9 Steps to Consider When Buying a House

Start your house-buying quest with some basic research to help get an idea of where to buy and what you can afford:

• Where should I buy? Browsing real estate listings and visiting potential neighborhoods can help you get a feel for what it would be like to live there and how much it would cost.
• How much can I afford? There are several ways to research this, but following these general guidelines can help you start off on the right track. For example, one commonly cited rule of thumb is to spend no more than about 30% of your gross income on housing costs, including mortgage payments.¹ Online calculators can estimate how much you may need to earn to live in specific major metro areas, or the maximum mortgage payment you may be able to afford.
• Down payment and other costs: Making a big down payment — 20% or more — can appeal to mortgage lenders and reduce your monthly mortgage payments, but many first-time buyers are able to make much smaller down payments of 10%, 5% or even less.² Most home purchases also involve paying various “closing costs” that may total 2% to 5% of the purchase price.³

Getting preapproved by a mortgage lender can help smooth some of the later steps in the homebuying process. Lenders examine your credit information and other financial information, then use that information to decide whether to lend to you and, if so, how much.⁵ If they preapprove you, they’ll generally provide a letter that you can show to sellers as evidence that you’ve taken this critical step to buying their house.⁶

 
You may need to provide quite a few documents to get preapproved, such as:⁷

• Government-issued ID
• Pay stubs
• Tax returns
• Bank statements
• Proof of other assets and any other income

Selecting a real estate agent can be important because many people use their real estate agent not just to help find a house, but also to provide advice and support throughout the homebuying process.⁸ For example, the real estate agent may help you figure out what you can realistically expect to get given your budget, write offers and negotiate with sellers, and find experts who will inspect the house before the sale.⁹ An agent who specializes in your targeted neighborhoods may be able to suggest where to hunt for the best deals.

Now the serious house shopping starts. By now, you and your agent should have a good idea of what you want, what you can afford, and where to look. You can find homes for sale by searching online listings yourself, or your agent may recommend homes to view. It’s a good idea to take the time for an up-close-and-personal walkthrough.

 
If there are many houses for sale, the choices can get confusing. Focusing on your must-have features, as opposed to nice-to-haves, can be a good way to help narrow options down.

Once you’ve found your ideal home, it’s time to make an offer. Again, your agent may be able to help, because they should have a good idea of how competitive the market is and how much to offer, as well as any other conditions you should ask for, such as a home inspection. This can be one of the more stressful steps in the homebuying process, especially if you are competing with offers from other buyers.

 
The seller may accept your offer, say no, or make a counteroffer for you to consider. You may go through an offer-counteroffer cycle more than once before you reach an agreement or decide to walk away. Once your offer is accepted, you may have to pay a deposit, known as earnest money, which can range from 1% to 10% of the home’s purchase price, depending on the market and location — through 3% is typical.¹⁰

Buyers generally should schedule the inspection as soon as possible after agreeing to terms with the seller.¹¹ A home inspector examines the house to determine if there are problems that could need costly repairs and might make you think twice about buying it.

 
For example, the inspector might look for roof damage, hazards such as a cracked foundation, or plumbing issues.¹² Depending on what they find, you may be able to negotiate with the seller for discounts or repairs, or you may even choose to walk away.¹³

If you’ve successfully passed the home inspection stage, congratulations! You’re entering the homestretch. A few important steps remain, including:

• Home appraisal: The mortgage lender usually conducts an appraisal to reduce their risk by making sure the house is worth what you’re paying.¹⁴
• Getting home insurance and utilities: It’s a good idea to get these organized now, even if you don’t need them until move-in.
• Closing: This is the big day. You’ll generally sign a pile of documents to complete the sale. At the same time, the lender finalizes the loan, you pay the down payment and closing costs, and the seller gets paid. Closing details can vary significantly from state to state.

You’re crossing the finish line! You’re now a homeowner. You get the keys and move in. For more move-in insights, read our “Moving out of State Checklist: 7 Tips for Cutting Costs.”