The pros and cons of a lower down payment are simply put. Purchasing a home for less money down means that you start building home equity immediately. On the flip side of that, there can be more fees or extra expenses involved so it is important to crunch the numbers to see if the equity will outweigh the fees in the long run.

Your credit score will be a governing factor as to whether or not you can secure a loan with a lower down payment. Below is a list of options to consider:

FHA Loans – if you have a credit score of at least 580 then you can typically get into a home for just 3.5% down. A score of less than 579 will require a minimum of 10% down.
VA Loans – this loan is exclusive to borrowers with military connections. Most often a score of 620 or better is required, in addition to other qualifications. These qualifications can vary from lender to lender so it is important to shop around.
USDA Loans – these loans are great if you are looking to buy in a rural area, some suburban areas are also included. A USDA home loan is a zero down payment mortgage for eligible rural homebuyers. The process is rather simple if your credit score is 620-plus. Something to note: If you put little or no money down, you will have to pay a mortgage insurance premium.

The loans listed above are not limited to first-time home buyers, anyone can qualify. In addition, your income doesn’t play a huge role in whether or not you get approved. Some mortgages have income limitations depending on where the property is located, like USDA loans, which are guaranteed by the United States Department of Agriculture. VA loans, backed by the Department of Veterans Affairs, have no income restrictions.

Below, is a step-by-step list you can use to get started on making your dream of becoming a homeowner a reality.

Decide where you want to live

There are many factors that go into selecting a city or town to lay down some roots. One of the more important factors is the affordability, livability and price stability of that location. As appealing as large cities may be, suburbs stand out because they’re close to the amenities and jobs of a big city, often with a more affordable and quieter lifestyle.

On this topic, it is important to determine how much house you can afford. There are multiple free calculators available online that can help you factor home price, down payment, loan term, interest rate and your total debt payments relative to your income. Having an idea of how much house you can afford will help you start looking in the right places and will make pre-approval for a loan easier.

Prepare your credit

Credit scores directly impact mortgage interest rates. A difference of just 100 points could cost, or save, you thousands. On the surface a .25% difference may not seem like a big deal, but compounded over the lift of a 30-year-loan can really add up. Ideally, you want to purchase a home when you have achieved “excellent credit” status as lenders will feel confident lending you money with the knowledge that you make timely and consistent payments.

A score of 740 or higher is generally considered excellent credit.
A score between 700 and 739 is considered good credit.
Scores between 630 and 699 are fair credit.
And scores of 629 and below are poor credit.

A few ways you can improve your credit score is by making on-time payments on outstanding debt, keep credit card spending below 30% of your limit, check for errors on your credit report, eliminate some debt to free up some credit, and do your mortgage shopping within a 30-day period to avoid your credit being pulled frequently.

Save for down payment and secure pre-approval

The down payment is your contribution toward the purchase and represents your initial ownership stake in the home. The lender provides the rest of the money to buy the property.

Although most lenders require a down payment, VA loans and USDA loans are some exceptions to the rule.

If applying for a conventional loan, you should make it a goal to save 20% in cash for the down payment. There are cases where you will get approved with less cash on hand, but there are advantages to waiting to purchase a home until you have the cash reserve needed. A few advantages of making a larger down payment include:

A better interest rate
Lower upfront and ongoing fees
More equity in your home right off the bat
A lower monthly mortgage payment

Just keep in mind that owning a home is not cheap, and it is important to have cash on hand for unanticipated expenses. A larger down payment will mean a lower monthly mortgage bill, but putting down too much could leave you strapped for cash after you move in.

Once you feel confident in your down-payment savings it will be time to secure a preapproval letter. This shows that you are a serious home buyer and will help you select a lender who can work with your needs. Here is a list of documents you will need to compile to start the preapproval process.

Social Security numbers for yourself and any co-borrowers
Bank, savings, checking, investment account information
Outstanding debt obligations, including credit card, car loan, student loan and other balances
Two years of tax returns, W-2s and 1099s
Salary and employer information
Proof of down payment, and where the money is coming from

Selecting a lender

You will be spending a lot of time communicating with this person so it is important to do your research about how lenders conduct business and the timeframe in which they get loans closed. Research mortgage rates before starting the lender process and obtain multiple quotes to be certain that you are finding the best deal. As much as you need them, you are also interviewing them and should have a list of important questions to ask. Here are a few to get you started:

How do you prefer to communicate with clients — email, text, phone calls or in person? How quickly do you respond to messages?
How long are your turnaround times on preapproval, appraisal and closing?
What lender fees will I be responsible for at closing? (Fees may include commission, loan origination, points, appraisal, credit report and application fees.)
Will you waive any of these fees or roll them into my mortgage?
What are the down payment requirements?

Once you have your pre approval and trusted lender selected it is time for the fun part! Armed with information you can start the shopping process. In today’s competitive market, being prepared will mean an offer quickly submitted and accepted.

It may seem as simple as a lower interest rate equals a lower payment and therefore is the best option, but it is also important to consider the life of the loan, closing costs and duration you plan to be in your current home.

Refinancing typically makes sense if you fall into one of the categories below.

Your Current Mortgage is Longer Than 15 Years

If you purchased your home under the terms of a 30-year term then refinancing makes a lot of sense, especially if you are in the position to lock in a 15-year rate. If you secure a rate low enough on a 30-year term then you are better off making extra payments to shorten the overall term of the loan. At the end of the day you want to pay off your home as soon as possible!

You Have an Adjustable-Rate Mortgage

Commonly referred to as an ARM, these rates can adjust based on multiple factors. Although it may seem appealing starting off with a few years at a low, fixed rate, this can quickly change based on the mortgage market and the banks themselves. The risk in this situation is transferred in full to the homeowner. To avoid insane rate increases it would be a good idea to refinance into a lower, fixed-rate.

You Have a High Interest Rate

You want to make sure it is worth it to refinance keeping in mind what it would look like to “break-even” on this switch. There will be closing costs involved on the new mortgage, but if you plan to be in the home long-term that will give you time to make up those additional costs still making a refinance worth it. If your current rate is 1-2% higher than the current rates in the market then you should consider a refinance if it lowers your rate and shortens your payment schedule.

Depending on the lender, where you live and the amount you need to borrow, closing costs can range from 3-6% of the loan amount. Refinancing is not like starting over from scratch, so things like homeowners insurance, mortgage insurance and property taxes should remain the same. In some cases, you will receive a refund from your remaining escrow if changing lenders.

What do closing costs include?

Home inspection fee
Origination fee
Application, appraisal and title search
Points fees
Lender’s attorney fees

Points fees can be avoided! These are fees that you would pay to the lender upon closing and in exchange you would get a lower interest rate for using them. Simply ask for a par or zero quote which means that points will not be a factor.

Some quick math can help you determine if it really is worth it after closing costs. Say your closing costs are 5% on a $100,000 refinanced mortgage. And your new rate is 1% lower than your old rate. Taking into account that 1% reduction, it would take around five years to make up those $5,000 in closing costs.

So ask yourself, will you be in the home long enough to take advantage of the savings a refinance will generate for you?

If you have never refinanced a home, you most likely have a lot of questions about the process. With rates being at an all-time low, you might be feeling the pressure to jump on the opportunity before it’s gone.

It all starts with shopping! That’s right, just like when you applied for your original mortgage you need to start contacting lenders or use a broker to see if you qualify. You will expedite the process if you already have the documentation needed for the refinance organized and ready for submission. Although lenders look for different things, generally, most want to see the following information.

Income

Just like with your first mortgage, you need to prove that you have regular income that can support your debt-income ratio. Yes, the point of a mortgage is to lower your monthly payment, but lenders will always make sure you can still pay your bills prior to refinancing your loan.

Equity

It is unlikely that you will be able to refinance unless you have at least 10-20% equity in your home.

A Maintained Mortgage

In order to be considered for a refinance you need to show that you have maintained your current mortgage for the last 12 months without any missed or partial payments.

Credit Status

Your credit score will be pulled and re-assessed for the refinance. Having a lower credit score will impact the rate you qualify for with the refinance.

In the rare case that you do not have one of the line items above, lenders will use a manual underwriting process to figure out your risk or likelihood of paying your mortgage on time.