Buying a house can be as intimidating as it is exciting for first-time home buyers. But the more prepared you are, the smoother things are likely to be. Here are our 12 steps to buying a house.
1. Check Your Credit Score
If you’re wondering how to buy a home, you should know it starts with understanding your creditworthiness. Mortgage lenders will review your credit report and credit score when you apply for a loan. Your score will determine whether you get approved and the interest rate lenders will offer.
Buyers with higher credit scores are generally offered better mortgage rates and terms. If your score isn’t as high as it could be, you can take steps to raise it, like paying off some credit card debt and being on time with future bills. Checking your credit report for errors is also important.
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2. Use A Marketplace Like Quicken Loans
A home-loan and personal-finance marketplace can help you compare lenders and find the answers to some of your home-buying questions as you navigate the journey. Quicken Loans provides the trusted resources and expert advice you need to:
- Research and compare mortgage lenders and estimated rates
- Learn more about each step of the home-buying process, ensuring you feel prepared and empowered
- Explore different types of loans to find the best option for your needs
- Access user-friendly calculators to understand home affordability, compare the costs of renting vs. buying, estimate the monthly cost of a mortgage and more
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3. See How Much You Can Afford
There are up-front and ongoing costs associated with buying a home, not all of which are obvious to new buyers. The up-front costs include a down payment and closing costs.
Down-payment requirements for a conventional loan may vary based on individual creditworthiness and financial factors (like debt-to-income ratio), although the minimum down payment for first-time home buyers or other qualified buyers can be as low as 3%. If you put down less than 20%, you’ll also have to pay for private mortgage insurance until you reach an 80% loan-to-value (LTV) ratio, which refers to the appraised value of your home compared to the outstanding loan principal balance.
FHA loans require a down payment of 3.5% if your credit score is at least 580, or 10% if your score is between 500 and 579. VA and USDA loans allow you to buy a house with no money down.
The other significant up-front expense to plan for is closing costs. These are the fees associated with finalizing your loan. Their exact amount will vary depending on your loan amount and lender, but you can generally expect closing costs to total 3% – 6% of the purchase price.
Once you’ve closed on your home, you’ll still have ongoing costs, as well: You’ll need to make monthly mortgage payments, as well as pay for property taxes, homeowners-insurance premiums, homeowners association fees, maintenance, utilities and other costs.
It’s best to try to limit your total ongoing housing costs to 30% of your income or less. Use our home affordability calculator to figure out how much house you can afford.
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4. Choose A Lender And Get Preapproved For A Mortgage
Choosing your mortgage lender is one of the most important steps in buying a house. Don’t just look at interest rates; also consider closing costs and customer service.
When you’re just getting started, get prequalified for a mortgage. This involves providing a lender with estimates of your finances and, in return, getting an estimate of how much you can expect to borrow. Though prequalification is an informal process, it can help you understand how much house you can afford.
When you’re ready to shop for a home, you can get a mortgage preapproval. The lender will do a deeper review of your finances to estimate how much you can borrow. That estimate is usually valid for 60 – 90 days. Real estate agents may require a preapproval letter before agreeing to represent you, and sellers may require one before reviewing any offer you make.
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5. Find A Real Estate Agent
A great real estate agent can not only explain how to buy a home, but also help you find the ideal property. Interview several candidates to find the right agent, and ask these questions:
- How long have you been a real estate agent?
- What makes you different from other agents?
- How many clients are you working with now?
- What experience do you have finding homes in my price range?
- How knowledgeable are you about my desired area?
- Are you willing to provide references?
Once you find an agent, they’ll discuss your budget and priorities to help you find a home that works for you.
6. Start Shopping For A Home
The first step to finding the right house is knowing what you’re looking for. Make a list of your wants and needs, and rate them in order of importance. You can look online to find listings in your price range, but your agent will probably find options for you, too.
When viewing a home for sale, consider:
- Its size, style and condition
- The neighborhood and its amenities
- What your commute would be like
- The quality of the local school district
Homes that need more work may be cheaper than move-in-ready homes in terms of purchase price. But you’re taking the risk of having to make costly repairs, so make sure to weigh all the pros and cons.
7. Make An Offer
Once you find a home you want to buy, it’s time to make an offer. Have your real estate agent run a market analysis and look at recent home sales to come up with a fair offer. The longer a house has been on the market, the more power you may have to negotiate.
You should also speak to your agent about what contingencies you might want to include in your offer. A contingency allows you to walk away from the sale without penalty if specific conditions aren’t met.
It’s common for offers to include:
- A mortgage contingency, which lets you cancel the sale if you can’t get financing
- A home-sale contingency, if you need to sell your current home to buy another home
- An inspection contingency, which lets you walk away if issues with the house are revealed that the seller won’t fix or compensate you for
Expect to make an earnest money deposit with your offer. This deposit, generally of 1% – 3% of the purchase price, is held in escrow and applied to your down payment and closing costs. If you fail to buy the home for a reason not covered by a contingency, the seller generally gets to keep the deposit.
8. Apply For Your Mortgage
Once you and the seller have signed a purchase and sale agreement, you’ll officially apply for your mortgage. After you apply, you’ll receive a standardized loan estimate outlining the terms of your loan and the fees you’ll need to pay at closing.
You’ll provide financial documents to your lender for the underwriting process. Before your scheduled closing, you’ll receive a closing disclosure with your final loan terms and closing costs.
9. Get A Home Inspection And Appraisal
The home inspection will evaluate the property’s condition and look for any potential problems. If you have an inspection contingency and significant repairs are needed, you can ask the seller to make them before closing, or to reduce the price.
Your lender will also require an appraisal. A home appraisal estimates how much a home is worth based on comparable sales in the area, market trends, public records and a comprehensive inspection of the property.
Lenders generally won’t let you borrow more than the amount a home is worth minus the down payment. If the appraisal comes in below the purchase price, you’ll have to renegotiate the price or pay the difference yourself.
10. Buy Homeowners Insurance
Your lender likely will require you to get homeowners insurance, but you can choose which company to buy your policy from. Homeowners insurance covers damage to your home and its surrounding structures, as well as stolen or damaged personal property. There are varying levels of coverage, so do some research before deciding what policy to buy.
11. Do A Final Walk-through
Before closing, you’ll have a chance to do a final walk-through. This is your chance to make sure the property is in the expected condition before you assume legal ownership. If the seller has agreed to make repairs, this is also your opportunity to make sure they’ve been completed to your satisfaction.
12. Close On Your New Home
During closing, the property’s title will pass from the seller to you. A closing agent will oversee this process, which typically takes place at a title company, management firm, escrow office or your home. Once all the necessary documents have been signed, the agent will ensure all funds are properly disbursed, including closing fees and escrow payments.
FAQ
Here are answers to some frequently asked questions about buying a home.
The Bottom Line
Understanding the steps to buying a house can make your search less stressful. Be patient with the process, and you’ll hopefully be rewarded with a great home you enjoy living in. Start your home-buying journey by visiting Quicken Loans to compare lenders, gain financial insights and access user-friendly calculators to estimate costs, affordability and more.
Maurie Backman
Maurie Backman has more than a decade of experience covering personal finance topics that include mortgages, loans, retirement, Social Security, and investing. Prior to becoming a full-time writer, she worked in the financial industry as well as in product design and marketing. Maurie holds a bachelor's degree from Binghamton University, where she studied creative writing and finance. She was happy to combine her two areas of study into a career that allows her to educate consumers on a host of financial topics.
