10 Basic Steps of Buying a Home

The home buying process is a complex journey that demands your time, effort, and attention. It’s a significant investment, possibly the largest one you’ll make. So, where do you begin? Get the steps of buying a house simplified into nine basic steps. Learn what must happen from start to finish to become a homeowner. 

Determine Your Budget & Save

Buying a home is one of the biggest purchases you are likely to make. Before you start the homebuying process, it’s imperative to determine how much you can afford before you buy a home and apply for a mortgage. The general recommended rule is to look for homes no more than three to five times your annual household income. That includes the recommended 20 percent down payment.

Once your budget is set, it’s time to start saving for that down payment in cash. While 20 percent is recommended, you don’t need that much. Depending on the mortgage program, your down payment could be as low as 3 percent of the home’s price. This flexibility in down payment options should alleviate some of the financial pressure. However, the higher your down payment, the more competitive mortgage rates you’ll qualify for.

However, not only do you need down payment funds, but you’ll also need to save money for closing costs. Aim for 3-5% of the purchase price for closing costs. On top of that, save for moving costs. Even if you do-it-yourself moving, it still takes money to buy boxes, rent a truck and dolly, and haul your goods.

Now is also a good time to examine your monthly debts. If your debt payments are too high, you may not get loan approval. Set a budget to strengthen your financial readiness. If you’re not sure, try an affordability calculator to help determine what you can buy.

Research Listings

Now, it’s time to learn about the housing market. Search online and in-print real estate literature for home listings that match your criteria. Note location details, like traffic, school district, and proximity to restaurants, parks, shopping, and more. Pay attention to any changes in the asking price to give you a heads-up on housing trends.

Preliminary research of current listings can help you identify specific neighborhoods to narrow your home search. It will also help you understand the style of homes on the market at your price point so you can set realistic expectations.

Get Prequalified & Mortgage Preapproval

Research the different types of mortgage loans available and find the one that will be best for you. The most common mortgage options:

• FHA loans, popular for first-time home buyers because of the low 3 percent down payment
• USDA loans, for people buying homes in rural or suburban areas
• Jumbo loans, for loan amounts priced at more than $766,550 (2024 Updated)
• Conventional loans, backed by a private lender rather than the government

Once you’ve decided on the loan type, get prequalified for a mortgage to close on the home faster. The mortgage lender will request financial information, such as your income and the amount of investments you have. A loan officer can also give you a range that narrows down your purchase price. Later, to get preapproved for credit, you’ll have to provide more specific financial documents, like all sources of income, paycheck stubs, bank statements, and more.

Speak to several mortgage lenders about their loan offerings. Even fixed-rate mortgages can have different mortgage terms among lenders. Some loan terms include private mortgage insurance depending on your down payment. Other programs have a minimum credit score. That’s why you should shop around for the best loan terms.

Hire an Agent

Hire a real estate agent before you begin your search for a home. These professionals are tracking what’s happening in the current market. Choose an agent you trust to guide you in the best direction of the best neighborhoods for you and your budget. Real estate agents watch the market trends and have hyper-local knowledge. As a first-time buyer, your agent is your partner in writing purchase offers and negotiating the sale price further toward the end of the home-buying process.

Get Serious About the Home Hunt

Now, with loan prequalification, a real estate agent, and some background market knowledge, start house hunting. Search for homes in your price range in the communities you want to live. Set realistic expectations as a first-time buyer. Market conditions vary widely. Sometimes, in a competitive market, homes may be under contract in very short time frames, so you must move fast. Other markets may require patience in waiting for the right home to be listed.

Additionally, the homes on the real estate market may check off many things on your wish list but note that the homes for sale may have some things you want. You’ll have to decide your priorities–more square footage, a great location, a single-story or two-story home, etc.

Use your agent as a resource for home listings that may not be accessible to the public. Or, bring a list of homes you’ve already researched in step 2 that still meet your criteria and preapproved budget.

Here is a checklist of details to note when you look at homes in person.

• Turn light switches on and off
• Test the water pressure and how long it takes to get hot water by running the shower
• See if windows and doors open and close
• Make note of next-door neighbors if they’re out and about
• How well-kept the neighborhood is

Make an Offer

Do you feel like you’ve found your dream home? Now, get serious and submit an offer. Work with your agent to develop a fair offer based on neighborhood comps. Ask for a comparative market analysis to ensure it’s a fair price based on real estate sales. Discuss what extras and contingencies to include. Work with your loan officer to get a preapproval letter to include in the proposal.

After the offer is proposed to the seller, you’ll normally hear back within a few days to see if it has been accepted, rejected, or received a counteroffer with changes. If it’s accepted, you’re one step closer to closing! Write the earnest money deposit and start working through the contract contingencies.

Get a Home Inspection

If you asked for an inspection contingency, your agent will help you arrange a home inspection from their recommended vendors within a few days of the accepted offer. Home inspections are to check for structural issues or safety concerns about the home. The inspection is conducted from a comprehensive checklist.

Based on the inspection report findings, you can renegotiate your offer if anything is found in his report. Homes may need unexpected repairs; you can ask the buyer to remedy some of these. You can even withdraw the offer if the report reveals significant damage.

Get the Home Appraised

The role of a third-party appraiser is to let all parties involved in the sale know that you’re paying a fair price for the home. Any home being purchased with financing will have an appraisal contingency. Your lender will arrange the appraisal with a third-party certified home appraiser to gain an independent home value estimate. The appraisal process solely looks at home value and not necessarily its condition. You will receive a copy of the appraisal report. Any significant differences can be grounds for re-negotiation.

Secure Financing

In one of the final steps of buying a house, you’ll work towards officially getting your home loan during the contract period. You’ll put in a mortgage application with your chosen lender. As part of the process, the mortgage company will pull your credit report and credit history, ask for tax returns, and verify your monthly income. All mortgage brokers require you to carry homeowners insurance, so you’ll shop for this and provide proof you have purchased coverage. They will lock in your mortgage rate. Review all the loan terms and expected mortgage payments in your closing disclosure.

Close the Sale

You made it! You’re at the finish line and will sign a pile of paperwork, including loan documents, to complete your home purchase. The closing process is usually conducted in the office of a real estate attorney, but it could be a title company. Every state has different requirements. You will wire funds or bring a check to cover the closing costs. After your last document is signed, it typically takes a couple of days for your loan to be funded and the check delivered to the seller. Congratulations, you have completed all the steps of buying a house!

Updated June 2024