How to Buy a House in the US, Part 1 — Why You Should Open Your Bank Statement Before You Open Zillow

[How to Buy a House in the US — The Series] Part 1: Financial Prep & Pre-Approval (you are here) Part 2: Finding an Agent, Setting a Budget, Searching for Homes (link) Part 3: Writing an Offer, Negotiating, and Escrow (link) Part 4: Inspection, Appraisal, and Underwriting (link) Part 5: Closing, Moving In, and the Full Cost Breakdown (link) ★ The Whole Process at a Glance (link)

If You're Short on Time, Here's the Bottom Line

Everything in this article comes down to three points.

1. In the US, buying a home starts with a financial checkup, not a home search. Your mortgage capacity effectively decides the price range of homes you can buy.

   
   

2. There are four things to check — verifiable income, your credit score, your DTI (debt-to-income ratio), and your down payment plus emergency fund. Skip any one of these and start touring homes anyway, and you'll likely end up where I've seen so many buyers end up: heartbroken and out of time.

   
   

3. Once you're serious about looking at homes, get a Pre-Approval — and get it from two or three lenders, not just one. That single letter changes how sellers treat you.

Now let me walk you through why, with real cases along the way.

Browsing Zillow Is Fun. The Problem Is What Comes Next

When most people first decide to buy a home in the US, they start by opening Zillow. And honestly, browsing American homes is fun. You flip through photos thinking, "If I lived here, I'd redo the kitchen like this, and put a deck in the backyard." Then one day you find a home you truly love, and you run straight into the question: "Wait… what do I actually need to do to buy this?"

The real order is the reverse. In the US, buying a home starts not with finding a house, but with checking your own financial situation. If you're used to how things work in Korea — where buyers often set a rough budget based on their jeonse deposit or existing assets and then go house hunting — this can feel backwards. But in the US, the vast majority of buyers use a mortgage, and how much mortgage you can get is what determines the price range of homes you can buy.

Let me show you why this order matters, starting with a case I saw firsthand here in California.

Before we begin: Every rate, cost, and ratio in this article is an example, included to help you understand the concepts. Actual terms vary with your credit profile, loan program, and the state you live in. For final decisions, please consult a loan officer or tax professional. The stories here are drawn from real consultations, with details adjusted to protect privacy.

That House in Fullerton — What Happens When You Do Things in Reverse

A few springs ago, at an open house in Fullerton, I met a couple in their thirties. Both had steady jobs, and they had completely fallen for a single-family home listed at $868,000. Great school district, a real backyard, Korean grocery stores nearby. When they said, "We want to write an offer," I asked one question: "Have you talked to a lender yet?"

They hadn't. I connected them with a loan officer that week, and the results stung. The husband's car lease payment stacked on top of the wife's student loans pushed their DTI (I'll explain this below) to 51%, and approval at that price point wasn't going to happen. The house went to another buyer that same weekend.

If the story ended there, it would just be a cautionary tale. But here's the twist. Instead of giving up, the couple made a six-month plan. When the car lease ended, they replaced it with a modest used car, and they paid down part of the student loan balance to shrink the monthly payment. Early the following year, they bought a home in the same neighborhood for $815,000 — in better condition than the one they'd lost — walking in calmly with a pre-approval letter in hand. Their rate ended up better than what they were quoted at that first consultation, too.

Do things in reverse order, and you get your heart broken. Do them in order, and the same people buy a home in the same neighborhood. That's why this "getting ready" article sits at the front of the series.

Step 1. Before You Look at Homes, Look at Your Finances

If you don't know your own buying power, two problems follow. You waste time falling for homes outside your budget — or, just as painful, you hesitate on a home you could actually afford and lose it. There's a third problem, too: without preparation, you second-guess whether you're even allowed to make an offer. Prepare well, and the story changes completely. This step costs almost nothing, and it becomes the reference point for everything that follows.

How Does a Lender See My Income? — Income

What a lender looks for is "stable, verifiable income." The key word is verifiable. The standard isn't what you actually earn — it's what you can prove on paper.

• W-2 employees: You verify income with your W-2 (the annual wage statement your employer issues — similar to Korea's year-end tax withholding statement) and recent pay stubs. This is the simplest case.

• Self-employed: Lenders typically underwrite from your last two years of tax returns. This is where many people get caught. One restaurant owner I worked with in LA had a genuinely thriving business, yet his loan amount came back far lower than expected. He'd been maximizing deductions for years, so his net income on paper was well below what he actually took home. If you're self-employed and planning to buy, start coordinating your tax strategy with your CPA about two years ahead. Tax savings and loan capacity sit on opposite ends of a seesaw.

• Commission and bonus income: If commissions make up a large share of your income, lenders usually want to see about a two-year history. Real estate agents like me, and most sales roles, fall in this bucket.

  
  

One Number That Moves Your Rate — Credit Score

Your US credit score (typically a FICO score, 300–850) is one of the biggest factors in your mortgage rate. Roughly speaking, scores in the 740s and above position you for the better rates, while below 620 your loan options start to thin out. And your credit score touches far more than your mortgage — car insurance premiums, apartment rental applications, all of it — so it pays to maintain it as part of everyday life in America. You can check your score right now through your credit card app or a free monitoring service.

Here's a comeback story. A nurse in Cerritos, four years into her life in the US, had a thin credit file and a score in the 690s. She came to a consultation nearly resigned: "With my score, there's no way, right?" Her loan officer took a look and found she qualified for an FHA loan (a government-backed program) with 3.5% down. She lives in a townhome in La Mirada today. The most expensive mistake is deciding on your own that your score disqualifies you and walking away. Let a lender make that call with you.

The One Term You Must Remember — Existing Debt and DTI

Car payments, student loans, revolving credit card balances — any required monthly payment shrinks your loan capacity. The core concept lenders use here is DTI (Debt-to-Income Ratio). If you're going to buy a home in America, this is the one acronym to commit to memory.

DTI = (all monthly debt payments + projected housing payment) ÷ gross monthly income (pre-tax)

Say your gross monthly income is $9,600, your car payment is $520, and your projected housing payment is $3,850. Your DTI comes out to about 45.5%. Programs vary, but many lenders underwrite somewhere inside the 43–50% range — so this example sits right on the edge. (Exact thresholds differ by product and lender.) This is precisely the number that tripped up the Fullerton couple — until you've lived it, it's hard to appreciate how many percentage points a single car lease can add.

How DTI translates into "the monthly housing payment I can actually live with" is covered, with the math, in Part 2.

It Doesn't Have to Be 20% — Down Payment

Your down payment is the portion of the price you pay from your own funds rather than the loan. "You need 20% down in America" is the piece of folk wisdom everyone has heard, and plenty of buyers do put 20% down — but it is not a requirement. Conventional loans can go as low as 3–5% down depending on your profile, and FHA loans from 3.5%.

Put down less than 20%, and you'll generally pay PMI (Private Mortgage Insurance), which adds a bit to the monthly payment. PMI isn't a penalty — it's simply insurance that offsets the lender's risk when the down payment is small — and once you've built enough equity in the home, you can request to have it removed. So don't conclude "I haven't saved 20%, so I'm not ready." In markets like California, where prices have climbed quickly, I've watched more than a few buyers spend years saving toward 20% while home prices rose faster than their savings. Whether buying sooner with less down beats waiting and saving more depends entirely on your situation — and that is exactly the kind of question to model out with a lender.

Buying the House Is Only the Beginning — Emergency Fund

Pouring every last dollar of savings into the down payment is dangerous. After you buy, the surprise repair bills, moving costs, and furniture purchases arrive in a steady line. A water heater dying right after closing isn't a sitcom plot — it really happens, and in California a replacement can run around $2,000 depending on the unit and installer (example). Keep several months of living expenses untouched past closing day. Buying a home is the biggest check most of us ever write; an emergency fund isn't optional — it's part of the equipment.

One Rule to Follow From This Point Forward

From the moment you decide to buy, don't make any major financial moves. A new car loan, a big credit card purchase, a flurry of credit applications — all of it can shake your credit score and your DTI. "A new car to match the new house" gets the order exactly backwards. This rule stays in force until the day you close, and you'll see why in vivid detail in the underwriting section of Part 4.

Step 2. Talking to Mortgage Lenders

What Is a Mortgage Lender? — It's Not Just Banks

A lender is the institution that finances your home purchase. It plays the role a bank plays when you'd "get a home loan from the bank" in Korea — but in the US, banks are only one of your options.

Beyond these, non-bank mortgage companies make up a large share of the market. And a practical note for readers in Southern California: the Korean-American community here has many loan officers who work in Korean, so if English paperwork feels daunting, that's a good place to start.

What Comparison Shopping Is Actually Worth — Let's Run the Numbers

"Aren't the rates all about the same?" I hear this constantly. They are not. I've seen one buyer, same profile and same file, come back with quotes of 6.625% from lender A, 6.49% from lender B, and 6.375% from lender C (example). On a $610,000 loan, the difference between 6.625% and 6.375% is roughly $100 a month. That may sound minor — until you multiply it across thirty years and watch the interest gap widen into tens of thousands of dollars. For the price of a few phone calls and some paperwork, that's a remarkable return.

Pre-Qualification vs. Pre-Approval — Similar Names, Very Different Weight

This is the distinction first-time buyers mix up most.

• Pre-Qualification: A rough estimate — "you could probably borrow around this much" — based on income and debt figures you state yourself. No documents are verified, which is why you can get one in minutes, and why it carries almost no weight.

• Pre-Approval: The lender actually reviews your documents (income verification, bank statements, credit check) and issues a written commitment: "we will lend up to this amount." This is the one sellers and listing agents trust.

A rough analogy: Pre-Qualification is checking your estimated limit in a banking app; Pre-Approval is sitting at the branch desk, handing over your documents, and passing the preliminary review.

Now look at it from the seller's side for a moment. When I represent a listing, there are weekends when multiple offers land at once. Picture two offers with similar terms — one with a solid pre-approval letter attached, one without. You don't need to ask which one the seller wants to sign. A financing collapse mid-escrow costs a seller weeks, and sellers know it.

Documents to Gather (Typical Examples)

• Last two years of W-2s or tax returns

• Most recent one to two months of pay stubs

• Most recent two to three months of bank statements

• Photo ID and Social Security number (SSN)

• Statements for other assets (investment accounts, retirement accounts)

Collect everything in a single folder before you start. One set of documents lets you request quotes from two or three lenders at the same time — which makes comparison shopping dramatically faster.

"Won't Multiple Credit Pulls Hurt My Score?"

This worry alone talks a surprising number of buyers out of comparison shopping. Mortgage-related credit inquiries made within a short window (typically around two weeks) are generally treated as a single inquiry. Rate shopping itself rarely does meaningful damage to your score — so don't let this fear cost you a comparison worth tens of thousands of dollars. Pre-approval itself is free in most cases (some lenders charge a small credit check fee).

The Getting-Ready Checklist — Things You Can Do Today

• Check your credit score (card issuer app or free monitoring service)

• List every monthly debt payment (car, student loans, cards)

• Estimate your DTI with the formula above

• Write down your down payment budget and emergency fund — separately

• If self-employed: pull your last two years of returns and check your net income

• Start a loan document folder (W-2s, pay stubs, bank statements)

• Book consultations with two or three lenders

  
  

Part 1 FAQ

Q1. How much cash do I actually need to buy a house in the US? Three buckets: the down payment (3–20%+ of the price), closing costs (roughly 2–5% of the price, as an example), and reserves (moving, repairs, emergency fund). For a $520,000 home with 10% down, that's $52,000 down + roughly $11,000–26,000 in closing costs + reserves. (Examples only — figures vary by region and terms. The full cost breakdown is in Part 5.)

Q2. Do I really need 20% down? No. Many buyers do put 20% down, but conventional loans can allow 3–5% down depending on your profile, and FHA loans 3.5%. Below 20% you'll generally pay PMI, which you can request to remove once you've built enough equity.

Q3. Can I buy with a low credit score? Possibly. As with the Cerritos nurse above, FHA loans can accommodate lower scores. But a lower score means a higher rate — the same house simply costs more each month. If your score is borderline, a few months of credit repair before buying may pay for itself. Don't decide alone; run the scenarios with a lender.

Q4. Do I need a pre-approval just to look at homes? It's not legally required, and open houses are open to everyone. But for private showings and certainly for offers, it's effectively necessary. The right time to get one is the moment you start looking seriously.

Q5. Can I buy a home if I'm not a US citizen? Yes. Green card holders buy with mortgages routinely, as do many work visa holders — and purchasing as a foreign national is possible too. Loan options and terms vary with visa type and US credit history, so work with a lender experienced in these cases.

Coming Up Next

With your finances checked and your pre-approval in hand, the next step is finding the professional who will represent you — and setting your real budget. Part 2 covers how to find a Buyer Agent, how agent compensation changed after 2024, and the difference your lender will never volunteer: why "the amount you're approved for" and "the amount you can comfortably afford" are two very different numbers.

Next: How to Buy a House in the US, Part 2 (link)

How Much Stuck? — The Part 1 Quiz (10 Questions)

Answers are below the quiz. Get 7 or more right, and you're ready for Part 2.

Q1. What's the first step to buying a home in the US? (a) Searching Zillow (b) Checking your financial situation (c) Visiting open houses

Q2. (T/F) If you're self-employed and business is booming, a low income on your tax returns won't affect your loan amount.

Q3. The DTI formula is: (a) total assets ÷ total debt (b) (monthly debt payments + projected housing payment) ÷ gross monthly income (c) annual salary ÷ home price

Q4. Gross monthly income $9,600, car payment $520, projected housing payment $3,850. The DTI is roughly: (a) ~32% (b) ~45% (c) ~58%

Q5. (T/F) A 20% down payment is legally required to buy a home in the US.

Q6. What typically gets added when your down payment is under 20%? (a) PMI (mortgage insurance) (b) A property tax surcharge (c) Mandatory HOA membership

Q7. Between Pre-Qualification and Pre-Approval, which one involves the lender verifying your actual documents and issuing a written letter?

Q8. When sellers and listing agents review offers, which do they trust? (a) A Pre-Qualification (b) A Pre-Approval (c) The buyer's verbal promise

Q9. (T/F) Mortgage credit inquiries made within a short window (typically about two weeks) are generally counted as a single inquiry — so there's no need to fear comparing lenders.

Q10. Which of these is NOT something to avoid between deciding to buy and closing day? (a) Financing a new car (b) A large credit card purchase (c) Organizing your loan documents into a folder ahead of time

A1. (b) — Your mortgage capacity is your price range, so the financial checkup always comes first. A2. F — Lenders look at verifiable income, meaning your tax returns. Tax savings and loan capacity are a seesaw. A3. (b) — (monthly debt payments + projected housing payment) ÷ gross monthly income. A4. (b) — ($520 + $3,850) ÷ $9,600 ≈ 45.5%, right at the edge of many lenders' typical range (roughly 43–50%). A5. F — Conventional loans can start at 3–5% down and FHA at 3.5%. Twenty percent is a custom, not a law. A6. (a) — PMI. You can request removal once you've built enough equity. A7. Pre-Approval — issued in writing after document verification. A8. (b) — Sellers know what a mid-escrow financing collapse costs them, so they trust offers backed by a pre-approval. A9. T — Rate shopping rarely does meaningful damage to your score. A10. (c) — Preparing documents early is encouraged. The other two shake your DTI and credit score and put your loan at risk.

About the author: I'm a licensed real estate agent practicing in California. This series draws on years of working alongside first-time buyers in the field, written for readers navigating their first American home purchase.

This article is for general informational purposes only and is not legal, tax, or lending advice. All figures are illustrative examples; actual terms vary with your financial profile, loan program, state, and timing. Case details have been adjusted to protect privacy.