11 Steps To Buying A House

Buying a house is often as intimidating as it is exciting for first-time home buyers. Before you begin shopping for a home, it’s important to know exactly what to expect and how to prepare for the 11 steps you’ll need to take to buy a home.

1. Check Your Credit Score

Before you start shopping for a home, you need to review your financial situation to be sure you can qualify for financing and how much house you can afford to buy. The first step is to review your finances, beginning with your credit report.

Mortgage lenders will review your report and your credit score when you apply for mortgage preapproval or the loan itself. Your credit score will determine whether you can get a loan and the interest rate lenders will offer. Buyers with a higher credit score are offered better mortgage rates and loan terms, so if your score isn’t as high as it could be, you can take steps to raise it.

Your credit score also can help determine which type of loan you can qualify for, as most loan types require a minimum score. For example, you need a credit score of at least 620 to get a conventional loan, while you can get a Federal Housing Administration loan with a score of at least 580 and a 10% down payment. Veterans Affairs and the U.S. Department of Agriculture set no minimum credit score requirement, but the private lenders that issue their loans may have their own rules.

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2. Determine How Much You Can Afford

There are upfront and ongoing costs associated with buying and owning a home, not all of which are obvious to newcomers.

Upfront costs include the down payment and closing costs. The type of loan you’re applying for and your lender will determine how much you need for a down payment. A conventional loan requires a down payment of at least 3% of the home’s purchase price. Note that if you put down less than 20% on a conventional loan, you’ll have to pay for private mortgage insurance until you have 20% equity in your home. FHA loans require a down payment of 3.5% if your credit score is at least 580 – it goes up to 10% if your score is between 500 and 579. VA and USDA loans have no down payment requirement.

There also are options that allow you to buy a house with no money down.

Lenders also will look at your debt-to-income ratio. This calculation shows how much of your monthly gross income is taken up by your debt expenses, including your estimated mortgage payment. Most lenders set a maximum for borrowers’ DTI ratios, which can be anywhere from 36% to 50%.

Once you’ve closed on your home, you’ll need to make a monthly payment toward your mortgage, as well as pay property taxes, homeowners insurance premiums, homeowners association fees, maintenance, utilities, and other costs. Most homeowners make one payment to their lender that covers the interest and principal on their loan, as well as prorated estimates for their property taxes, homeowners insurance premiums and HOA fees. Your lender will hold those funds in an escrow account and pay them on your behalf when they are due.

The other significant expense you need to plan for is closing costs. These are the fees associated with processing and securing your loan. Although the exact amount you need will vary depending on your loan amount and your area’s tax requirements, you can generally expect closing costs to total 2% to 5% of the purchase price.

To estimate how these factors pencil out, you can use our home affordability calculator to figure out how much house you can afford before you speak with a mortgage lender.

3. Choose A Lender and Get Preapproved For A Mortgage

The next step is choosing a mortgage lender and getting preapproved. You should shop around with several lenders to ensure you get the best deal for your situation.

Be sure to consider factors beyond the bottom line. A lender might offer a great deal, but it may not be worth it to you if it comes with lesser customer service. Buying a house is complicated, so it’s important to find a lender you trust to make the process as convenient as possible.

When you’re just getting started, you can get prequalified for a mortgage. This involves providing the lender with estimates of your finances and getting, in return, an estimate of how much you can expect to borrow. Prequalification is an informal process and doesn’t guarantee you’ll get a loan. This is useful for understanding how much house you can afford and seeing if you need to improve your finances by increasing your credit score or saving more for a down payment before you’re ready to buy.

When you’re ready to begin shopping for a home, you can get a mortgage preapproval. The lender will do a cursory review of your finances to estimate how much you can borrow. This is a more accurate estimate that’s usually valid for 60 to 90 days. Real estate agents may require a preapproval letter before agreeing to represent you, and sellers may require one before they will review any offer you make.

4. Find A Real Estate Agent

Having an experienced real estate agent to advise and assist you in buying a home can make a big difference.

An agent will represent you throughout the home buying process to help you find a suitable home, make a competitive offer, negotiate terms, and ensure a smooth transaction.

You’ll want to interview several candidates to help you find the right real estate agent. Here are some key questions to ask potential agents:

Once you find an agent to work with, they’ll discuss your budget, help you set priorities and help you look for homes that meet your needs.

5. 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. As you look at homes for sale, keep your priorities in mind. It’s unlikely any listing will perfectly match your dream home, so try not to be too picky until you see the houses in person.

You can start by searching online listings to get a feel for what’s on the market and make sure you’re looking at homes in your price range. Your agent can help you search. They’re experts on the local housing market and can help you set realistic expectations and keep you motivated when you feel you’ll never find the right house.

When viewing a home for sale, take notes and reflect on the house itself and the surrounding area. Some things to consider are:

Although a house in poorer condition may seem like a steal, remember that you could be the one who will be left to make repairs. Even homes with outdated appliances can be a nuisance because you ultimately will have to pay to replace them. Be realistic as you view each house and consider what you’re willing to live with and what you can afford.

6. Make An Offer

When you find a home you want to buy, it’s time to make an offer. Ask your agent to run a comparative market analysis and look at recent sales of similar homes in the area to determine a fair offer. The longer a house has been on the market, the more power you may have to negotiate.

You should speak to your real estate agent about which contingencies to include in your offer. A contingency allows the buyer to walk away from the sale without penalty if specific conditions are not met. Although sellers sometimes balk at contingencies, some are worth making regardless of the seller’s feelings about them.

It’s common for offers to include a mortgage contingency, which lets you cancel the sale if you can’t receive financing. A home sale contingency is helpful if you need to sell your current home to buy another. It allows you to cancel the purchase if you can’t sell your current home by a specific date. An inspection contingency requires a satisfactory home inspection. If the inspection reveals the need for significant repairs or safety issues and the seller is unwilling to fix the home or compensate for its condition, the buyer can cancel the deal.

You also may want to offer an earnest money deposit with your offer. This deposit of 1% to 3% of the purchase price is paid to the seller when the offer is accepted. The money is held in an escrow account and applied to your down payment and closing costs when the sale closes. If you fail to buy the home for a reason that is not covered by a contingency, the seller keeps the earnest money deposit as compensation for their time and effort.

7. Agree On The Deal And Apply For Your Mortgage

Once you and the seller have agreed on the price, contingencies, earnest money deposit and other terms, you both will sign a purchase and sale agreement. This document outlines the terms of the sale and is a legally binding contract between you. At this point, the deal goes into escrow and begins to move toward closing.

At the same time, you’ll officially apply for your mortgage. Three days after you apply, you’ll receive a standardized loan estimate form 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. Three days before your scheduled closing, you’ll receive a closing disclosure with your final loan terms and closing costs.

8. Get A Home Inspection And Home Appraisal

The home inspection will evaluate the property’s condition and reveal any systems or structures that need significant repairs or renovations. Your lender likely will require it. Be sure to hire a professional, third-party inspector to examine the home you’re preparing to buy.

If significant repairs are needed, you can ask the seller to make them before closing or reduce the price accordingly. If the seller declines and you have an inspection contingency, you can walk away from the sale without penalty.

Your lender also will require an appraisal before approving your mortgage application. 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 won’t let you borrow more than a home is worth. If the appraisal comes in below the purchase price, you’ll have to renegotiate the price or pay the difference yourself.

9. Buy Homeowners Insurance

Your lender likely will require you to buy homeowners insurance. However, you can choose which insurance company to buy the 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, ranging from basic to comprehensive, so do some research into your options before deciding which policy to buy.

10. Do A Final Walkthrough

Before closing, you’ll have a chance to do a final walkthrough. This is your chance to make sure the property is in order and in the expected condition before you assume legal ownership. If the seller agrees to make repairs, this is your opportunity to make sure they are completed to your satisfaction.

11. Close On Your New Home

The final step, of course, is closing 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. The agent is a mediator between you and the seller and confirms that all required documents are signed. Once documents have been signed, the agent will ensure all funds are paid and properly disbursed, including closing fees and escrow payments.

During closing, you have two primary responsibilities:

After all necessary documents are signed, fees paid and information is exchanged, you’re ready to move into your new home.

FAQ

Here are answers to common questions about the steps to buying a home.

The Bottom Line

When looking at what is needed to buy a house, there are several steps in the process, from getting mortgage preapproval to house hunting to closing on your new home and, finally, getting ready to move in. While the process can take a lot of your time and effort, it can all be worth it to finally live in your own home.

Victoria Araj

Victoria Araj is a Staff Writer for Rocket Companies who has held roles in mortgage banking, public relations and more in her 15-plus years of experience. She has a bachelor’s degree in journalism with an emphasis in political science from Michigan State University, and a master’s degree in public administration from the University of Michigan.

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