Buying a house is a pretty big step, not just financially, but also in terms of your lifestyle. And whether it’s your first time or your 10th time buying a piece of real estate, the process can be a little overwhelming. One way to remove some of the stress is to break the homebuying process into clear, manageable steps to buying a house.
In this article, we’ll take you through the process one decision at a time.
Key Takeaways
- Take the first step to buying a house by reviewing your finances, setting a realistic budget, and getting pre-approved for a mortgage.
- Work with a real estate agent to search for homes, tour properties, and submit a competitive offer when you find the right fit.
- Complete the final steps, including inspections, securing homeowners’ insurance, and closing on your new home.
How to buy a house in 10 steps
No matter whether you’re buying a home for the first time or the tenth time, the process can feel overwhelming fast. Once you understand the steps, the process becomes much easier to navigate. We’ll break down the steps to buying a house into 10 simple, easy-to-follow steps, so you know what to expect and can move forward with confidence.
1) Evaluate your financial readiness
The first of the major steps to buying a house starts with understanding your financial readiness. Before diving into the home-buying process, make sure your finances are in solid shape There are a number of factors to consider as you try to determine whether you are really ready for homeownership:
Income and employment status
To secure mortgage approval, lenders need proof of a steady income to ensure you can make payments. Typically, they require evidence of at least 2 years of consistent employment. Be prepared to provide your W-2 and recent pay stubs during the application process to validate this.
Save for a down payment
Make sure you have enough savings for both your down payment and closing costs. A common rule of thumb is to set aside 3% to 10% of your home’s purchase price for these expenses.
Debt-to-income ratio
To calculate your debt-to-income ratio, or DTI, divide your monthly debts by your gross monthly income. Most lenders prefer a debt-to-income ratio below 50%, and the lower your ratio, the better your chances of approval
Check your credit score
A credit score is a number that represents your creditworthiness, or how likely you are to repay borrowed money. A score of 620 or higher is usually enough for a conventional loan, but a score of 720 or more can help you get better interest rates
2) Determine your budget.
Once you’ve assessed your finances, the next step to buying a house is determining how much house you can afford. Start by reviewing your debt-to-income ratio, which shows how much you can comfortably allocate for mortgage payments each month. Keep in mind that homeownership comes with extra costs like utilities, property taxes, homeowners insurance, maintenance, HOA fees, and more. To get a clearer picture, create a household budget to understand your monthly expenses and ensure you’re buying a home within your financial means.
3) Get pre-approved for a mortgage loan.
If you’re planning on buying your home in cash, then you can skip this part. For anyone who plans on taking out a mortgage loan (and that’s obviously going to be the vast majority of homebuyers), pre-approval is one of the most important steps toin buying a house.
During the pre-approval process a lender will help evaluate your overall financial health. They’ll do this by reviewing:
- Your income statements, such as 1099 or W-2 forms.
- Assets, including statements from your bank accounts and retirement statements.
- Debts, which can include student loan obligations, credit card statements, etc.
- Records of any foreclosures or bankruptcies in your history.
Basically, your lender will take a look at these and other documents to confirm that you are eligible for homeownership, and also to let you know roughly how much house you can afford. The process will end when you receive a pre-approval letter, which is the lender’s endorsement that they will loan X amount of money.
The pre-approval process is important for a few reasons. One, it gives you a more concrete sense of how much house you can afford. Two, a pre-approval letter provides potential sellers with evidence that you’re serious. And three, it can make the rest of the mortgage and closing process move much more expediently.
4) Look for a real estate agent.
While not required, many homebuyers choose to work with a real estate agent to guide them through the home-buying process. Keep in mind that you’ll typically owe a commission of about 3% of the sale price. However, agents offer valuable support, from negotiating offers to coordinating with lenders and vendors. They can also help you find homes to tour, including listings you might not find on your own
5) Go house hunting!
For most people, the house hunting stage is the most exciting part of the process. Before you actually set foot in a house, though, it’s wise to make a basic list of your priorities and non-negotiables. Provide this list to your real estate agent, who can use the list to help locate some promising homes.
Some specific factors to consider include:
- Price
- Neighborhood/location
- Square footage
- Number of rooms
- The home’s era, style, and/or condition
- Amenities such as a pool, big backyard, etc.
- Property value trends
- School district zoning
6) Make an offer.
This is where the process of buying a house gets really exciting. Once you find a place that you really like, that fits your budget, and that ticks all of the boxes on your must-have list, you’ll want to make an offer.
A formal home offer is then submitted in writing. Your written offer should include basic information about yourself (name and contact information), the price you are willing to pay for the house, and any other terms or contingencies. Your agent can help you draft the right language.
It is typical to include an earnest money deposit with your offer letter,… usually one or two percent toward the final sale price, toas a show to the seller that you’re serious about your offer.
7) Get your home inspected.
Once you put in your offer, the seller will have a certain amount of time to accept, reject, or make a counteroffer.
You may negotiate back and forth a few times, but hopefully you’ll ultimately reach a point where you and the seller have a tentative agreement. The next step is to get a home inspection. (Your lender will likely require this.)
During this step in the process, an inspector will assess all of the physical structures in the home and provide a full report detailing their findings. Based on this information, you may choose to move ahead with your purchase, to back out, to negotiate a different price, or to ask that the seller make certain repairs.
What do you do with your inspection report?
After the inspection is complete, you will receive a report outlining any issues the inspector identified. Some findings may be minor or expected, especially in older homes, while others could be more significant. At this point, you generally have a few options. You can move forward with the purchase as-is, ask the seller to make certain repairs, request a price reduction or credit, or decide to walk away if the issues are more than you are comfortable taking on.
Your real estate agent can help you review the report and decide which findings are worth negotiating and which are reasonable to accept.
How does an inspection contingency work?
An inspection contingency is a clause in your purchase agreement that gives you the right to renegotiate or back out of the deal based on the inspection results. This contingency protects you as a buyer by ensuring you are not locked into purchasing a home with serious, undisclosed problems.
If the inspection reveals major concerns and the seller is unwilling to address them, the inspection contingency allows you to exit the agreement without losing your earnest money. This makes it one of the most important protections for buyers, especially during the steps to buying a house for the first time.
8) Get a home appraisal.
After you’ve had a home inspection to check the condition of the house, the next step is getting a home appraisal. This is something your lender requires to ensure the house is worth the price the seller is asking and that they’re not paying more than it’s actually worth. Your real estate agent will likely suggest adding an appraisal contingency to your offer. This gives you the option to back out or renegotiate if the appraisal comes in lower than the asking price.
How does an appraisal contingency work?
An appraisal contingency is a part of the agreement between the buyer and the seller that allows you to renegotiate or walk away from the deal if the appraised value is lower than the agreed-upon purchase price. If this happens, you may ask the seller to lower the price, cover the difference, or offer other concessions. If an agreement cannot be reached, the contingency gives you the option to exit the contract without losing your earnest money.
For many buyers, especially those navigating the steps to buying a house for the first time, an appraisal contingency provides important financial protection and peace of mind.
9) Get homeowners’insurance.
Homeowners insurance can provide you with a financial safety net, should your new home be adversely impacted by fire, storm, or theft. More to the point, your lender will probably require you to have some level of insurance protection. You’ll want to start shopping around for good homeowners’ insurance policies before closing on your new place.
10) Go to the final walkthrough & closing.
The seller should be open to allowing you one final walk-through of the house before closing, typically the day before or even the morning of. This gives you a chance to confirm that the seller has moved out and that all agreed-upon repairs have been made.
On closing day, you’ll:
- Sign paperwork
- Transfer the down payment and closing costs
- Receive the keys to your new home.
Your agent will guide you through these final steps, and often, a representative from your mortgage company will be there too.
Are You Ready to Take the Next Step?
If you’re thinking about starting the process of buying a home, understanding where you stand financially and logistically is an important first step. One easy way to get clarity is by taking our quick quiz. It helps you determine whether you’re ready to sell your current home, what steps to focus on next, and how prepared you are for the homebuying journey. Take this quick quiz to see if you’re ready to start the steps to buying a house with confidence.
