What Do You Need To Do To Buy A House?
The process of buying a home is something that many of us end up doing at some point, but very few of us are taught how to do it. While the process does involve finding a real estate agent, touring houses and getting a loan, you might be less clear on where to go or who to talk to about doing those things, or in what order you should be doing them.
We’ve got you covered. Review our step-by-step guide for first-time home buyers to determine what you need to buy a house.
Step 1: Get Your Finances In Order
Before moving forward with the home buying process, it’s important to determine where you stand financially. You want to be able to comfortably afford not only the house, but all of the expenses that come with home buying – from the down payment to closing costs to property maintenance and repairs.
Being financially prepared also means looking at current mortgage interest rates and comparing lenders to see who can provide the best deal on a home loan.
Meet Mortgage Lender Requirements
When considering requirements to buy a house, qualifying for a mortgage is one of the most crucial steps. Here are some of the basic requirements borrowers will likely need to fulfill to be approved for a mortgage. Keep in mind that these are general guidelines and may vary depending on your lender and what type of loan you get:
- Minimum credit score of 620 for conventional loans and 580 for FHA loans
- Good credit history
- Proof of reliable source of income
- Debt-to-income ratio below 50%
If you meet only the minimum requirements, you may want to work on improving your credit score before applying for a mortgage, as this can get you access to better rates.
Determine How Much You Can Afford
You’ll have to get preapproved for a mortgage to know exactly how much you’ll need to buy a house, but figuring out what your monthly budget might be if you take on a mortgage will help you decide if you can realistically afford a home.
Consider using a home affordability calculator to estimate how much home you can afford and what your monthly payments might be. You may find that you’re able to get a mortgage with a lower monthly payment than what you’re currently paying towards rent.
Keep in mind that homeownership comes with a variety of new costs, so factor in things like taxes, homeowners insurance and maintenance when looking at what your overall costs would be.
Save For A Down Payment And Closing Costs
Saving for your down payment can take a while, especially if you plan to put 20% down. Luckily, there are plenty of options for those who are looking to buy a house with no money down.
FHA loans require only 3.5% down, and there are conventional loan options that allow you to go as low as 3% down – with the caveat that mortgage insurance will be included. If you qualify for a VA or USDA loan, you could get a home with 0% down.
The reason 20% is the oft-quoted number is because that’s the minimum you can put down while avoiding mortgage insurance. On top of that, the larger the down payment, the lower your monthly payments will be.
You’ll need to provide two months of bank statements. This helps prove that you’ve had your down payment funds in an account for at least 60 days, making them to be eligible for you to use. Lenders require this documentation to ensure that you aren’t taking out another loan to cover your down payment.
When you’re figuring out how much you need to save, don’t forget to factor in closing costs. Your individual closing costs will vary depending on your situation, but usually end up being around 3 – 6% of the home’s value.
See What You Qualify For
Congratulations! Based on the information you have provided, you are eligible to continue your home loan process online with Rocket Mortgage.
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Step 2: Get Preapproved For Your Mortgage
Once you’re confident you’re ready to start looking at houses, getting preapproved for a mortgage should be at the top of your to-do list. Preapproval tells you how much you can borrow and shows sellers that you’re a serious buyer.
For preapproval, a lender will look at your credit report to make sure that you have a qualifying credit score and see if you have any major debts or blemishes, such as bankruptcy. The lender will also look at how much debt you have relative to your income and ask you for information about your income and assets. It helps to have documentation including recent W-2s, paystubs, bank statements and any other relevant paperwork ready to go to make the process as smooth as possible.
Once you’ve secured mortgage preapproval, be careful not to make any big changes to your financial profile, such as taking on additional debt or switching jobs, as this could put your approval at risk.
Step 3: Find A Good Real Estate Agent
The right real estate agent will guide you through the home buying process, performing tasks such as researching potential properties, communicating with sellers and helping you close on your dream house.
Reviewing online profiles or interviewing potential candidates are great ways to find the right real estate professional for your situation. You want someone who is going to be an advocate for you and honor your wants and needs, but who will also be honest with you and help you set realistic expectations.
Step 4: Find The Right House
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. This could include things like number of bedrooms, proximity to your workplace, school district or yard size.
To make your search easier, start out by looking for homes online. By checking out online listings, you can get a feel for what’s on the market and prescreen any homes within your price range, so you’ll only tour places you’re truly considering.
If you’re having trouble finding a house that feels like home, consult your real estate agent. Agents aren’t just experts on helping people find a home; they’re also experts on the local housing market. They can help you set realistic expectations and keep you motivated when you’re feeling like you’ll never find the right house.
Step 5: Make An Offer
When you find a house you like, don’t hesitate. Your real estate agent will help you with the particulars of making the offer. What you’ll need to decide is how much you want to pay and negotiate.
In a hot market, you may not have the luxury of negotiation and may even have to pay above asking price - or make an all-cash offer - to get the home you want. In a colder market, you’re more likely to have the seller agree to a lower price or certain seller concessions. Ask your real estate agent for guidance when figuring out the details of your offer.
Your offer will spell out the terms of the sale, including any contingencies. Contingencies allow you to withdraw from the deal if certain circumstances aren’t met, such as a contingency for an inspection that reveals a need for significant repairs.
Step 6: Get Ready To Close
Now is the time to get your mortgage approved. Your lender may ask for additional or updated documentation, and if house hunting took longer than expected and your preapproval expired, the lender may need to pull your credit again.
Your lender will also set up an appraisal. The home appraisal is a process where a professional evaluates the house, compares it to similar properties in the area and decides how much the house is worth. This process protects both you and your lender from overpaying on a home. You can also set up your home inspection at this time (if you have a specified inspection period, be sure to get it done within that time frame).
If the house is appraised for less than the asking price, you can ask the seller to lower the price or you can pay the difference out-of-pocket at closing.
Once your mortgage is approved and all the details are worked out, you’re ready for closing day. Make sure to find out ahead of time what you need to bring to closing, and if you need to wire your down payment funds in advance.
At a minimum, you’ll need a valid form of ID, like a driver’s license or passport, and a cashier’s or certified check with the funds to cover closing costs. Depending on your situation, you may also need to bring proof of insurance or other supporting documentation, like a Closing Disclosure.
After all necessary documents are signed and information is exchanged, you’re ready to move into your new 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, the endgame is worth it.
Are you ready to buy a house? Start your mortgage application process today.