10 Steps To Buying A House
Buying a house is an important milestone, but for first-time home buyers who don’t know what to expect, the process is often as intimidating as it is exciting. In these uncertain times of high list prices and rising rates, the decision to buy a house may feel even more overwhelming than ever, but we’re here to help.
In this article, we’ll walk you through each of the key steps involved in buying a house, so you’ll know exactly what you’re getting into and how to prepare.
What Do You Need To Buy A House?
Before you start looking for the perfect home, you should ensure you’re ready to buy a house and you have what you need. In order to buy a house, you should have:
- A strong credit score
- Money saved for a down payment and closing costs
- Preapproval for a mortgage loan
- A qualified real estate agent
Once you’ve drafted up your home-buying checklist, started the home-buying process and found a property you love, you’re also going to want to make sure you have:
- All the necessary documentation
- A clear, comprehensive understanding of what goes into purchasing a house
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How To Buy A House: The House Buying Process In 10 Steps
There’s a lot of crucial transferring of information that takes place during a real estate transaction, and you’ll want to be certain you know enough to be able to advocate for your needs each step of the way. The best way to prepare is to know exactly what to expect. Here are the steps you’ll need to accomplish before you can receive the keys to your new home:
- Step 1: Check Your Credit Score
- Step 2: Determine How Much You Can Afford
- Step 3: Choose A Lender And Get Preapproved For A Mortgage
- Step 4: Find A Real Estate Agent
- Step 5: Start The Home Search Process
- Step 6: Make An Offer
- Step 7: Get A Home Inspection And Home Appraisal
- Step 8: Purchase Homeowners Insurance
- Step 9: Do A Final Walkthrough
- Step 10: Close On Your New Home
Step 1: Check Your Credit Score
Before you begin the home buying process, you want to make sure you’re actually in a position to take on all that buying a house entails. That’s why the first step is to do your research, check your credit score and review your finances. Our friends at Rocket HomesSM offer access to your VantageScore® 3.0 credit score and report from TransUnion® once per week.1,2
Research Different Areas
Before you can buy a house, you need to know where you want to buy the house. Make a list of the areas you’re considering moving to and research them. It’s important to look into crime rates and public-school ratings in the area, but don’t forget about the simpler things.
Where is the closest grocery store? How long would your commute to work be? Keep all these factors in mind as you’re considering different cities.
Credit Score To Buy A House
Securing financing isn’t always easy. Mortgage lenders will request a credit report and, based on the information found, will use your credit score and financial history to qualify you for a home loan. It’s important to be one step ahead of them and know where you stand.
To obtain a conventional loan, you’ll need a qualifying FICO® Score of 620 or higher. But if you qualify for an FHA loan, Rocket Mortgage® only requires a median score of 580. The VA doesn’t require a specific credit score to buy a house with a VA loan, but lenders can set their own policies. Rocket Mortgage requires a median credit score of at least 580 for these loans.
Your credit and financial history will dictate whether you’re able to obtain a mortgage and at what interest rate. Buyers with higher credit scores tend to secure better mortgage rates and loan terms, so make sure you understand your credit before getting deeper into the process.
Step 2: Determine How Much You Can Afford
Before you speak with a mortgage lender, it’s helpful to calculate how much house you can afford on your own. A lender will tell you how much money you qualify for, but you want to ensure you won’t overextend yourself.
Typically, experts recommend spending no more than 30% of your gross monthly income on housing costs. These costs include:
- Principal: This is the money you borrowed to purchase your home.
- Interest: This is the fee the lender charges you to borrow the funds.
- Taxes: You’re required to pay property taxes to the government based on the value and location of your home.
- Insurance: Homeowners insurance protects your home against any damages.
- Association dues: These are fees you must pay if your home belongs to a homeowners association. If your home is not a part of a homeowners association, you won’t have to pay this fee.
To calculate how much home you can afford, consider using the Rocket Mortgage Home Affordability Calculator. Once you’ve determined how much you can afford, consider the lifestyle you want to maintain and leave yourself a cushion in case of emergencies. Don’t forget about factors like retirement, college funds and family vacations as you do your budget planning.
Down Payment And Closing Costs
Understanding what you’re responsible for paying and when is crucial to a smooth home buying process, so we recommend speaking with your real estate agent or lender to determine which costs you’ll have to pay upfront.
First and foremost, you’ll need to save for your down payment. Once upon a time, it was recommended to save 20% of a home’s purchase price for the down payment, but this hefty number is no longer the standard. The minimum down payment on a conventional loan is 3% and an FHA loan is available with a down payment of 3.5%.
Keep in mind that the larger the down payment, the more equity you’ll have, and the lower your monthly mortgage payments will be. By paying more upfront, you can save on interest and be less likely to pay private mortgage insurance. Be sure to weigh your options to choose the right down payment for you. A larger down payment may be great, but not if it means emptying your savings.
The other large 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 be about 3% – 6% of the purchase price.
Step 3: Choose A Lender and Get Preapproved For A Mortgage
The next step is finding a mortgage lender and getting preapproved for a mortgage loan. Many first-time home buyers don’t realize they can – and should – shop around for lenders before choosing one. Doing your research can make a big difference.
Get Different Loan Estimates
There are often variations in qualification guidelines, interest rates and closing costs between lenders, which is why it’s essential to do your homework. When comparing lenders, ask each one to provide you with a Loan Estimate, which will spell out the loan terms, projected payments and closing costs for your potential mortgage. This form is provided in a universal format, making it simple for you to compare lenders.
But be sure to consider factors beyond the bottom line. A lender might be offering a great deal, but it may or may not be worth it if it comes with lower-quality customer service. Buying a house is a long and often complicated journey, so it’s essential to find a lender you can trust to make the process as simple and convenient as possible.
Contrary to popular belief, getting prequalified for a loan does not guarantee that you’ll be able to obtain a loan. Moreover, not all qualifications are equal. When you get prequalified in the traditional sense, lenders only estimate your finances based on the information you provide.
However, getting preapproved for a loan requires a thorough investigation of your finances that includes verifying your income, assets and credit rating. When you get preapproved for a loan, you’re guaranteed that you’ll be able to obtain the loan, assuming your finances don’t change between preapproval and closing on the home, along with receiving an appraisal at a high enough value to make the loan work.
A preapproval is helpful because it tells you exactly how much the lender is willing to let you borrow and specifies the costs of obtaining the loan. Being preapproved also tells the seller you’re serious about buying, which can make a difference if and when you find yourself in a bidding war.
At Rocket Mortgage, we offer both Prequalified Approvals – think of a traditional prequalification – and Verified Approvals.3 In a Verified Approval, we not only pull your credit, but we also confirm your income and asset documentation. We guarantee to issue your Verified Approval within 24 hours of receiving the necessary documents.
Having a Verified Approval is important because sellers can be that much more confident your loan will close based on your finances being reviewed by an underwriter.
Knowing what you can afford gives peace of mind, but even more important in a rising interest rate environment is knowing that you didn’t pay more than you had to. That’s where RateShield® comes in.4
RateShield is a Verified Approval with the additional feature that you can lock your interest rate in for up to 90 days while searching for a home. Even better, if rates fall at any time during that lock timeframe, you have a one-time option to move down to the lower rate. You may see this referred to as a float-down option.
Step 4: Find A Real Estate Agent
As you may have noticed, there are many steps to buying a house. Although some home buyers decide they want to do it on their own, having a trustworthy and reliable real estate agent can make things a lot simpler.
Your real estate agent will represent you throughout the home buying process to ensure you find the right home, ask the important questions, make an appropriate offer, have the power to negotiate and receive the necessary disclosures. But perhaps even more important is having a real estate expert in your corner can provide some invaluable peace of mind.
The way to find the right real estate agent is by asking the right questions. Some questions to ask include:
- How long have you been working as a real estate agent?
- What makes you different from other agents?
- How many clients are you currently working with?
- What experience do you have finding homes in my price range?
- How knowledgeable are you about my desired area?
- Are you willing to provide me with references?
Once you select the best agent for you, they’ll look over your approval letter, discuss your budget and help you set your priorities.
If all of this sounds like a lot of work, Rocket HomesSM can help by matching you with one of their Verified Partner Agents. They work with you to find someone with experience finding homes in the area you’re looking as well as someone who works within your budget range.
Step 5: Start The Home Search Process
Once you’ve met with your real estate agent to discuss what you’re looking for, it’s time to begin house hunting. As you browse, keep your priorities in mind. Remember it’s highly unlikely any listing will perfectly match your dream home, so try not to be too picky until you see the houses in person.
Tour Different Areas And Houses
You’ll find that the more houses you see, the more they all start to blend together, so be organized and make sure you walk through the various things you like and dislike about each property with your real estate agent. When visiting a listing, take notes and reflect on the house itself and the surrounding area. Some things to consider are:
- The size, style and physical condition of the home
- The neighborhood the home is in
- What your commute would be like
- The schools in the area
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’re the one who will ultimately have to pay to replace them – so be realistic as you view each house and thoughtfully consider what you’re willing to live with and what your budget can cover.
We were unable to determine the home price you can afford with the numbers you entered. Try adjusting your numbers, or contact a Home Loan Expert at (800) 983-1344 to see what you can afford.
This is your income before taxes. Include income from any co-borrowers.
Include all required minimum monthly debt payments.
We will figure out the best down payment and additional closing costs.
If you don't have a home picked out yet, your best guess is fine.
Step 6: Make An Offer
When you find a home you want to buy, it’s time to begin the process of making an offer. Ask your real estate agent to run a comparative market analysis to determine a fair price based on recent sales of similar homes in the area. The less interest there is – and the longer the house has been on the market – the more power you’ll have to negotiate.
Beyond the price you plan to offer, you should speak to your real estate agent about whether it makes sense to include any contingencies in your offer. A contingency is a stipulation included in an offer that states that the buyer is free to break the contract without any repercussions if a particular condition is not met.
Although sellers sometimes balk at offers made with contingencies, some contingencies are worth making regardless of the seller’s feelings about them.
If your ability to afford the home is dependent on your ability to obtain a loan, you must include a mortgage contingency in your offer. This contingency will make it possible for you to back out of your offer if you can’t receive financing.
Even if you’ve been preapproved for a loan, you should still write this contingency into your offer. If you don’t, you’ll find that you’re still on the hook for your earnest money deposit regardless of whether you’ve obtained a mortgage.
Home Sale Contingency
If you’re planning to sell your home and require the funds from the sale to purchase this new one, you’ll also want to ask for a home sale contingency. This contingency will provide you with a certain period of time to secure a buyer for your own home.
If you’re unable to find a buyer during that time, the home sale contingency will enable you to rescind your offer and reclaim your earnest money deposit without any recourse. Many sellers will refuse this contingency, but it’s still worth trying in most cases.
An inspection contingency is also a worthwhile addition. After you make an offer, you’ll want to get the home inspected to ensure you fully understand the home’s condition. With an inspection contingency, you’ll be able to negotiate the offer based on any needed repairs, but you can also break the agreement if the home needs more work than you can handle.
Earnest Money Deposit
Along with your offer, you’ll be required to provide an earnest money deposit, also known as an escrow deposit. This deposit is money you pay upfront to show the seller you’re serious about the offer and make them feel more comfortable taking their home off the market.
The amount of money included in this deposit can be negotiable. However, an earnest money deposit is typically 1 – 3% of the purchase price. Speak with your agent about what’s common in your area. The money is held in an escrow account and applied to your down payment and closing costs at closing.
If you decide you won’t buy the home for any reason that is not specified in a contingency, the seller gets to keep your earnest money deposit. This is why it’s vital that you consider the conditions in which you may need to pull out of the contract before submitting an offer.
At the end of the day, including a contingency can be the difference between keeping and losing your earnest money.
Step 7: Get A Home Inspection And Home Appraisal
You may think you’ve reached the finish line when your offer is accepted, but a few critical steps remain. From here, you’ll need to arrange for a home inspection and appraisal.
The home inspection is important, as it will identify areas where major repairs or renovations require immediate attention as well as any work that needs to be completed in the future. Be sure to hire a professional, third-party home inspector to examine the home you’re preparing to buy.
If significant repairs are needed, you can request that the seller complete them before closing. If the seller declines to handle the repairs and an agreement can’t be reached, you may be able to withdraw your offer.
If you’ve included an inspection contingency in your contract, you may be able to negotiate so that either repairs are made, the cost is deducted from the purchase price, or the contract is broken and your earnest money is returned.
At this point in the process, your lender will require the home to be appraised before they agree to release any funds. A home appraisal estimates how much a home is actually worth based on comparable sales in the area, market trends, public records and a comprehensive inspection of the property.
Keep in mind that the lender will only provide funds to cover the appraised value of the house, so if the appraisal comes in below the purchasing price, you’ll have to either negotiate the price or come up with the difference, which is one of the many reasons having a mortgage contingency is in your best interest.
Step 8: Purchase Homeowners Insurance
Also in your best interest is homeowners insurance, which works as a safety net to protect your home and finances. Although homeowners insurance isn’t legally mandated, most lenders will require you to have an insurance policy on the home before giving you a loan.
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 be sure to do some research into all available options before deciding which home insurance product is right for you.
Step 9: Do A Final Walkthrough
At this point in the home buying process, you’re probably eager to be done – but don’t neglect the final walkthrough. One last walkthrough of the property can help the buyer if something needs to be fixed by the seller before purchasing the home.
Final walkthroughs typically take place a day or two before closing, allowing you to ensure all agreed-upon repairs have been completed.
Step 10: Close On Your New Home
Congratulations! You’ve made it to the final step of the process. When the time comes, make sure you review your Closing Disclosure, which will outline the terms, final closing costs and any outstanding charges or fees included in your loan. Your lender will send the disclosure to you at least 3 days before closing.
During closing, the property 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 closing agent will ensure that all necessary parties are present at closing. The agent acts as a mediator between you and the seller and confirms that all required documents are signed. Once documents have been signed, the agent will ensure that all funds are paid and properly disbursed, including closing fees and escrow payments.
During closing, you have two primary responsibilities:
- Signing legal documents: This includes the Closing Disclosure, promissory note, deed of trust and certificate of occupancy.
- Paying closing costs: This may include fees for your mortgage application, appraisal, survey and title search, and paying your down payment.
The Bottom Line: It Helps To Understand The Home Buying Process Before You Buy
Being a first-time home buyer can be intimidating, but by arming yourself with the necessary knowledge and resources, it doesn’t have to be. By following the steps outlined in this article and working with a trusted real estate agent, you can learn how the home buying process works, making buying a place more manageable. Following our advice here can also allow you to focus on what really matters: enjoying your new home.
If you’re ready to buy a home of your own, you can apply online or give us a call at (833) 230-4553.
1 Rocket Homes℠ is a registered trademark licensed to Rocket Homes Real Estate LLC. The Rocket Homes℠ logo is a service mark licensed to Rocket Homes Real Estate LLC. Rocket Homes Real Estate LLC fully supports the principles of the Fair Housing Act.
For Rocket Homes Real Estate LLC license numbers, visit RocketHomes.com/license-numbers.
California DRE #01804478
2 Rocket Mortgage, LLC and Rocket Homes Real Estate LLC are separate operating subsidiaries of Rocket Companies, Inc. (NYSE: RKT). Each company is a separate legal entity operated and managed through its own management and governance structure as required by its state of incorporation and applicable legal and regulatory requirements.
3 Participation in the Verified Approval program is based on an underwriter’s comprehensive analysis of your credit, income, employment status, assets and debt. If new information materially changes the underwriting decision resulting in a denial of your credit request, if the loan fails to close for a reason outside of Rocket Mortgage’s control, including, but not limited to satisfactory insurance, appraisal and title report/search, or if you no longer want to proceed with the loan, your participation in the program will be discontinued. If your eligibility in the program does not change and your mortgage loan does not close due to a Rocket Mortgage error, you will receive the $1,000. This offer does not apply to new purchase loans submitted to Rocket Mortgage through a mortgage broker. This offer is not valid for self-employed clients. Rocket Mortgage reserves the right to cancel this offer at any time. Acceptance of this offer constitutes the acceptance of these terms and conditions, which are subject to change at the sole discretion of Rocket Mortgage. Additional conditions or exclusions may apply.
4 RateShield Approval is a Verified Approval with an interest rate lock for up to 90 days. If rates increase, your rate will stay the same for 90 days. If rates decrease, you will be able to lower your rate one time within 90 days. Please contact your Home Loan Expert for additional information. This offer is only valid on certain 30-year purchase loans. Additional conditions and exclusions may apply.