How to buy a house: Your guide to the home buying process

December 23, 2020 - 9 min read

Wondering about the home buying process?

Home buying is a lot more approachable than many people think.

True, there are a lot of moving parts. But if you know what to expect — and what order to tackle things in — the pieces will fall into place.

This 10-step guide walks through each major stage of the process, from setting your budget and finding a home through to closing day.

Here’s what you should know.

Verify your home buying eligibility

In this article (Skip to...)

  1. Check on your finances
  2. Get pre-approved for a mortgage
  3. Get a pro real estate agent
  4. Find the perfect home
  5. Make an offer
  6. Submit your loan paperwork
  7. Lock in a mortgage rate
  8. Get a home inspection
  9. Sign final loan documents
  10. Closing day

10 steps to buy a house

Verify your home buying eligibility

1. Check on your finances

If you’re thinking about buying a house, your mind probably jumped straight to house hunting. Maybe you already started looking online or found a place you love.

But before making any moves, it’s important to check in on your finances and set a budget.

Check your credit

Your credit plays a huge role in your mortgage application. If you have poor credit — think, below 580 — you’ll have to raise your score before you can qualify for a home loan.

And even if you have a great credit score, in the high 600-700’s, you should take a look at your credit report and make sure there are no errors.

If you find errors, get them cleared up before you apply. It can make a big difference in your monthly mortgage payment and the home you qualify to buy.

Set a realistic budget

Maybe you’ve already set a target price range. But when it comes to buying a house, affordability isn’t always as straightforward as it seems.

First-time home buyers are often surprised how much house they can (or can’t) afford. And that’s because your home buying power hinges on so many different things.

Monthly income matters, of course. But so do your current debts, the housing market you’re shopping in, and mortgage interest rates — which can change daily.

You’ll also need to consider monthly costs for homeowners insurance and property taxes. Depending on your down payment and loan type, you may need to budget for private mortgage insurance (PMI), too.

Get an estimate of what you’ll be able to afford using the “by income” tab on our mortgage calculator.

2. Get pre-approved before home shopping

Hands down, this is the most important step.

Get pre-approved for a mortgage before you start shopping for a house, not after you’ve already found one.

Like we mentioned above, your home buying budget depends on a number of different factors. Online calculators will give you an estimate, but getting pre-approved is the only way to know exactly what you can afford.

The danger of not getting pre-approved is that you could fall in love with a house, only to find out you can’t afford it. Or, without a pre-approval letter in hand, your dream home might get snapped up by another buyer who came more prepared.

Start your mortgaeg pre-approval

How to get pre-approved for a home loan

Start the process by finding a great loan officer. Ask friends and neighbors for recommendations and check online reviews.

Make sure the lender offers the kind of loan you need: conventional loans, USDA, VA or FHA loans, for example.

When you’ve found the right fit, start your pre-approval. The lender will ask about your down payment, income, credit, debts, and more — so have your financial information at the ready.

Then do a final gut check. It’s possible for borrowers with great credit to qualify for more than they’re comfortable paying. They might choose not to use their full budget.

What if you don’t qualify?

On the other hand, some people end up qualifying for a smaller loan amount than they expected — or not qualifying at all.

Instead of buying right away, this might be the time to double down on paying off credit card debts, improve your debt-to-income ratio and credit score, and save for a bigger down payment.

All these steps will increase your home buying power next time you apply.

3. Get a pro real estate agent

A great real estate agent takes a lot of the pain out of buying a home. They’ll do much of the negotiating, navigating, and — best of all — paperwork on your behalf.

Your agent or Realtor should also be intimately familiar with the area you’re buying in. They’ll know how to spot a good deal or a bad one, and help you get the best price on your home.

Find a great real estate agent using local resources. Ask friends and family who they’d recommend, or anyone you know living in the area you want to move to.

It’s also worth checking Yelp, Google, and other first-hand reviews of the person you’re considering working with.

4. Find the perfect home

Finally — house hunting. You probably didn’t think it would take four steps to get here.

We won’t go into too much detail since house hunting is such a personal journey. We just have a couple pieces of sound advice:

  • Write down your “must-haves” and “nice-to-haves.” It’s easy to get roped in by a good deal or flashy home, but don’t settle for any place that’s missing a “must-have.” You’re going to be there for a long time, and compromising on something like the number of bathrooms or commuting length can easily become a big regret
  • Think long-term. If the home won’t fit you for 5-7 years, keep looking. Generally, you want to be in your new home at least 5-7 years before selling. Otherwise you’re more likely to lose money. If you find a house you love but could see yourself outgrowing it quickly, it’s better to keep looking

One other tip: Think about buying off-season. Many people shop for a home in spring or summer, when the weather is fair and touring is pleasant. But these seasons see fierce competition and higher home prices.

If you can wait it out, we recommend shopping in fall or even winter. This is when competition drops and sellers tend to get motivated. You’re more likely to get an amazing deal within your budget.

You might even be able to get a seller to cover your closing costs if they’re itching to move the property.

5. Make an offer on the home

You got pre-approved and found a house you love within your budget. But unfortunately, that doesn’t make it a done deal.

There are a couple things to keep in mind at this stage.

In hot real estate markets, you probably won’t be the only person putting an offer on the house. There’s a chance someone with a bigger down payment or stronger financial portfolio could outbid you.

Go in with the mindset that you’ll have to make offers on several houses before one gets accepted. If you get a counteroffer from the seller’s agent, that’s good news; it means the seller is interested in your offer.

When your offer is accepted, you’ll have to put down earnest money within a day or two.

Earnest money can total 2-7% of the home’s value. The amounts vary by real estate market. In any case, it’s no small sum, so make sure you have liquid savings or a checking account that can be tapped on short notice.

At this stage, you’ll be glad you found a pro real estate agent.

Your agent will help you through the process, negotiate price and terms, and handle issues for you as they come up.

6. Submit the paperwork to your lender

A pre-approval letter means your lender has approved you to borrow — but they haven’t approved the home yet.

Before it will sign off, your lender needs to review the home purchase agreement, order an appraisal, and make sure the house meets underwriting criteria.

If an unexpected issue arises, don’t worry. There’s language in your purchase agreement that protects your money if you can’t get financing due to an issue with the property.

This is also a good time to ask whether your lender needs any updated information.

If you’ve been house hunting more than a month, double-check with your lender or mortgage broker to make sure your pre-approval documentation is still valid.

Most pre-approval letters are only valid for 30-60 days. If you’ve been house hunting longer than that, you may need to re-verify your financials.

Verify your new rate

7. Lock in your mortgage rate

Your home buying power hinges on your mortgage rate. If interest rates rise, it could price you out of the home you just found.

For example: If rates go up just 0.25%, that’s $50 per month extra on a $350,000 mortgage — enough to kick some buyers out of ‘approved’ status.

But your mortgage lender won’t let you lock in a rate until you’re approved for a specific property.

Once you’re approved, try to lock as soon as possible. Don’t try to wait for interest rates to fall by a fraction of a percent. Especially in today’s environment, with rates near historic lows, it’s more likely they’ll go up than down.

In addition, make sure you lock long enough to reach your closing date with a few extra days of wiggle room.

For example, if you plan to close in 35 days, don’t lock your rate for 30 days. Lock it for 45 days instead.

This will protect you against losing your rate to an unexpected delay. And it’s cheaper to get a long lock at the outset than to extend it partway through.

8. Get a home inspection

A home inspection is the last chance to uncover any defects before sealing the deal. You should attend along with the home inspector.

This is also your last chance to negotiate repairs with the seller or seller’s agent. If there are major issues, see if they’ll fix them or drop the home purchase price to cover your costs.

If the seller agrees to fix major problems, schedule a walkthrough of the property to inspect the repairs before closing.

Every property comes with defects. Don’t sweat the small stuff, but make sure major problems are addressed before you buy.

What constitutes a “major issue”? Think structural problems; things like aging roofs, bad siding, foundation shifting, or potential safety hazards in the construction.

Smaller, more cosmetic defects are to be expected. Those can be your first projects after moving in.

9. Sign your closing documents

Buying a house probably seems like a never-ending parade of paperwork, but you’re close to the finish line.

Once all the approvals, appraisal, and inspection are complete, you’ll go into the escrow office and sign a stack of closing documents. Expect the process to take about an hour.

Plan to be physically present and sign your papers in person. Make sure you have liquid funds available to cover all your upfront closing costs at this time.

We recommend asking for your closing documents beforehand so you can review them and speed up the process day-of.

These documents will also state your exact closing costs.

Closing costs include lender fees, escrow fees, pre-paid property taxes and homeowners insurance — all the behind-the-scenes costs to originate your mortgage.

Make sure you have already sold stocks or liquidated other funds you planned to use for your mortgage. You’ll need that money available at this point.

10. Be ready for last-minute requests on closing day

A few days after you sign, your lender will get the completed loan documents back.

Sometimes, the lender needs last-minute items on closing day. You may have missed a signature on the loan documents, or the lender may have discovered it needs a new bank statement to finalize underwriting.

These requests are pretty common. Just make sure you’re keeping an eye out for messages from your lender so you can respond as quickly as possible.

Once your lender and escrow company have confirmed everything is complete, the sale will officially close, and your lender will record new ownership with the county.

That’s when you pick up your keys from the real estate agent and hug your landlord goodbye.

Congratulations — you just bought a home!

For more information about any of the topics covered here, see our complete step-by-step guide to buying a home.

Jumpstart your home buying process

If you plan to buy a home in the near future, there’s plenty to do before you start scoping out listings.

Start by checking your credit and figuring out a budget as soon as possible. Check today’s mortgage rates to learn what you could afford.

Time to make a move? Let us find the right mortgage for you

Maggie Overholt
Authored By: Maggie Overholt
The Mortgage Reports contributor
Maggie Overholt is a former Editor at The Mortgage Reports, where she helps make complex topics more approachable. She has also written for publications specializing in insurance and personal finance.