest deposit, a fully underwritten approval, are all downstream of work you do now. For the full arc through closing day, the home buying guide maps every phase.

What credit score do you need to buy a house?

Plan on 620 for most conventional financing and 580 for FHA at the minimum 3.5% down. FHA sets the lowest floor of the major programs: a minimum decision credit score of 580 or above qualifies for maximum financing at 96.5% loan-to-value, scores of 500 – 579 are capped at 90% LTV (10% down), and below 500 there is no FHA eligibility. On the conventional side the agency floor moved: Fannie Mae’s Selling Guide no longer sets a minimum credit score for loan casefiles underwritten through Desktop Underwriter, and HomeReady adds no minimum of its own. The 620 floor (640 on adjustable-rate loans) now applies to manually underwritten files, and most lenders still enforce a 620 overlay. VA and USDA set no program-wide minimum either, though lenders do.

Four moves do most of the work in that window:

• Pull all three reports: Get your free weekly credit reports at AnnualCreditReport.com, the only federally directed source, and read every line. Paid collections still showing a balance and accounts that aren’t yours are both common and both disputable.
• Pay down revolving balances: Utilization is the fastest-moving factor you control. Getting each card under roughly 30% of its limit usually moves a score faster than anything else available to you.
• Stop opening credit: A new auto loan or store card during your prep window changes both your score and your debt-to-income (DTI) ratio, total monthly debt payments divided by gross monthly income. HomeReady, for example, allows up to 50%.
• Leave old accounts open: Closing a paid-off card shrinks your available credit and pushes utilization up on paper even though you owe less.

Score thresholds are gates, not grades. Clearing a lender’s floor gets you approved; the pricing between a 680 and a 740 is where the real money sits.

How much money should you save before buying a house?

Save into three separate buckets, because lenders look at all three. On a $300,000 purchase in Waterford, that’s roughly $9,000 for a 3% down payment, $6,000 – $15,000 for closing costs at 2% – 5%, and a reserve of three to six months of expenses that you do not spend at the closing table.¹

• The down payment: 3% on qualifying conventional programs, 3.5% on FHA, 0% on VA and USDA loans for eligible borrowers. Building it is a scheduling problem more than an income problem, saving for a down payment works best as an automated transfer you never see.
• Closing costs: Lender fees, appraisal, title work, recording, and prepaid taxes and insurance. They land as one lump sum days before you sign, so budgeting for closing costs separately is what keeps buyers from coming up $8,000 short.
• Reserves: Some programs require them outright, and every underwriter reads them as a strength. More practically, the water heater doesn’t care that you just closed.
• The ongoing payment: Principal and interest are only part of it. Budgeting for your first home means adding property taxes, insurance, mortgage insurance, HOA dues, and a maintenance line before you set a price.

The long-standing 28/36 guideline, housing costs at or under 28% of gross monthly income, total debt at or under 36%, is a useful budgeting anchor, not a lender rule. Plenty of programs approve higher ratios. Whether you should borrow to that ceiling is a different question, and waiting a year to save more is always a legitimate answer.

Where your down payment money can come from

Your own seasoned savings is the simplest source, but not the only one lenders accept. Gift funds, retirement accounts, and down payment assistance all qualify on most loan types, each with its own paper trail, and each needs documenting before underwriting, not during it.

• Family gifts: Allowed on nearly every program, and on many low-down-payment conventional loans the entire down payment can be gifted. Financing a home purchase with gift funds requires a signed gift letter stating no repayment is expected, plus a clean trail from the donor’s account into yours.
• Retirement accounts: The IRS caps a 401(k) participant loan at the lesser of $50,000 or 50% of your vested balance, and extends the usual five-year repayment term when the loan buys your main home. Separately, an IRA distribution of up to $10,000 in your lifetime escapes the 10% early-distribution tax when used for a first-time purchase within 120 days. Read how to finance a home purchase with a 401(k) first, and talk with a tax professional about your situation.
• Down payment assistance: State and local programs stack on top of an FHA or conventional loan rather than replacing it, and many are silent seconds with no monthly payment.
• Low-down-payment programs: Home Possible and HomeReady both reach 3% down with qualifying income at or below 80% of area median income, and USDA’s Section 502 Guaranteed program offers 100% financing in eligible rural areas under 115% of AMI. Our guide to buying a home with a low down payment compares the paths.

One tradeoff to price honestly: putting less down means private mortgage insurance on a conventional loan. You can request cancellation once the balance reaches 80% of the home’s original value, and your servicer must terminate it automatically at 78%. That’s a real cost with a real end date.

How preapproval sets your real price range

Preapproval converts a guess into a lender-verified number, and in most markets it’s the price of admission for writing an offer. The step before it is lighter: prequalification is an estimate built from figures you report yourself. The reasons mortgage prequalification matters have to do with direction, it tells you whether you’re shopping at $250,000 or $400,000 before you tour the wrong houses.

Preapproval is a different exercise. A lender reviews your credit, pay stubs, W-2s, tax returns, and bank statements, then issues a conditional commitment for a specific amount. The gap between being prequalified and preapproved is the gap listing agents care about, which is why the importance of mortgage preapproval shows up the moment you’re competing.

Then shop it. The CFPB’s Buying a House toolkit is blunt about comparing more than one offer, and the scoring models already assume you will: multiple mortgage inquiries are bundled into a single inquiry when they land inside the same shopping window, which runs 14 days on the older classic FICO versions mortgage lenders actually pull and 45 days on newer models. Gather your quotes inside two weeks and the window question never comes up. This is where being a broker matters. Align Lending takes one application to more than 75 wholesale lenders, so the comparison happens on our side of the table.

What Michigan buyers should know

Michigan buyers short on upfront cash should start with MSHDA. The state’s assistance is among the strongest in the Midwest, and two Michigan tax quirks belong in your budget from day one.

• MI 10K DPA Loan: Up to $10,000 statewide toward down payment, closing costs, and prepaids, as a 0% interest, non-amortizing second mortgage with no monthly payment, repaid when you sell, transfer, or refinance. It requires a 640 credit score, a homebuyer education class, and no more than $20,000 in liquid assets, and must be paired with a MI Home Loan. Confirm current terms and funding through MSHDA’s homeownership programs.
• MI Home Loan sales price limit: $566,355 statewide after June 1, 2026. Well above the median price across most of Michigan, so the real constraints are the income limit and the credit score, not the house.
• Principal residence exemption: Filing Form 2368 with your local assessor exempts your primary home from up to 18 mills of local school operating tax. Deadlines are June 1 and November 1, miss both and you carry a higher tax bill for the year.
• Summer and winter tax bills: Michigan bills property taxes twice a year, and the proration at closing routinely surprises buyers from single-bill states. Build both into your escrow math while you’re still budgeting.

Align Lending is a Waterford-based broker, so we place MSHDA loans regularly and can tell you in one conversation whether the assistance fits your file. First-time buyers should also work the first-time home buyers hub, since several programs stack.

FAQ: Preparing to buy a house

Here are answers to common questions about preparing to buy a house.

How soon should I start preparing before I want to move?

Three to six months ahead for most buyers, enough time to move a credit score, build savings, gather documents, and get preapproved. If your credit needs real repair or you’re starting a down payment fund from zero, a 12-month runway is more realistic. These first-time home buyer tips cover what to do in each stretch of that window.

Can I buy a house with a 580 credit score?

Yes, through FHA financing at 3.5% down, since a minimum decision credit score of 580 qualifies for FHA’s maximum 96.5% loan-to-value. Individual lenders can set higher requirements than FHA does, which is why a broker who works with many of them helps most at this score. Our breakdown of what counts as a good credit score to buy a house shows where pricing tiers change.

What costs do buyers forget to budget for?

The recurring ones. Buyers budget the down payment and closing costs, then get surprised by prepaid escrows, HOA dues, utility deposits, immediate repairs, and the two-bill Michigan property tax cycle. A maintenance rule of thumb of roughly 1% of the home’s value a year gets you closer to reality. Here’s how to spot hidden costs in a home purchase before they reach your closing disclosure.

Is a prequalification worth getting if I’m still six months out?

Yes, because it costs nothing and it aims everything else. Prequalification is a fast estimate built from numbers you report yourself, and it tells you whether your plan targets $250,000 or $400,000. It carries no weight with a seller, that’s preapproval’s job, but the benefits of mortgage prequalification land early, while you can still change the outcome.

The bottom line on preparing to buy a house

Preparing to buy a house takes most buyers three to six months and comes down to four numbers: a credit score of 580 for FHA at 3.5% down or 620 for most conventional programs, a down payment that can start at 3%, or 0% on VA and USDA loans, rather than the 20% everyone still quotes, closing costs of 2% – 5% of the purchase price on top of that, and a preapproval in hand before you tour a single home. Fix the credit, fund the three buckets, then shop the loan.

If you’re ready to start preparing to buy, talk to Align Lending, we’ll shop your scenario across our lender network and show you the numbers side by side. Call 248-506-5727 or start online today.

This article is for informational purposes only and is not intended to provide legal, financial, or tax advice. Consult a qualified professional about your situation. Program terms and figures shown are illustrative, are not a rate quote or an offer of credit, and are subject to change. Align Lending works with FHA- and VA-approved lenders and is not acting on behalf of, endorsed by, or sponsored by FHA, HUD, the Department of Veterans Affairs, USDA, or MSHDA.

Footnotes

¹ Example figures are hypothetical and for educational purposes only; they do not constitute an advertisement of credit terms or a rate quote under federal or state lending laws. Your rate and terms will depend on your application and market conditions. Back to text