How to Buy a House

There’s so much to consider when you’re buying a home. Where do you want to live? How big of a house do you need? How much house can you afford? Consider this your buying-a-house checklist to get you on the right path.

1. Save for a down payment

Ready to move? First, you’re going to need to save some money for a down payment. A down payment on a mortgage should be 20% of the home’s price to avoid added fees. If you don’t have that much, don’t stress. Down payments can also range from 0% to 10% depending on the type of mortgage. FHA loans are an example of that; they are designed for borrowers with limited savings, so they only require a down payment of 3.5%.

2. Check your credit score

To buy a house, you need to have a good credit score. This three-digit number details how well you’ve paid past debts, like credit cards, student loans, and auto loans. The better the credit score you have, the better mortgage you’ll get. If you have a poor credit score, it’s likely the lender won’t loan you money.

Tip: You can do a “soft pull” to find out your credit score. No, this will not hurt your credit score in any way. In fact, it’s encouraged to check your credit score to ensure the report is accurate. If you don’t have a great credit score, no worries. Focus on paying your debt on time and in full to bring your score up.

3. Get pre-approved

Before you get pre-approved, it is best to get an idea of how much house you can afford. With the help of a mortgage calculator, you can see firsthand the breakdown of how much your monthly payments. How much you can afford will dictate what “wish-list” items, like the number of bathrooms and bedrooms, preferred location, square footage, and more fit into your budget.

From there, it’s best to get pre-approved by a lender. Unless you’re paying all cash. In that case, kudos to you! Go get yourself a home! If you’re not, that’s okay too. There are plenty of mortgage options for you. A lender will decide how much to pre-approve your mortgage by calculating your debt-to-income ratio and assets. If you don’t have a lot of debt, you can afford more house! If you’ve got student loans and auto loans you’re still paying on, you may not get pre-approved for as much house as you initially thought. Once you’ve been pre-approved, you can pinpoint the houses in your price range.

Tip: Search for homes about $5-10k below your pre-approved amount. This will leave wiggle room in your budget every month and leave you stress-free when it comes to paying your mortgage. It also gives you more money to decorate and fix it up.

4. Consider a real estate agent & start searching!

You’ve got a down payment, you know how much you can afford, and you’ve been pre-approved for a mortgage… you’re ready to find a real estate agent and start the house search! To make the process easier, it’s important to find an agent who will be there for you every step of the process, as a guide and as moral support. Buying a house is an emotional purchase, and having the right support system in place makes the journey easier. You’re also going to want an agent who is an expert in the market and ready to negotiate on your behalf. Or, you can tackle the housing market by yourself and save money.

Now for the fun part. Once you start touring homes, be sure to look at the picture and take into consideration every nook and cranny. Ask yourself if you can see yourself cooking in the kitchen and falling asleep in the master bedroom. Location, location, location is a huge factor to take into consideration. The house may be perfect but is it worth a longer commute to work and the essentials, such as gas stations and grocery stores? Also, listen to the neighborhood. Is it quiet or loud? Deliberate everything. Even the home’s condition. Yes, you’ll get a more detailed inspection later after you’ve put in an offer, but it’s best to get ahead of the curve and know what you’re walking into. So check for:

  • Structural defects and cracking
  • Roof and exterior quality
  • Electrical issues

5. Make an offer

You found it! The perfect home that checks all the boxes! Now you need to make an offer. This is where your real estate agent earns their money. They should have comparable sales information and info about the sellers. From there, you should be able to put in an educated, fair offer.

At this point, the seller can either accept or reject your offer. If they reject it, you can try to counter or walk away from the house completely. Discuss with your agent what the best course of action is.

Offer accepted? Congratulations! Now there are only a few more steps before you close the deal and move!

6. Final steps

Secure financing. You’ve found a house and negotiated how much you need to pay for it. Either go back to the lender you got pre-approved to get the mortgage, or you can start fresh. You’ll work with a loan officer to complete the application. You’ll need several documents during this paperwork-heavy process.

  • W-2 forms from the past two years
  • Pay stubs
  • Recent bank statements from the past couple of months
  • ID and social security number

Once the application is complete, it will go to underwriting. This is when the lending company does a deep dive into your finances to ensure the loan isn’t going to be too risky for them. You may need to supply more documentation during this part. In the end, you’ll find out if the lender will give you the money for the mortgage.

Homeowners insurance. It is required to get homeowners insurance if you’re in the market to buy a house. Shop around for a policy that works best for you. One that sufficiently covers the house if a disaster were to strike at a low monthly rate. Coordinate with your lender to have the policy paid through your monthly escrow account.

Home inspection. You will need to schedule a home inspection before you close. This is the best way to uncover any underlying issues the house may have. Your real estate should be able to recommend an inspector that is trustworthy and licensed. After you’ve received the official report, you’ll want to discuss the findings with your real estate agent. If there are major issues found, you can either reopen negotiations to see if the seller will fix any damage or give you a request to knock off the original agreement purchase price. Or, you can walk from the house entirely if you deem the damage too severe to undertake.

Home appraisal. An appraisal will be ordered by your lender. This is to ensure you aren’t taking out too much money for the home and it is being purchased at a fair market value. If the appraisal matches your offer price, you’re good to go. If the appraisal is above your offer price, great! This means you’re purchasing the home below market value, giving you instant equity. If the appraisal comes in too low, the lender will not give you the full loan amount you applied for. They’ll determine you are overpaying for the house and you’ll need to come up with the extra cash yourself if you still want to go through with the purchase.

  1. 7. Close & move

When you’re buying a home, it’ll take anywhere from 30 to 45 days after the contract is signed to close on the home. During that time, you’re completing the steps listed above. When your closing date approaches, you’ll have the chance to walk through the home one more time before it’s official. This is to triple-check that you’re making a good purchase and that you’re comfortable with the decision.

On closing day, allow several hours with the title company to sign paperwork. Also, make sure you bring funds to cover closing costs, which range between 3-5%. After everything has been signed and you have the keys, you’re a homeowner!

All that is left is setting up utilities, such as internet, water, and electric, and moving in! Get more details on owning a house by completing this free, online course.