How To Buy A House: A Step-By-Step Guide

Buying a house can feel complicated and overwhelming, but it doesn’t have to be. While there may be a lot of steps involved, understanding how the home buying process works can help you determine what are the possible steps. Then you can plan to take the steps you need in the order that makes the most sense for you.

Here is a step-by-step guide on the process of buying a house:

1. Assess Your Finances

The first thing that you'll want to do when you start to get ready to buy a house is make sure you're financially ready. While prospective home buyers often focus on making sure they have sufficient savings for a down payment, there are other areas of your finances that you'll want to look at.

For instance, analyzing your debt-to-income ratio and checking your credit score can show you how your past financial behavior can contribute to mortgage rates you may qualify for. Your credit score as well as your debt-to-income ratio can have a big impact on your monthly mortgage payments.

2. Decide How Much Your Down Payment Will Be

Most lenders prefer that buyers have at least some money saved up for a down payment. With many conventional lenders, you may need to put down up to 20% of the home price. There are programs for first-time home buyers that allow you to make a down payment of 3%.

Government-backed programs, such as FHA loans, can have a down payment requirement as low as 3.5%. Using these figures can help you estimate the exact amount you’ll need when applying for a mortgage.

It's important to understand that it may not be the most prudent thing to do to buy the most expensive house you can afford. That might leave you without much in the way of savings to take care of closing costs, maintenance and other costs associated with owning a home. However, putting down too small of a down payment may also not be a great decision, since that will increase your monthly payments and may cause you to have to pay private mortgage insurance (PMI).

You can use our housing affordability calculator to see how different amounts of down payments and home costs will affect your finances. If you find that buying a home now might be a stretch, you can also consider waiting to buy a house.

3. Prioritize Features

With thousands of homes (or more) for sale, it's important to narrow down the options that you're looking for. Especially in a hot housing market where homes are selling quickly, you want to be smart about how you use your time.

Here are a few features to consider as you look for your home:

• Location
• Number of bedrooms
• Number of bathrooms
• Layout of the kitchen/home
• Garage (both size and whether it is attached or detached)
• Age of the home
• How "move-in ready" is it?

Talk it over with your family and trusted advisors to decide which features are nonnegotiable and which ones are "nice to have."

4. Compare Mortgage Rates

Of course, how much you can afford is only part of the equation. Mortgage lenders use their own calculations to determine how much they’re willing to lend you. It also depends on the type of mortgage you want as to what you may qualify for in a loan.

Here are a few of the most common types of home loans:

• Conventional loan
• Fixed-rate mortgage
• Adjustable-rate mortgage
• VA loan
• FHA loan
• USDA loan
• Jumbo loan

5. Look Into First-Time Buyer Assistance

There are several federal and state first-time home buyer programs whose aim is to help first-time home buyers purchase a home. Additionally, there are also nonprofit organizations that offer programs to help first-time home buyers.

Here are some of the types of first-time home buyer assistance that may be available:

• Down payment assistance loans
• Down payment savings match
• Down payment grants
• Government-backed mortgage loans with lower interest rates and/or lower down payment requirements
• Employer-sponsored programs

It can be a smart move to research the potential programs you might be eligible for — these programs can save you thousands of dollars, either with assistance for a down payment and/or lower interest rates.

6. Apply For Mortgage Preapproval

Getting a mortgage preapproval is an important step in the home buying process because it shows you exactly how much a lender is willing to lend you. It also shows home sellers you have the means to buy a house. That's because a lender has looked at your financial situation and determined how much they’re willing to lend you. This could mean that you may be more likely to be taken seriously by sellers and their agents.

To get preapproved, you’ll need to submit personal and financial information such as your income, assets, debts and credit history. This might include:

• Verified income or employment
• A list of assets
• Any debt you have, including the total amount owed and your monthly payment
• Demographic information and identification about yourself and any co-borrowers.
• Other information as required by your lender

Keep in mind that getting preapproved doesn’t mean you’re guaranteed a mortgage — the lender won’t make their final decision until the closing process.

7. Work With A Real Estate Agent

Once you’ve got your mortgage preapproval in hand, it’s time to find the right real estate agent to help streamline the home buying process. Getting preapproved also shows real estate agents you’re serious and financially ready to purchase a home. While you do not have to use a real estate agent, it may be a good idea, especially if this is the first time that you are trying to buy a house.

A good real estate agent can:

• Help you find and tour homes
• Put an offer on a house
• Negotiate with sellers
• Guide you through the closing process

Finding the right agent is vital to a successful home buying process — it can be a good idea to talk to several potential agents before making a decision. You want someone whom you not only trust professionally, but is a good fit personally as well. You might talk to your trusted friends and family to see if they have any recommendations of real estate agents that they had a good experience with.

8. View Houses

It can be a lot of fun to look at houses as part of the home buying process, but it’s also a lot of work. Especially in a fast-moving housing market, you'll want to work with your real estate agent to narrow down exactly what you want in a home.

Here are a few things that you can discuss with your real estate agent and the other members of your team:

• How many bedrooms do you need?
• How about bathrooms?
• What kind of neighborhood is best for you?
• How would this affect any daily commute you have?
• Do you need a big backyard, or will a patio be sufficient?
• Do you want a detached home, condo or townhouse?
• What amenities are important to you?
• Are you looking for a home to grow into or do you want to downsize?
• What level of repairs are you comfortable taking on?

Each home showing you go to is an opportunity to figure out what you like and what you want to avoid. That can help you further narrow down the types of homes you’re interested in. You may find that you might attend a lot of showings and open houses before you find a home you really like.

9. Make An Offer

Once you’ve found a house you love, it’s now time to make the offer — your agent can help craft a compelling offer and pass it onto the seller or their listing agent.

The biggest piece of your offer letter will be your offer price, but another aspect to a real estate offer will be certain contingency clauses. These are terms in which you or the seller can back out of the purchase contract without any consequences.

Some common contingencies include:

• Home inspection contingency: if the home inspection comes in less than favorable, home buyers can renegotiate or back out of buying the house.
• Financing contingency: if the home buyer can’t find a loan, then they have the right to find alternative financing or back out of the deal.
• Appraisal contingency: if the home comes in at a value that’s less than the listing price, buyers can negotiate or back out of the home purchase.
• Title contingency: If there are judgements or liens on the house or home title, the buyer can negotiate to have them cleared or back out of the sale.

If it’s a seller’s market and you’re competing against a lot of other buyers, you might need to work with your agent to make your offer more attractive to the seller. This might mean offering at or above the listing price, or reducing or waiving any contingencies.

To show the home seller you’re serious about buying the house, you’ll also typically include an earnest money deposit as part of your offer. The money also acts as insurance for the seller in case you back out of the home sale for a reason not stipulated in the purchase agreement.

Once you’ve made an offer, the seller can either accept it, reject it or make a counteroffer. If they accept it or you come to an agreement on a counteroffer, you’ll move ahead with the process and the home will officially be under contract. If the seller rejects your offer outright (often because they take another offer), then you will need to continue looking at other homes.

10. Get A Mortgage

Once you have an accepted offer on a home, it's time to officially get a mortgage. You'll want to stay in contact with your lender until you close on the home. There is often additional documentation required as part of the mortgage underwriting process. The sooner you provide any additional documentation and information through the underwriting process, the smoother your closing process will go. Staying in close contact with your lender will help reduce the likelihood of any delay in closing.

11. Buy Homeowners Insurance

Most mortgage lenders will require borrowers to get homeowners insurance to successfully qualify for a home loan. If you already have an insurance agent, you can reach out to them to get a quote on a homeowners insurance policy for your new home. It can also make sense to talk to your friends and family and get multiple insurance quotes — that will help you compare your options and choose the right policy for you.

12. Have Your New Home Appraised

Your lender is likely to require a home appraisal as part of the underwriting process. An appraisal helps the lender to make sure that the home is worth the amount that you are paying for it. Since your home's value serves as collateral for your loan, the lender wants to ensure that the home will appraise for the amount you're paying for it. If the appraisal comes back lower than the purchase price, you may have to put additional money down as part of the purchase.

The cost of a home appraisal can vary, but is often several hundred dollars, and is usually paid for by the buyer. Depending on how your offer is structured, you may pay the home inspector directly or it may be paid for as a line item on the closing statement.

13. Have Your New Home Inspected

After your offer has been accepted, it's time to have your new home inspected. Your agent or lender may recommend an inspector, or you can choose one based on your own research or recommendations from friends. You will typically work with your agent and the seller's agent to schedule the home inspection, which may take several hours to complete.

14. Negotiate Repairs

You have a few options if the inspection identifies any items that are defective:

• Ask the seller to fix the items before closing
• Ask the seller to credit the cost of fixing those items towards the purchase price
• If your offer included an inspection clause, you can choose to cancel the contract and walk away
• Even without an inspection clause, you might be able to walk away from the purchase, though in that case you might forfeit your earnest money

The seller may choose to respond by agreeing to your proposal to either fix the items or reduce the price, declining to do anything, or anywhere in between. This is all part of the negotiation process of buying a home, and a good real estate agent can help you navigate these steps.

15. Close And Get The Keys

Prior to closing, you’ll receive a Closing Disclosure from your lender. This might be a few days before your scheduled closing date but may even be the day before or the day of closing. This document will state how much you’ll pay at closing, including any closing costs you’re responsible for.

You’ll also do a final walk-through of the home to ensure that everything is as stated in your purchase agreement. The seller should be completely moved out at this point (unless otherwise stipulated in your contract) and any agreed-upon repairs should be completed.

When you attend your closing, make sure to bring your photo ID, proof of insurance, copies of your Closing Disclosure and purchase agreement, and anything else you’re asked to bring.

Confirm how you’ll be paying your down payment and closing costs. Many title agencies require funds to be paid by wire, especially if what’s due is above a certain amount. In that case, make sure to set up the wire ahead of time to avoid delays that could postpone your closing. If you are bringing your funds via cashier's check, make sure to bring the check to closing.

Congratulations on your new home purchase!

FAQs About Buying A House

Here are some common questions about buying a house:

What is an ideal credit score for buying a house?

Determining a good credit score to buy a house can depend on a number of factors. If you are paying cash for your home, then your credit score may be irrelevant. If you’re getting a home mortgage, then your credit score is likely to affect your chances to get a loan, and the interest rates you'll pay if you do get a loan. It's also important to realize that the score ranges labeled “good” on the FICO® and VantageScore® credit scales may differ from the credit score range suggested for buying a house. It is possible to get a mortgage with bad credit, but it may be expensive.

How much money do I need to buy a house?

The cost of buying a home is more than just the down payment that you'll need to qualify for a loan. You'll also want to make sure that you have money available for closing costs, inspections, appraisals, insurance, property taxes and other things that are part of the home buying process. And you'll also want to have money left to handle repairs, maintenance and other unexpected costs of owning a home.

How do I know if I can afford a house?

A common rule of thumb has been that your monthly mortgage payment amount (including principal, interest, taxes and insurance) should be no more than 28% of your gross income. Additionally, your total debt payments should be less than 36% of your gross income. However, these are more guidelines than hard and fast rules — you may want to give yourself some wiggle room to make sure you don't become "house rich" and "cash poor."

You can also check the Rocket Money^SM home affordability calculator to determine how much home you can afford.

What is the first thing I should do if I want to buy a house?

Some of the first things that you will want to do if you are looking to buy a house are analyze your finances to see how much house you can afford and decide what home features are must-haves for you. That will help you as you look at available homes to see what kinds of homes are available and whether they fit your budget. When you have enough of a down payment saved and know what kinds of homes you're looking for, you can compare rates and lenders and get preapproved for a mortgage.

Can I buy a house with a low credit score?

Yes, it is possible to buy a house with a low credit score, but it may be more difficult. Many lenders may not offer mortgages for people with bad credit, but there are some that do specialize in working with borrowers with damaged or low credit scores. However, you may need a higher down payment and/or pay a higher interest rate. If you have a low credit score, it's even more important to talk with multiple lenders and find out which ones offer the best deals for your specific situation.

The Bottom Line

Learning how to buy a house can be complicated and confusing for many people, but understanding the steps you should take and why each is important will make your home buying experience much more manageable. These steps to buy a house include determining whether you can afford to buy a home, deciding on what home features are most important to you, working with a lender to get preapproved for a mortgage, hiring the right real estate agent, and submitting the necessary paperwork to go through the mortgage underwriting process.

To start creating your housing budget, enlist the help of useful tools so you don’t have to do everything manually. One way to do that is to download the Rocket Money app to manage your existing budget. That will help you save money, determine how much you can afford to pay for a home and gain perspective on their financial life.