Buying a home isn't always a straightforward, linear process, but it's easier to achieve homeownership when you know what you're getting into and can anticipate the next move. In a competitive market, it's especially important to be one step ahead.

Get your finances in order, have a realistic expectation of what you can afford, and know which trusted professionals will add value and help you navigate the path. Get ready to go-go-go.

Steps to Buy a House: Home Buying Guide

Whether it's your first home or you just need a refresher, it's important to remember all that goes into the planning and the home buying process.

• Determine what you can afford. Understand your personal finances and be realistic about your budget. Avoid the temptation to look at things outside your top amount.
• Prepare a down payment. Bump up your savings and crunch your numbers. If you can't afford 20%, learn more about loan options and home co-investment opportunities.
• Get preapproved for a mortgage. Get a bank's preapproval to prove to yourself—and to a seller—that you are a serious buyer who is qualified to purchase a home within a certain price range.
• Find a real estate agent. Get referrals, and meet with real estate agents until you find one you trust.
• Find a home. Explore homes in your price range, and schedule visits to see them in person.
• Make an offer. When you find your dream house, work with your real estate agent to put in a formal offer.
• Get a home inspection. A home inspector will help you identify any issues with the home, or validate that it's in tip-top shape.
• Get a home appraisal. An appraisal will be required by the bank to measure the value of the home.
• Get into escrow and complete paperwork. Set up a third-party account to hold your initial earnest money deposit, loan documents, deeds, and anything other documentation related to the settlement of the home.
• Close on your new home and move in. Sign the official documents, make final payments, and get the keys to your new house.



Glossary of Important Homebuying Terms

You'll hear things like: escrow, earnest money, private mortgage insurance, down payment, home equity sharing agreement and mortgage payment.

Buying a home comes with learning a whole new vocabulary. Learn what these terms mean and why they're important in our First-Time Homebuyer Definitions Guide.

Now, let's dive in...



1. Determine how much you can afford

Determine an affordable price point by diving into your personal finances. In addition to your own budget, consider the cost of homes in your area to know what is realistic.

A total mortgage payment should be less than 35% of your salary (or roughly ⅓). If you earn $60,000 each year, your monthly mortgage payment should be no more than $1,750.

If you currently pay rent, consider what type of home that monthly payment might afford you. Use an online mortgage calculator to factor in property taxes, interest rates (adjustable rate or fixed rate), and homeowners insurance. You might just find that a rent of $1,750/month can translate to a $200,000 house in some markets. In other markets where property taxes are very high, that same $1,750 monthly rent payment might only afford you a $100,000 house.

Research the median price point in your area. If you're looking for a 4-bedroom/3-bathroom home in the suburbs, the price point likely looks a lot different than comparable space in a popular metro area. Tax fluctuations from town-to-town can also greatly influence how much home you can afford in each area. Doing your research will set expectations.



2. Prepare a down payment

Having a down payment influences many aspects of the process, including loan eligibility and the overall cost of that loan. Save as much as you can to reach the goal of having at least 20% of the home's sale price as a down payment. Stick to a savings plan, cut back on expenses and save your tax returns to achieve the largest down payment possible.

If you can't afford a 20% down payment, never fear. There are many first-time homebuyer programs and other finance products available to help alleviate the stress of saving for a down payment and make homeownership a reality.

Government-backed programs such as VA loans and FHA loans make it possible for certain home buyers to purchase with 0–3% of the home's value, meaning that very little cash is required upfront.

A home equity sharing agreement can also make it easier to find the money you need for a 20% down payment.

When you are aligned on how you can get to a 20% down payment for the price home you are looking to buy, you're ready to move on to the next step.



3. Get preapproved for a mortgage

A free mortgage pre-qualification from a mortgage lender proves that you're financially prepared to find your home. The mortgage broker will ask to see your proof of income (such as pay stubs and tax records), debts (such as auto loans and student loans), and proof of assets to confirm your debt-to-income ratio. Once they review your qualifications, you'll be able to secure a mortgage pre-approval for a specific loan amount.

When house hunting, being pre-qualified for a home loan shows the seller and their agent that your intent to buy is serious and not spontaneous.

You can make an offer on a house without a mortgage preapproval, but an offer contingent on financing is less favorable.

Avoid making large purchases or withdrawals while you're in the home buying process, and pay off all credit card debt. Fluctuations in your credit report and credit score will come into question with the lender.



4. Find a real estate agent

It's best to work with a real estate agent that you vibe with, so get referrals and shop around. If you first find a lender, they may also be able to refer you to a real estate agent. Selecting a representative is a personal decision, but be sure that your chosen real estate agent is easy to communicate with, available on your schedule, and committed to helping you with your home search.

Real estate agents don't make any money until the home is sold, so it's in their best interest to help you navigate the process. Commissions are commonly calculated at 6% of the sales price, broken down as 3% for the seller's agent, and 3% for the buyer's agent.

If the sale falls through before closing, the real estate agents are usually compensated by the earnest money down payment held in escrow.



5. Start looking for a house

With your preapproval letter and representation, it's time to dive into the real estate market. Share a home buying checklist with your real estate agent so you're both on the same page. Include general specifications that define your perfect home and neighborhood.

Example of these preferences:
• School district of choice
• Property size
• Neighborhood characteristics
• Traffic
• Walkability

Scour online listings, and search for open houses. Be quick to alert your agent when you find a home that you like, and schedule a time to see it in person as soon as you're able.

In many markets, it's not uncommon for multiple offers to be made on a house the same day it goes up for sale, so time is of the essence if you want to compete with other buyers.

You may also find that the homes you gravitate to online don't check all the boxes when you see them in person. If this is the case, let your real estate agent do some research and make other recommendations. Changing the search criteria ever-so-slightly can open up a world of new opportunities.



6. Make an offer

You found your dream home. Your real estate agent is standing by to help you through the process of submitting a purchase offer.

You can also make an offer if you aren't represented by a real estate agent by using an online form to guide the general terms of your offer. It's always best to rely on a real estate attorney to review an offer before presenting it to catch any glaring inaccuracies or make recommendations to make your offer even stronger.

If you're preapproved for a home purchase, you will know what type of loan you are looking to secure and will share this information with the seller in your offer letter.

Let the seller know what contingencies, such as a home inspection or closing schedule, need to be considered. In the offer letter, you state that your offer must be reviewed and accepted by a certain date. No one likes waiting indefinitely, so it's normal to request feedback within 3–5 days.

If you aren't preapproved, the seller may not consider you a serious buyer. One way to bypass the preapproval is to get creative with your offer by reducing contingencies or showing the seller that you have a substantial deposit of earnest money with a notarized bank statement.

How do you know what price to offer? It's difficult to know whether to offer more or less than the asking price. Have an understanding of your competition, the price of the home relative to its assessment and other comparable properties in the area. Both your real estate agent and loan officer can help you justify the purchase price you offer.

If it's a buyer's market, don't be afraid of throwing out a low offer price.

In a seller's market, you may need to go higher than the list price, but that's when understanding the comps comes into play. Use public information about similar (comparable) homes that have recently sold in the same area to validate the amount you decide to offer.

Also, be prepared for a counteroffer from the seller. A counteroffer is your opportunity to try again—you can accept their modified terms or try to compromise to reach a sale agreement. You may need to use this counteroffer time to look into other options such as a different type of mortgage or a home equity sharing agreement.



7. Get a Home Inspection

After your offer is accepted, you'll have a short window in which to schedule your home inspection. The inspection, performed by a qualified third-party, is a walk-through to confirm the condition of the home and flag any potential problem areas.

Areas a home inspector will check:
• Hot water tank and system
• Electrical system
• Roof
• Foundation

Expect the inspection of the property to take a few hours, because they are thorough.

The buyer can choose to use findings of the report to counteroffer, or ask for repairs before closing.



8. Get a Home Appraisal

Separate from a home inspection, a lender will send an appraiser to the home to value its worth. This secondary property review will also take upwards of a few hours.

The reporting from the appraiser allows the bank to determine whether the amount they're lending is fair. They need to know that if you default on your loan, they'll be able to sell the property for enough to break even on their investment.

This reporting is also helpful for a buyer, as any expected improvements will be outlined. Depending on the type of home loan you are getting, improvements can be mandatory before closing. If the improvements are incomplete, the lender may choose not to finance.

The amount you're paying is in line with the property's value, all parties involved will work to confirm a closing date.



9. Escrow & Paperwork

The escrow account is a neutral place to store earnest money down payments and legal documents such as property deeds while the home sale is in limbo. The buyer will choose the escrow company, but the seller is also required to add items into the account prior to closing.

In the weeks and days leading up to closing, the loan officer will monitor your finances and alert you if you aren't going to have the cash available to close. If you need a small loan to cover a shortage, they will help you understand what your options are, from a personal loan to a bridge loan.

Before closing, you'll also have time to review the closing costs as outlined in a Closing Disclosure. Compare it to the loan estimate you received, and make sure that it factors your down payment for earnest money deposits, the correct interest rate, and any credits offered by the seller. Be sure that you check the amount you're required to bring to closing.

Once you're sure that the calculations are correct, work with the bank to get your payment ready. These costs will be paid at closing. You can offer a certified check, cashier's check, or arrange a scheduled wire transfer. In some areas, buyers can use personal checks or credit/debit cards. But they are not as secure and not as readily accepted.



10. Close & Move-In

When the day of closing arrives, you'll meet with your real estate attorney or closing agent to complete the paperwork. They'll walk you through the terms of the agreement, accept any payments that you are required to deliver, and have you sign and date on so many lines, you simply won't believe it. Prepare for the closing process to take one to two hours.

At that point, the real estate attorney will give you the keys to your new house. That home is officially yours!

Assuming that your closing was simple and the previous owners have already moved out of the space, you can safely pack that moving truck and relocate your belongings into your new home.

Buying a home is not simple, and it's an accomplishment you should celebrate. Congratulations!


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