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The real estate market has been out of control in recent years, and it’s not surprising that many Americans feel like buying a house is out of their reach. But don’t just give up! The housing market has cooled a bit since the pandemic-fueled boom, and inflation and fast-rising interest rates have contributed to slowing the market.

In June 2023, the was $410,200, 1% below the all-time-record high set in June 2022, according to the National Association of Realtors (NAR). The NAR predicts that the median price for existing homes will fall 0.4% and the median price for new homes will dip 1.9% in the coming year.

While high interest rates and inflation present new challenges to potential home buyers, a slower market and dipping housing prices make the dream of buying a home slightly more attainable.

So, what do you need to buy a house in 2023?

1. Qualifying credit

Different loans and lenders have different credit requirements, but the lowest qualifying credit score is 580. The national average credit score is 710, so even if you’re a fair bit below average, you can still qualify for a mortgage.

Borrowers with lower credit scores may have a harder time getting good interest rates, but you can also offset risk by adding a co-signer, providing a higher down payment, or offering some other form of loan collateral. If you don’t know your credit score, you’re entitled to a free annual report from .

2. Down payment cash

There’s a common misconception that you need 20% of a home’s price as a cash down payment. That’s not the case. Even conventional lenders offer mortgage loans for as little as 3% down, and some government-backed programs allow you get a mortgage for no down payment at all.

If you have a reliable income but not a lot of money saved, low- and no-down payment mortgages are great options. (Pay attention young, first-time home buyers.) There are also down payment assistance (DPA) programs for certain qualifying individuals like public servants or first-time buyers in certain areas.

Say you want to buy a home for $400,000. Between a down payment of 3% and closing costs of 1.5%, you’re looking at $18,000 down to buy the house. Just remember, your monthly payment will be higher with a small down payment due to both the higher principal amount that interest is assessed against, and private mortgage insurance (PMI) which protects the lender until you reach 20% equity in the home.

→ Use a mortgage calculator estimate monthly payments based on your down payment amount

3. Proof of income and finances

To get a mortgage loan, you’ll need to provide lenders with several documents as part of your application to prove you’re good for the money.

• Proof of employment, like recent pay stubs and your most current W-2 tax form.
• Financial history, including bank statements and tax returns from the last 2-3 years.
• Monthly income, including bank statements, income statements, and other documentation proving all of your monthly incomes.
• Debts, including credit card statements and personal loan statements.

Self-employed people will also need to show the tax returns and business financial documentation like P&S statements to prove the business is viable.

Ultimately, your lender will put together a financial picture to understand if you can reliably pay back the loan each month. This picture becomes your debt-to-income ratio (DTI), which shows how much you make compared to how much you spend. For instance, if you spent $35 of every $100 you made, you would have a 35% DTI.

The Consumer Financial Protection Bureau (CFPB) recommends a , including all of your debts — not just your mortgage. Some lenders approve borrowers with a DTI up to 50%, but unless you have some savings, that’s a very risky debt-to-income ratio. Generally, your monthly mortgage payment should fall between 28-36% of your total monthly income.

Quick note: Student loan debt or low income won’t prevent your approval, you’ll just need to show a good history of paying your bills on time.

Learn more about how much debt you can have if you want to buy a house.

4. Mortgage pre-approval

You won’t need thorough documentation until you make an accepted offer and have to close on a mortgage. But you’ll need some of it for the mortgage pre-approval process, which is crucial to handle before you start looking seriously at homes. A pre-approval letter is basically a notice from a bank saying you’re approved to spend up to a certain amount on a home.

Smart home shoppers always get pre-approved because it helps you determine how much house you can afford and proves to listing agents that you’re serious. The pre-approval process includes a review of your income, assets, and credit report to see how much you can afford to borrow and at what rate. This semi-formal process allows you to act a lot quicker and be taken a lot more seriously in the marketplace.

Mortgage pre-approvals usually last for 90 days. If you’re coming up on the expiration date, getting it refreshed shouldn’t be too complicated or time-consuming. Just call up the lender you got the pre-approval from.

5. An understanding of your budget

According to an NAR survey, homes for sale in June 2023 received an average of 3.5 offers. That’s to say bidding wars are common in today’s real estate market, and one-third of homes sold for above list price during this time period.

As such, it’s vital to understand your budget and exactly how much financial flexibility you have to pursue your dream home. Make sure you budget accordingly for:

• Your expected down payment
• Expected closing costs
• Your preferred monthly mortgage payment amount, including principal, interest, tax, insurance, and private mortgage insurance (PMI) if applicable.

When you have an estimated budget of what you can afford, you can adjust a bit to meet the market and understand whether or not you can increase an offer should the need arise.

Banks will approve you for the maximum amount possible because they want your monthly payment. Only you can really say how much you can afford, and what you’re comfortable paying for a home. Here’s how much you should save to buy a house.

6. Mortgage loan

Nearly purchase a home with a mortgage. You will likely buy a home with a mortgage, so it’s important to understand what’s available to you. There are five primary mortgage types:

• Conventional mortgages, which require a minimum 3% down payment and are common for buyers with a steady income, a solid down payment, and a credit score of 620 or higher. Conventional mortgages account for 82% of all mortgages.

• Federal housing association (FHA) mortgages, which support buyers with lower credit scores and require a minimum 3.5% down payment.

• USDA mortgages, which support homeownership in rural areas and are backed by the US Department of Agriculture.

• VA mortgages, which are available to current and past US military members and offer zero-down payment options.

• Portfolio mortgages, which are privately held by lenders and offered to those with high income and credit.

7. A real estate agent

A real estate agent isn’t actually requirement, but it will make your life much easier, especially when you keep in mind that agent commission is typically covered by the seller, so it’s worth your time to find the best agent possible.

A great real estate agent can help you find homes in your price range and preferred location, drafts and submits offers, and can negotiate on your behalf to get a better deal. They’ll also help you modify offers to meet the demands of the market and could have an inside track on potential opportunities based on their relationships within the real estate community.

8. Patience

Finally, hang in there and be patient. Sometimes, people get lucky and find the perfect home at the right price in as little as a month. Other times though, it can take several months or even longer. Buying a home is competitive, time-consuming, and not a task to be taken lightly. You want to make sure you have absolutely all of your ducks in a row to make the best financial decision for you and find a house that you will truly love living in.