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 I’m year to guide you through this process.

Let me walk you through the critical steps involved in buying a house, so you’ll know what you’re getting into and how to prepare.

What Do You Need To Buy A House?

Before looking for the perfect home, you should ensure you’re ready to buy a house and have what you need. To buy a house, you should have the following:

• A strong credit score

• Money saved for a down payment and closing costs

• Preapproval for a mortgage loan

• A qualified real estate agent (me 😊)

Once you’ve drafted your home-buying checklist, start the home-buying process and find a property you love. Also, make sure you have the following:

• All the necessary documentation

• A clear, comprehensive understanding of what goes into purchasing a house

Step 1: Check Your Credit Score

Before you begin the home-buying process, you want to ensure you’re in a position to take on all that buying a house entails. The first step is researching, checking your credit score, and review your finances. 

Research Different Areas

Before you can buy a house, you need to know where you want to buy the house. Please list the areas you’re considering moving to and research them. It’s essential to look into the area's crime rates and public school ratings, 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. One step ahead of them is essential to know where you stand.

You’ll need a qualifying FICO® Score of 620 or higher to obtain a conventional loan. But if you qualify for an FHA loan, you typically need 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.

Your credit and financial history will dictate whether you can 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.

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 must pay property taxes to the government based on the value and location of your home.

• Insurance: Homeowner's insurance protects your home against any damages.

• Association dues or HOA fees: 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.

Consider using my Home Affordability Calculator to calculate how much home you can afford. 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. As you plan your budget, don’t forget about factors like retirement, college funds, and family vacations.

Down Payment And Closing Costs

Understanding what you’re responsible for and when is crucial to a smooth home-buying process, so we recommend speaking with your real estate agent or lender to determine the upfront costs you’ll have to pay.

First and foremost, you’ll need to save for your down payment. It is recommended to save 10-20% of a home’s purchase price for the down payment. 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. You can save on interest by paying more upfront and be less likely to pay private mortgage insurance. Be sure to weigh your options to choose the proper down payment. A larger down payment may be outstanding, but not if it means emptying your savings.

The other significant 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 pre-approved 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 offer 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 finding a lender you can trust is essential to make the process as simple and convenient as possible.

Get Preapproved

Contrary to popular belief, getting prequalified for a loan does not guarantee 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 thoroughly investigating your finances, including verifying your income, assets, and credit rating. When you get preapproved for a loan, you’re guaranteed 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 pre-approval 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 pre-approved also tells the seller you’re serious about buying, which can make a difference if and when you find yourself in a bidding war.

A Verified Approval is vital because sellers can be more confident that your loan will close. After all, an underwriter reviewed your finances.

Step 4: Find A Real Estate Agent (or contact me😊)

As you may have noticed, there are many steps to buying a house. Although some home buyers decide they want to do it independently, having a trustworthy and reliable real estate agent can simplify things.

Your real estate agent will represent you throughout the home-buying process to ensure you find the right home, ask essential questions, make a reasonable offer, have the power to negotiate, and receive the necessary disclosures. But 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?

• Can you provide me with references?

 Once you select the best agent for you, they’ll review your approval letter, discuss your budget and help you set your priorities.

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 doubtful 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 would your commute 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’ll 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 your budget.

What is your annual income?

Your income before taxes. Include income from any co-borrowers.

How much monthly debt do you have?

Include all required minimum monthly debt payments.

How much money do you have to put down to purchase your home?

Make sure you have additional funds to cover the home insurance and closing costs.

What is the ZIP code of the home you want to buy?

Your best guess is fine if you still need to pick a home.

How would you rate your credit?

Excellent (760+), Very good (720-759), Good (680-719), Average (620-679), Fair (580-619), Poor (579 and below)                 

 
Step 6: Make An Offer

When you find a home you want to buy, it’s time to make an offer. Ask your real estate agent to run a comparative market analysis (CMA) 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 requesting regardless of the seller’s feelings.

Mortgage Contingency

If your ability to afford the home depends on your ability to obtain a loan, you must include a mortgage contingency in your offer. This contingency will allow you to withdraw your offer if you can’t receive financing.

Even if you’ve been pre-approved 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 give you a specific time to secure a buyer for your home.

If you cannot find a buyer during that time, the home sale contingency will enable you to rescind your offer and reclaim your earnest money deposit without recourse. Many sellers will refuse this contingency, but it’s still worth trying in most cases.

Inspection Contingency

An inspection contingency is also a worthwhile addition. After you make an offer, you’ll want to inspect the home 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 are also 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. An earnest money deposit is typically 3% of the purchase price. Speak with your agent about the norm in your area. The money is held in an escrow account and applied to your down payment and closing costs.

If you decide you won’t buy the home for any reason not specified in a contingency, the seller gets to keep your earnest money deposit. That’s why you must consider the conditions you may pull out of the contract before submitting an offer.

Including a contingency can be the difference between keeping and losing your earnest money deposit.

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. You’ll need to arrange for a home inspection and appraisal.

Home Inspection

The home inspection is essential, as it will identify areas where significant repairs or renovations require immediate attention and 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. You can withdraw your offer if the seller declines and can’t reach an agreement

Suppose you’ve included an inspection contingency in your contract. In that case, you may negotiate that either repair is made, the cost is deducted from the purchase price, or the contract is broken, and your earnest money is returned.

Home Appraisal

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 a worth based on comparable sales in the area, market trends, public records, and a comprehensive inspection of the property.

Keep in mind the lender will only provide funds to cover the house's appraised value.  If that amount falls short of the purchase price, you can try renegotiating or coming up with the difference. Maintaining 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 house before giving you a loan.

Homeowners insurance covers damage to your home and its surrounding structures and stolen or damaged personal property. There are varying levels of coverage, ranging from basic to comprehensive, so be sure to research all available options before deciding which home insurance product is right for you.

Step 9: Do A Final Walkthrough

You're probably eager to be done at this point in the home-buying process – 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, review your Closing Disclosure, outlining 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 three days before closing.

During closing, the property title will pass from the seller to you. A closing agent will oversee this process, typically 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 is 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 adequately 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 arming yourself with the necessary knowledge and resources doesn’t have to be. Following the steps outlined in this guide and working with a trusted real estate agent (me😊), you can learn how the home buying process works, making buying a place more manageable. Following my advice would allow you to focus on what matters: enjoying your new home.