30 steps across 9 sections
1. 12+ Months Before Applying
- Pull all 3 credit reports (Equifax, Experian, TransUnion) from AnnualCreditReport.com and dispute any errors — fixing inaccuracies can take 30-90 days
- Stop opening new credit accounts — each hard inquiry can drop your score 5-10 points, and new accounts lower your average age of credit
- Set up autopay on all accounts — payment history is 35% of your FICO score; even one 30-day late payment can drop your score 60-100 points
2. 6-12 Months Before Applying
- Pay down credit card balances — target utilization below 30% (ideally below 10%) across all cards
- Create a debt payoff plan — focus on high-interest revolving debt first (avalanche method) or smallest balances first (snowball method) to reduce DTI ratio
- Avoid closing old credit cards — keep them open (even unused) to maintain credit history length and available credit
3. 3-6 Months Before Applying
- Stabilize employment — avoid job changes; lenders want to see consistent income (2 years at same employer preferred)
- Stop large purchases on credit — no new car loans, furniture financing, etc.
- Document all income sources — gather 2 years of tax returns, recent pay stubs, bank statements
4. 1-3 Months Before Applying
- Verify your DTI ratio — total monthly debt payments / gross monthly income should be below 36% (some programs allow up to 43-50%)
- Confirm down payment funds are seasoned in your account (most lenders want to see 60-90 days of bank statements showing the funds)
- Avoid large deposits or withdrawals — unexplained money movements trigger lender questions
5. Priority Order for Mortgage Readiness
- Past-due accounts — bring all accounts current immediately
- Collections — negotiate pay-for-delete agreements where possible
- High-utilization credit cards — pay down cards over 30% utilization
- Installment loans with <12 months remaining — paying these off removes them from DTI calculation
- Student loans on IBR — the payment shown on credit report is what lenders use for DTI
6. What NOT to Pay Off
- Old collections approaching the 7-year mark — paying can restart the reporting clock with some scoring models
- Accounts in good standing — no benefit to paying off early for mortgage purposes
7. Savings Vehicles
- High-yield savings account (4.0%+ APY in 2026) — best for funds needed within 1-2 years
- CD ladder — lock in rates for 6-12 month terms if you have a target purchase date (see topic #674)
- I Bonds — 4.03% composite rate through April 2026, but 1-year lockup makes timing tricky (see topic #675)
8. Accelerating Savings
- Automate transfers — set up automatic deposits to a dedicated "house fund" account on payday
- Bank windfalls — tax refunds, bonuses, and gifts should go directly to down payment fund
- Gift funds — FHA allows 100% gift funds for down payment; conventional loans allow gifts for most of the down payment but may require some borrower funds depending on the program. Document all gift letters pr...
9. Hidden Costs to Save For Beyond Down Payment
- Closing costs: 2-5% of loan amount
- Home inspection: $300-$500
- Appraisal: $300-$600
- Moving costs: $1,000-$5,000+
- Immediate repairs/maintenance reserve: $5,000-$10,000