Buying your own new home is an invaluable experience that provides you with security and independence. With some preparation, you can tackle the homebuying process with confidence — even if you’re a first-time homebuyer.
How to buy a house in 12 steps
Buying a home requires more work than just finding a home you love and paying for it. To make the process more manageable, break it up into these 12 easy steps:
- Figure out how much house you can afford
- Decide on a mortgage type
- Get preapproved for a home loan
- Make a list of your non-negotiables
- Hire a real estate agent
- Browse on your own
- Visit homes in-person
- Make an offer on your favorite home
- Finalize your mortgage
- Get the home appraised
- Hire a home inspector
- Close on your new house
1. Figure out how much house you can afford
Before you start looking for homes, it’s important to figure out how much house you can afford and set a budget. Figure out what price range makes sense for you.
Your total house value should be a maximum of three to five times your total household income, according to Fidelity Investments.
- If you don’t have any debt — including no car payments, student loans, or credit card debt — you can opt for a home worth five times your income.
- If 20% of your income or less goes toward your debt, then you can afford a home worth four times your income
- If you have a significant amount of debt, look for homes that are worth no more than three times your income
The less expensive home you choose, and the lower your mortgage payment, the more wiggle room you’ll have in your budget. That’s why it’s a good idea to buy the least expensive home you can find that meets your needs.
2. Decide on a mortgage type
Once you have an idea of how much you’d like to spend on a home, decide which type of mortgage works for you.
- Fixed-rate mortgage: With a fixed-rate mortgage, your interest stays the same for the length of your loan. While a fixed-rate mortgage might be a bit higher than an adjustable-rate mortgage, you don’t have to worry about market fluctuations.
- Adjustable-rate mortgage: Adjustable-rate mortgages start off lower than fixed-rate mortgages. However, over time the interest rates can increase.
- Conventional loan: With a conventional mortgage, you’ll need to put anywhere from 5% to 20% of the home price as a down payment.
- FHA mortgage: FHA loans are federally-backed mortgages. Designed for homebuyers who can’t come up with a large down payment, you can buy a home with as little as 3.5% down with an FHA loan.
- VA mortgage: If you served in the military, you might qualify for a loan from Veterans’ Affairs. With this option, you can get away with not having any down payment at all. You can borrow 100% of the home’s cost.
- USDA mortgage: Backed by the U.S. Department of Agriculture, USDA loans are for low to moderate-income households looking to buy a home in rural areas. Like VA loans, you can buy a house without any down payment.
3. Get preapproved for a home loan
After you’ve decided on the type of mortgage that works best for you, comparison shop to find home loans and get preapproved. A preapproval is when a lender performs some calculations based on information about you and your credit history and lets you know how much home you can afford. Having a preapproval in place makes you a more attractive buyer; it shows you can readily get the funds you need to complete the deal.
Credible allows you to secure a preapproval letter in just three minutes, comparing multiple lenders. Plus, our preapproval uses just a soft credit check which won’t affect your score.
4. Make a list of your non-negotiables
With the finances taken care of, you can focus on your wants and needs. Sit down with your family and make a list of your absolute must-haves. For example, you might want to consider:
- School districts
- Home size
- Homeowners association dues
- Number of bedrooms and bathrooms
- Access to public transportation
- Commute length
- Proximity to things you enjoy doing
Depending on your budget, you might have to make some sacrifices and compromises to find a home you can afford. When making a list, prioritize what is most important to you. For example, you might decide to opt for a smaller home if the location would give you a shorter commute. Or you might be willing to buy a home with just one bath instead of two if it’s in a great school district.
5. Hire a real estate agent
Now that you have an idea of what you want, it’s time to hire a real estate agent. A skilled agent can help you navigate the homebuying process and negotiation process. Plus, real estate agents can typically view home listings before they’re available to the public, enabling you to get first pick.
You can find reputable real estate agents located near you at Realtor.com.
6. Browse on your own
Although your agent will flag homes for you, you should also do some shopping on your own. You can use home buying websites like Zillow to sort through listings by zip code, size, and price.
7. Visit homes in-person
If at all possible, make sure to visit potential homes in person. You can go to open houses, or you can ask your agent to set up appointments to view the homes that you like. Seeing the home in person can give you a feel for the neighborhood and allows you to get an idea of the flow of the home.
8. Make an offer on your favorite home
Once you find the perfect home, it’s time to make an offer. Your agent will be a huge help with this step. They can look up comparable sale prices in the area to assist you in creating an appropriate offer. If you’re in a hot housing market, they can also make your offer more attractive to sellers, such as by offering an accelerated closing date.
In some cases, the seller might decide to counteroffer, meaning that they’ll come back with a higher price than you offered them. You can work with your real estate agent to decide whether or not the counteroffer is fair and if you want to proceed.
9. Finalize your mortgage
If the seller approves your offer, you need to contact the mortgage broker or lender you worked with to get preapproved to finalize your mortgage. Let them know that you found a home. The lender will order an appraisal and will send you paperwork to complete.
Your loan will go through a comprehensive underwriting process before it can be approved. You will likely need to provide the lender with income verification, bank statements, and more.
With Credible, you can generate a preapproval letter quickly and when you’re ready to purchase, compare multiple lenders to get a competitive mortgage rate.
10. Get the home appraised
Lenders require a home appraisal before finalizing a deal. A home appraiser will look at the home and comparable houses in the area to decide what it’s worth. In some cases, the appraisal will come back higher than you offered, which is great for you as the buyer. The home appraisal will either be requested by your mortgage broker or your lender; this is not something that you go out and do on your own, since appraisals must be independent.
However, it could also come back lower than you offered. If that happens, the lender might require you to make a larger down payment. Or you could decide to walk away from the deal altogether.
11. Hire a home inspector
A home inspection isn’t required. However, it’s an excellent idea to have one done before purchasing a home. A home inspection will tell you if there are any major issues with the home, such as problems with the foundation. It can also help you prepare for upcoming repairs, such as noting weaknesses in the roof.
If the home inspection comes up with significant problems, you can use that information to negotiate a lower price or to ask the seller for assistance with the expenses.
12. Close on your new house
Once you’ve completed the previous steps, it’s time to schedule a closing date. Closing can take anywhere from 30 minutes to a few hours; you’ll need to complete some paperwork and you’ll need to bring a cashier’s check for your down payment and closing costs.
Once the closing is complete, you’ll be handed the keys to your new house and you’ll officially be a homeowner. You can rest easy knowing that your home is yours.
Though buying a house can be stressful, the payoff is worth it. By doing your research ahead of time and shopping around for the best mortgage rates, you can streamline the process and be on your way to homeownership.