Mortgage Basics for First-Time Homebuyers in Washington State

One of the most valuable things you can do before buying your first home is understand what lenders are actually looking at when they evaluate your application.

Some buyers are surprised to learn they qualify sooner than expected. Others discover there’s some groundwork to do first. Either way, knowing where you stand early gives you options.

Credit

Lenders look at both your credit scores and your credit history. Ideally you’ll have three to four established credit accounts that have been open and actively used for at least twelve months, with balances kept below 30% of the credit limit. New credit lowers scores — old, established credit paid on time raises them.

Credit score minimums vary by loan program. Most conventional loans require a minimum score in the mid-600s, though the score used for qualification is the middle of your three bureau scores — and on a loan with two borrowers, the lower of the two middle scores. Recent guideline changes mean lenders are placing more weight on overall credit history and less on scores alone, which can help buyers with strong payment histories but lower scores.

Income

How you’re paid matters as much as how much you earn. Salaried borrowers are the most straightforward to qualify — the lender uses your annual salary divided by twelve. Hourly borrowers with variable hours will typically have their income averaged over the past two years. The same applies to self-employed borrowers, commissioned employees, and those who receive bonuses — all are averaged over two years using tax returns and pay stubs.

If your income includes variable components — overtime, commission, bonuses, or RSUs — how that income is treated depends on the loan program and documentation. Part-time income and second jobs have their own qualification rules that are worth understanding before you apply.

Employment History

Lenders look for a two-year history of consistent employment in the same field. Job changes within the same line of work are generally acceptable — what lenders watch for is gaps in employment or significant changes in the nature of your work. If you went to school for your field, your education may count toward the two-year history with supporting documentation such as transcripts or a diploma.

Gaps in employment over the past two years will need to be explained. A second job is generally not counted for qualifying purposes unless it has been held for at least two years.

Debt-to-Income Ratio

Your debt-to-income ratio (DTI) compares your total monthly debt obligations to your gross monthly income. Lenders calculate it by adding up all of your monthly debt payments — including the proposed mortgage payment — and dividing by your gross monthly income. Most loan programs allow a maximum DTI in the 45–50% range, though lower is better.

Lenders use the minimum monthly payment shown on your credit report for each debt. Some installment debts with only a few months remaining on the term may not be factored at all.

Down Payment

Many loan programs have low down payment options — as little as 3% for conventional loans and 3.5% for FHA. VA and USDA loans offer zero down payment for eligible buyers. Down payment assistance programs are also available in Washington State through the Washington State Housing Finance Commission and other sources.

The source of your down payment matters — lenders require documentation for all funds used for closing, including gifts from family members.

Assets and Reserves

Beyond your down payment and closing costs, lenders want to see that you have reserves — funds remaining after closing that could cover your mortgage payment if needed. Reserves are typically measured in months of the proposed mortgage payment. Retirement accounts such as 401(k)s and IRAs can count toward reserves, though a discount is typically applied to account for early withdrawal penalties.

Additional assets beyond what’s required strengthen your application — they signal financial stability to the lender and provide a buffer if something unexpected comes up after closing.

Bank Statements and Documentation

Be prepared to provide all pages of your bank statements — including blank pages — for the past two months. Lenders review statements for large deposits that need to be explained and documented. Any deposit that is not a regular payroll deposit may require a letter of explanation and supporting documentation showing where the funds came from.

This is one of the areas that surprises buyers most. Even a Venmo payment from a friend or a reimbursement from a family member can trigger a documentation request. The earlier you know what’s on your statements, the less stressful this part of the process will be.

The Earlier You Start, the More Options You Have

Every buyer’s situation is different. You might have strong income and assets but need to work on your credit. Or your credit is solid but you’re still building savings for a down payment. Or everything looks good but you need a few more months of employment history in your current role.

Whatever the situation, the earlier you meet with a mortgage professional the better. I regularly work with buyers who aren’t planning to purchase for six months or more — they want to know exactly what to do between now and then to put their best foot forward. There’s no cost to that conversation and it can make a significant difference in your outcome.