The Home Buying Process In 10 Steps

Buying a house can seem like a daunting task, especially for first-time home buyers. The home buying process includes things like figuring out your financial situation, completing paperwork, knowing what you want in a house and finding a real estate agent who’s a good fit for your home buying needs.

If you are feeling overwhelmed trying to navigate the home buying process, you’re not alone. To make the journey to homeownership more manageable, here’s a step-by-step guide of the most common steps involved in buying a home.

An Overview Of The Home Buying Process

While the home buying process is as unique as each home is unique, here are 10 of the most common steps in the home buying process. While there are some steps you can do on your own, some of these steps will be easier with a good real estate agent and mortgage lender to help you navigate.

1. Figure Out What Home You Want
2. Review Your Financial Health
3. Settle On A Mortgage Type
4. Get Preapproved
5. Consider Hiring A Real Estate Agent
6. Start Looking At Homes
7. Make An Offer
8. Hire A Home Inspector
9. Finalize Your Mortgage Loan
10. Close On The Home

1. Figure Out What Home You Want

Once you’ve decided to buy a house, one of the most crucial steps is figuring out the kind of home you want and the kind of neighborhood you wish to live in. Here are a few questions you might consider at the beginning of the home buying process:

• What kind of neighborhood do you want to live in?
• What house features are essential for you?
• What stage of life are you in?
• Is this a starter home or your dream home?
• Do you want something move-in ready or more of a fixer-upper?
• What's your budget?

2. Review Your Financial Health

Another step in the home buying process is reviewing your financial health. Here are some of the different aspects of financial health you might want to review:

Check Your Credit Score

One of the first things you'll want to do is check your credit score. This is important because it's a huge factor in deciding the type of mortgage and interest rate you can get. If you have errors on your credit report, you can dispute them, and you'll want to make sure to do this before buying a house. Raising your credit score can save you thousands of dollars in interest over the course of a 30-year mortgage.

Check Your Debt-To-Income Ratio (DTI)

You'll also want to make sure you know what DTI is and how to calculate it. At its most basic, your DTI is the ratio of the total amount of monthly debt payments you have divided by your total monthly income. Many lenders prefer a DTI below 35% – 36%, but some mortgage lenders allow up to 43% – 45% DTI.

If your DTI is above that, consider managing your debt to lower your ratio. You can do this by paying down debt or increasing your monthly income. If your DTI is too high, you may want to consider holding off on buying a home until you lower it.

Figure Out How Much Home You Can Afford

During the home buying process, it's very easy to get emotionally attached to a home and end up blowing your budget. It often makes good financial sense to buy an affordable home rather than purchasing at your maximum preapproved amount. A crucial step in the process of buying a home is figuring out how much home you can afford. One way to do that is by using the Rocket Mortgage^Ⓡ home affordability calculator.

3. Settle On A Mortgage Type

There are several different types of mortgage loans – some mortgages come with a fixed interest rate for the length of the loan, while others have a variable interest rate. Thirty years is a common length for mortgages, though 15 years and other lengths are also readily available. Some mortgages are part of government programs and have specific requirements that you'll have to fulfill. Make sure you understand the different kinds of mortgages and which one might be right for you.

4. Get Preapproved

Another step in the home buying process is getting a mortgage preapproval. If you're not familiar with what a preapproval is, it's where a lender reviews your financial information and gives you a preapproval letter saying how much they are willing to lend you. This preapproval letter can help streamline the home buying process, since it lets sellers know that you are a serious buyer.

5. Consider Hiring A Real Estate Agent

While it is possible to find and buy a home on your own, finding a real estate agent or REALTOR^Ⓡ can be very helpful, especially if you are a first-time home buyer. Some of the benefits of hiring a professional to help you navigate the home buying process include searching for homes, working with the seller's agent and lining up things like home appraisals.

If you don't have a real estate agent in mind, you can ask for recommendations from family and friends or see if a real estate agent has received any reviews online before you make them your agent of choice. It’s usually a good idea to meet with prospective agents and ask questions to see if they’re the right person to work with as you navigate the home buying process.

6. Start Looking At Homes

There are many ways to start looking at homes – here are a few ways to find homes you might be interested in:

• Compile a list of neighborhoods you enjoy
• Keep a list of features in homes that you like and don’t like
• Note the amenities you’d like to have in an area
• Search online for homes in the ZIP codes you’d like to live in

You can set up an appointment with your agent to look at open house events and available properties that interest you.

7. Make An Offer

Once you find a house that you possibly want to buy, it's time to make a purchase offer. If you're not sure how to do this, your real estate agent can show you how to make an offer on a home. As part of your offer, you’ll want to note any contingencies that you or your real estate agent deem necessary. These will likely include the seller agreeing to get a home inspection, financing contingencies or making your offer contingent on selling your own home. Your offer may also include how much you’ll put down as earnest money (to show how serious you are about the purchase).

8. Hire A Home Inspector

The purpose of a home inspection involves a professional home inspector looking at the home’s structure to check for potential issues. It's important to schedule your home inspection with enough time to review the inspector's report before any inspection contingency in your offer expires. It's a good idea to attend the inspection in person, since that will let you talk to the inspector directly. You may be able to pick up on issues that might not be spelled out in the actual inspection report.

If the inspector finds issues, you can negotiate with the seller to have the issues fixed or get a seller credit so you can do repairs once the home is yours. While an inspection isn't always mandatory, it's a very good idea, especially if you’re a first-time home buyer. Many lenders will require an inspection before closing.

9. Finalize Your Mortgage Loan

Once your offer is accepted and you are through any contingencies listed in the offer, it's time to finalize your mortgage loan. Throughout the home buying process, your lender will ask for supporting documentation like information about your assets and income and permission for the lender to check your credit report. During this time, it's usually a good idea to not open new lines of credit or change jobs. This can potentially complicate the loan underwriting process and may delay your closing.

10. Close On The Home

The closing process may take several weeks or even months, but the actual closing generally only takes an hour or so. Make sure that you know how much closing may cost in your situation – depending on the home and the loan that you have, you may have to bring thousands of dollars to closing or may even get money back at closing. Your real estate agent can help advise you of the steps to take before closing, such as doing a final walk-through of the home and scheduling the transfer of utilities.

Home Buying Process FAQs

What does the home buying process start with?

While you might think that the home buying process starts with looking at homes, there are a few steps that you can take before you even start that. Make sure that you know your credit score and that your financial situation is steady. You'll also want to make sure you have your team in place, including a real estate agent if you decide to hire one.

Can I buy a house if my credit score isn’t good?

It’s possible to buy a home with a lower credit score. You are likely to pay a higher mortgage interest rate, however, especially if you have a smaller down payment. You may also have to pay private mortgage insurance (PMI) as an additional expense in your monthly mortgage payment.

What’s a good credit score to buy a house?

The better your credit score is, the easier it is to qualify for a mortgage and the lower your interest rate is. Buyers with "Good" or "Excellent" credit (defined by Equifax as a credit score of over 670) are likely to find it easier to buy and afford a house.

How long does it take to buy a house?

It's possible for the home buying process to only take a few days or weeks if you immediately find a house and you are paying cash for your home. The national average for how long it takes to close on a home is around 30 – 45 days from the point when your offer is accepted.

How do I find a REALTOR^®?

Finding a REALTOR^® or other real estate agent can be one of the most important parts of the home buying process. You may have recommendations from trusted friends and family for agents that they have used in the past. You can also search for agents and read their online reviews. If you haven't worked with a real estate agent before, it's a good idea to talk to multiple agents and interview them to see if they will be a good fit.

The Bottom Line

Buying a home can be a bit of an overwhelming experience, especially for a first-time home buyer. Breaking it down into these 10 steps can help make the process feel more comfortable. No matter where you are in the process, use this information to take the next step on your home buying journey.

Once you're ready to start finding a new home, apply for a home loan with Rocket Mortgage to kick-start the home buying process.