So, you think you are ready to buy a house? That’s great! For many, homeownership is the culmination of years of saving and months of work finding the perfect place to live. In this guide, we’ll help you navigate those steps so you can tackle the homebuying process and get the keys to your new home. 

Ready to buy a house? Here's your simple guide. 

Step one: Ask these questions first 

For most, a home is the largest financial investment we’ll ever make. Before you start hitting open houses and talking with real estate agents, you want to make sure you’re ready. Consider asking yourself these questions first: 

• Am I comfortable living in one location for the foreseeable future? 
• If you are buying with a partner, are you on the same page financially? 
• What are my financial goals over the next several years? 
• Do I want to start a family soon? 

Your answers to these questions can help you determine if it’s time to buy a house and will also help you when it comes to understanding how much home you can afford and what’s most important in your search. 

Step two: Understand the total cost 

In this guide we’re assuming you, like most Americans, will buy a home with a mortgage. And one of the biggest hurdles to homeownership, and the first to think about, is how to save for a down payment. 

Most mortgages require at least some down payment, although there are loans, like VA loans and USDA loans, that do not. Contrary to what you often hear, a 20% down payment is not required, but can help you avoid paying additional fees like private mortgage insurance, or PMI. Depending on the mortgage, minimum down payments begin around 3% of the purchase price. So for a $300,000 home your minimum down payment would be $9,000.  

The down payment is a big piece of the financial puzzle, and one that can take some time to put together, but it’s far from the only one. You’ll want to consider a range of financial factors when buying a home, including: 

• Monthly payment: When you buy a home, you commit to paying your mortgage monthly for a predetermined amount of time, often 30 years, but there are a variety of terms. You’ll want to make sure you can afford the payment. You can use a mortgage calculator to help estimate this. A common rule of thumb is that your mortgage payment should not be more than 28% of your gross income. 
• Closing costs: These can vary by region and loan type, but you can expect to pay between 2% and 5% of the purchase price of a home in closing costs. That’s additional cash you’ll need on hand when you purchase a home. 
• Property taxes: These are dependent on your local municipality and paid annually. 
• Insurance: In almost all cases, a mortgage lender will require you to have home insurance on your property.  
• Repair and maintenance: Depending on the age and condition of your home, you’ll want to set aside cash earmarked for simple repairs and maintenance. A good rule of thumb is 1-2% of your home’s value each year. 

Depending on where you buy a home, you may also need to consider things like whether you’ll need to buy a new car, additional furniture, or other seemingly unrelated costs that can add up over time. 

Step three: Figure out how much home you can afford 

Before you begin the mortgage process, it’s advisable to understand how a home would fit in your budget.

You will get the benefit of both understanding how much home you can realistically afford (not just how much loan you are approved for), and you will quickly amass the documents and financial information your lenders will request anyway.

Housing affordability depends on a number of factors: 

Debt-to-Income Ratio (DTI)

DTI is one of the main tools a lender uses to determine how much mortgage you can afford. You can calculate DTI yourself by adding your monthly debt payments on things like student loans, auto loans, and minimum credit card payments (remember to include your estimated mortgage payment here), dividing by your gross monthly income, and multiplying by 100. A DTI level under 35 is usually seen favorably by lenders whereas lenders may enforce limits on your lending as it approaches 50. 

Credit Score

Credit scores in the United States are expressed as three-digit numbers, typically between 300 and 850. Essentially, they are a prediction of how likely you are to pay back a loan. They are determined by a number of factors including your history of debt payments, current debt load, the number and type of accounts you have and the average age of your accounts.

Lenders generally see credit scores over 670 as “good” and scores over 740 as “excellent.” Individuals with higher scores often gain access to better mortgage terms, like lower interest rates, which can heavily impact affordability.

Credit scores, and your credit history, can also be wrong. You can obtain a free credit report from each of the three main reporting institutions once a year. If you’re beginning the process of buying a home, it’s crucial to check your credit report and confirm its accuracy. 

If after you run the numbers you feel like you’re coming up short, there’s a number of things you can do: 

• Improve your credit score by doing things like keeping your credit card usage low and staying up to date on payments
• Improve your DTI by lowering your overall debt load
• Save for a larger down payment which will lower your future mortgage amount and decrease your DTI

Step four: Make your housing wish list  

Do you want to be within walking distance of shopping and nightlife, or would you rather prioritize a big backyard? Are you able and willing to get your hands dirty with a few repairs and updates or is swinging a hammer not really your thing? It’s time to ask yourself questions that will determine exactly what type of home you’re looking for, and hopefully narrow down where to find out.

You’ll also want to think ahead. If you don’t have kids today, but are planning on them in the near future, you may want to prioritize being closer to family. The same goes for things like playgrounds, quality schools, or other amenities that become important when you begin to consider longer time horizons. 

You may also want to write that wish list in pencil, not pen. Depending on where you’re shopping, some amenities that were once necessities may fall off the list once the reality of a mortgage payment that includes all your “must-haves” comes into focus. 

What are the most important things to look for in a future home? 

It’s a tough question to answer because it largely depends on personal preferences, but aside from things like structural integrity and the quality of a home, some common subjective considerations are: 

• Location - what's your proximity to dining, entertainment, work, schools, transportation options and other amenities?
• Neighborhood - what's the vibe around you? Are you a young family surrounded by retirees or empty nesters on a party block? Make sure the area fits your expectations.
• Home size and layout - Do you have enough bedrooms, bathrooms and storage? Will you be happy in the kitchen or would there be room/funds to expand?
• Exterior features - is your backyard a postage stamp, urban oasis, or expansive outpost

Step five: Get preapproved for a mortgage 

Time to bring your home buying plans into view by selecting a mortgage professional to help find a loan that best fits your circumstances. There’s a whole world beyond the 30-year conventional loan and depending on your work history, income, desired location and other metrics, mortgage brokers can help you select loan programs that are best suited to you. 

• Conventional loans - loans provided by private lenders and not backed by the government. They are by far the most popular loan today.
• FHA loans - mortgages issued by private companies but backed by the federal government. They are often more accommodating to borrowers with lower credit scores or smaller down payments.  
• VA loans - these mortgages are for eligible military personnel, veterans and their families and contain attractive features such as the ability to buy a home with no down payment. 
• USDA loans - mortgages offered to home buyers in specifically designated areas, with attractive features such as no down payment options.
• Jumbo loans - are mortgages that are defined as “non-conforming” when it comes to limits set by the federal government. These loans often have less accommodating terms and higher minimum down payments.  
• Renovation loans - mortgages that are designed specifically for fixer-upper homes. It allows home buyers to finance money for upgrades or repairs. They often have higher fees and closing costs. 
• Construction loans - are usually short-term mortgages taken out while a home is under construction and later converted to another type of loan. 

A mortgage lender can help you determine which loan is best for your circumstances. Once you decide what type of loan is best for you, the next step is to get pre-approved for a loan. Pre-approval is the closest step to mortgage approval prior to purchasing a home. A mortgage lender will typically ask for a number of documents to determine your creditworthiness and the amount of loan you would be pre-approved for.  

You will likely be asked for: 

• Government-issued IDs like passports or driver’s licenses.
• Income verification via several years of W-2s, 1099s, tax returns, or pay stubs.  
• Employment verification, which can be determined with W-2s unless you are self-employed. 
• Bank statements for the past 2-3 months to verify your income and ability to afford a down payment. 
• Other financial statements to determine income and assets, such as investment or retirement accounts. 
• Details on your debts, such as student loan statements, auto loans, or child support payments. 
• Credit history, a loan officer will likely pull multiple credit reports over the course of your loan application. 

What if I don’t get approved for a mortgage? 

This isn’t the end of the road. If you fail to get pre-approved for a loan, there are several things to do:

• Shop around to different lenders 
• Examine your credit and improve your credit

Step six: Find a real estate agent you trust 

Real estate agents are invaluable guides to the local real estate market. Plus, if you’re a first-time home buyer they can be a valuable second set of eyes as you evaluate homes. 

You should always look to have your own agent, a “buyer’s agent” in this case, as they can be an advocate in a transaction and best represent your interests. It’ll come as no surprise that the best way to find a good agent is word of mouth.

Ask friends and family, get in touch with your neighbors, coworkers, or even friends at a PTA or other local volunteer organization. In addition to being your advocate, real estate professionals typically have a great handle on the local market and can advise you accordingly. 

Once you’ve selected your agent, sit down with them and discuss your wish list. What are you looking for in a home? What amenities do you want nearby? What stage of life are you in and what changes in your household are right around the corner? Are there any deal breakers when it comes to buying a home? This will help your real estate agent narrow the field and make the house hunting process much more efficient. 

Step seven: Go house hunting 

Okay, you’ve hired a good real estate agent and now comes the fun part - house hunting. In today’s housing market, this can take place on your phone, computer, or yes, occasionally in real life. If your circumstances permit it, it’s always best to tour a home in person. 

Here are some tips to optimize your house hunting experience: 

• Remember your wish list and keep priorities in mind. 
• Research neighborhoods - maybe even go for a walk or grab dinner after checking out a few homes. 
• Take photos, especially if you spot any potential issues or standout features. 
• Think like a homeowner. Would you be comfortable with kids playing in the front yard? Will train horns from the nearby track wake you at night? Try to play house as best as you can. 

Step eight: Make an offer 

Now we’re getting serious. You’ve found a home that meets all your criteria, falls within your budget, and is just blocks away from that restaurant you love. 

It’s time to lean on your real estate agent for comparable sale prices to help you form a compelling offer. They can often provide you with additional insights, like how many offers are on the table and how eager the owner is to sell. From there, there are three main paths forward: 

• Offer accepted! Congratulations. Please proceed to the next step.
• Offer declined! Back to the house hunting stage.
• Counteroffer! Talk over any potential changes to your offer with your real estate professional and come up with a plan. 

How do I make a home offer stand out? 

In competitive housing markets, there are a few ways to help make your offer more appealing: 

• Increase what’s called the “earnest money deposit” (we’ll learn more about it momentarily) - this shows you’re serious about buying the home. 
• Add an escalation clause - this essentially increases your offer if there’s another higher bid on the table. 
• Be flexible on your closing date - many sellers are looking for flexibility on when they’d have to leave the home. 

If you can find out what’s most important to the seller and craft your offer around that, it can give you the advantage. That doesn’t always mean a higher price. Some sellers may be looking to close quickly to facilitate an out of state move, while others may look for a longer close as they do their own house hunting. Real estate agents can be very helpful here. 

Step nine: Lock in your mortgage 

Congrats! You’ve reached the point in the process where you are likely writing your first real check. Most home offers have what’s called “Earnest Money Deposit” whose amount is often based on the purchase price of a home. This money will go towards your down payment. There are certain scenarios where, if you decide to back out of the deal without cause, you may lose this money as well, so be sure to read the fine print. 

Now you’ll need to choose a mortgage. You can go with the lender who has already granted you pre-approval, or you can start fresh and shop around with additional lenders. Depending on how long your house hunting process took, it may be beneficial to revisit some of the lending assumptions you had locked in previously due to shifting interest rates or other changes. 

Regardless, this is the time you’ll need full use of those documents and financial history you (hopefully!) compiled during the pre-approval process earlier. 

Step ten: Obtain home insurance 

Most lenders require you to have an insurance policy in place prior to finalizing your mortgage. What insurance is best for your home depends largely on the age of your dwelling and the specific circumstances of your house. Just like with the process of finding a real estate agent, you’ll want to consult with people you trust to find an insurance solution that works for you. If you can find an insurance professional ahead of time, it could make the process easier once the time comes. 

Step eleven: Get an inspection and appraisal 

Inspection and appraisal are two critical steps in the homebuying process. Basic home inspections typically cover major systems of the home including plumbing, electrical, the roof and foundation. If you have an older home, or specific concerns about an area of your home, like mold growth, a septic system, or other issues, you may want to order additional inspections by trained professionals. 

How much should a home inspection cost? 

Inspections can cost anywhere between $300 - $500 for a basic inspection, but the price can fluctuate depending on your location and any specialties you are having investigated, such as termite or septic inspections. Ideally, you should hire your own inspector.  

Is it okay to waive a home inspection? 

Waiving a home inspection is not recommended. Discovering a potentially costly issue with a major system of your home, such as your foundation, before you close could save you from a potentially catastrophic repair down the road. 

What is a home appraisal and why do I need it? 

A lender will typically order a home appraisal, which is paid for by the homebuyer. In simple terms, lenders do not want to loan more than a house is worth. Home appraisals are separate from inspections. Appraisers will often spend little time in your home, or on the property, with the bulk of their work finding comparable sales in the area to ensure your home is valued similarly to surrounding properties. 

What happens if my home appraisal comes in low?  

Low appraisals can limit how much money your lender is willing to finance to purchase the home. There are several solutions: 

• Most buyers can take advantage of an “appraisal contingency clause” in their contract and walk away from the sale. 
• You could negotiate with the seller in an attempt to lower the purchase price. 
• You could increase the cash portion of your offer, to cover the difference between the sale price and appraised price. 

Step twelve: Close and get your keys 

You did it! It’s time to close on your new home and do the final walkthrough before getting the keys in hand. Congratulations. Your journey of homeownership has just begun, and there is lots of excitement in store, but take a moment to appreciate this milestone with family and friends. 

The information provided here is for informational purposes. When interest rates and loan program information are included, it is for illustration purposes only and not a solicitation or quote for services. This is not an advertisement or loan estimate. Current interest rates, loan programs and qualification criteria can change at any time. If you have questions or need assistance, we can be reached using the contact information above.