Buying a house: A step-by-step guide
When you’re ready to buy a home, knowing the right steps to take can make things go much more smoothly. It’s not just about location, location, location — there are legal, financial, and safety considerations to take into account, as well. The steps below will help you on your journey toward buying a house, whether you’re a first-time home buyer or an experienced property owner. Generally speaking, the process should look like this:
Before you begin, evaluate your current financial situation and credit profile.
Figure out how much you can afford to spend on housing, keeping your other debts and obligations in mind.
Shop around for a lender that offers the loan type and interest rate that works for your budget.
Work with a real estate agent to find the right home that meets your needs.
Preparing to buy a house
Take a moment to think about your long-term goals before you begin. This will help you stay on track mentally as you get your finances in order for the purchase of your home.
Determine your reasons for buying: Buying a home because you feel like you should or because friends and family are pressuring you may not be the best choice. A house is a long-term commitment; if you plan to stay put only a few years, it might not make financial sense. If you're part of a couple, discuss your goals together as you determine your financial readiness to buy a house.
Check your credit score: Your credit score tells lenders what kind of borrower you are and is a major factor in the interest rate you get on your mortgage. Lenders often extend their lowest interest rates to people with good or excellent credit scores, while people with fair credit may find themselves paying higher rates.
Save for a down payment: Down payments are often between 3% and 20% of the loan amount, but it depends on the type of mortgage you choose, the price of the home, and your budget. If you put down less than 20% for a down payment, you’ll likely need to pay private mortgage insurance monthly until you reach 20% equity in the home.
Bigger down payments also can help lower your interest rate and monthly mortgage payments since you'll need to borrow less.
Create a budget: Examine your current housing budget, your income, and your obligations to determine how much you can afford to spend on a new home. One rule of thumb: your mortgage shouldn’t exceed 28% of your monthly earnings. To make sure you have enough left over for your other debts, it’s a good idea to keep your housing plus other monthly debt payments (such as a car or student loan payment) to less than 36% of your monthly pay, if possible. Creating a budget like this can help ensure your family’s financial health by leaving room for saving and investing.
Financing
With the average price of a home reaching $419,300 in 2024, most people will need to finance their house purchase.1 A home mortgage commonly provides 15 or 30 years of fixed payments with interest; by the end of the loan term, you've paid off the mortgage, and the home is entirely yours.
1. Shop for a mortgage: Request quotes from at least three different lenders to explore your options. These quotes will give you an idea of your loan amount and interest rate, pending the lender's verification of your finances.
2. Explore different loan types: The type of loan you get will affect the total amount of interest you pay and your monthly payment amount. Each will have different requirements for borrowers, too. The chart below shows details about the most common types of home loans.
Conventional loan | FHA loan | VA loan | USDA loan | Jumbo loan | |
|---|---|---|---|---|---|
Loan description | Loans that aren’t backed by the government | Loans backed by the Federal Housing Administration | Loans backed by the U.S. Department of Veterans Affairs | Loans backed by the U.S. Department of Agriculture | Loans that exceed federal pricing guidelines (typically $766,550 or your county’s Federal Housing Financing Agency limit) |
Who it’s for | People with good credit and savings | First-time home buyers and those with limited savings or credit | Eligible veterans and military members | People buying in eligible rural areas | Qualified buyers with good credit who want to buy expensive properties |
Down payment | 3% to 20% | 3.5% or more | As low as 0% | As low as 0% | 10% or more |
Repayment term | Usually 15 or 30 years, but can be 8 – 40 years | 15 or 30 years | Up to 30 years | 30, 33 or 38 years | Up to 30 years |
Interest rate | Fixed or adjustable | Fixed or adjustable | Fixed or adjustable | Fixed | Fixed or adjustable |
Minimum credit score | 620 | 580 | None (varies by lender) | None (varies by lender) | 700 |
Learn more |
3. Get pre-approved: A mortgage pre-approval is your opportunity to present your financials to a lender and receive their estimate of how much you can borrow and what your interest rate might be. Lenders will look at things such as your credit score and debt-to-income ratio to determine how much they think you can afford, and will also give you a letter outlining your possible loan details. You can use your pre-approval letter to let sellers know you are a serious buyer who can get financing.
4. Calculate affordability: When you receive the loan estimate from each lender, use it to calculate how the mortgage payment would fit into your monthly budget. Don't forget to factor in closing costs as well; these can be between 3% and 5% of your loan amount and are usually due at closing. Closing costs are in addition to your down payment. Don't forget to account for the hidden costs of homeownership, such as taxes and maintenance.
Choosing between new construction or an existing home
Once you have an idea of how much you can borrow to buy a home, you can decide whether to buy an existing home or build a new one.
Weigh your priorities: Some things to consider are speed, cost, and customization. Buying an existing home has several advantages, including convenience and sometimes a lower price, as well as mature landscaping. The benefits of building a new home include the ability to tailor it to your preferences without renovations, plus you can benefit from builder warranties on materials and workmanship. Consider which factors are more important to your budget and lifestyle.
For new construction, explore design options and timeline: You’ll want to select a builder who can achieve the features you want in a home in a reasonable timeline. Typically, new construction takes between seven and 18 months to complete, but it can vary depending on your locality and how customized your home design is.
For existing homes, create a wish list of desired features: If you choose to buy an existing home instead, make a list of the features and amenities that you’d like to have, including which ones are deal breakers and which ones you may be able to compromise on. These could include the number of bedrooms or bathrooms, the floor plan, or details more specific to your preferences, such as a pool or outdoor living area.
Finding and evaluating properties
With an idea in mind of the type of home you’d like to buy, it’s time to begin shopping.
Find the right real estate agent: A real estate agent is your representative during the home-buying process. The right agent will be an expert in the local housing market and can help you find properties that meet your criteria. They can arrange to tour the home and work with you to craft your offer. As licensed professionals, real estate agents can help you negotiate with the seller, connect you with a real estate attorney, and guide you through unexpected obstacles, such as a delay in financing. Real estate agents typically work on commission and are experts on local market conditions.
Create a checklist for viewing homes: Work with your real estate agent to create a checklist for each home you view. This could include factors such as:
Price
Square footage
Home condition and possible need for repairs
Access to public transportation
Number of bedrooms
Backyard/swimming pool
Local entertainment options
Local school district ranking
Property value trends
Property/real estate taxes
Having all the data in one place will help you narrow your options later.
Search for homes: Your real estate agent can help you search for homes that meet your criteria. They have access to the Multiple Listing Service (MLS) in your area, which is a cooperative database that lists properties for sale. The MLS also has other valuable information, including contact information and times available for viewing. You can also browse real estate websites for properties in your area, but these sites may not be as detailed and up-to-date as the MLS. Your real estate agent can also help you look at HUD homes, which are offered through the U.S. Department of Housing and Urban Development). Another option is mobile or manufactured homes, which may be less expensive and require lower down payments than other types of homes.2
Evaluate potential improvement costs: If you don’t find a home that ticks all of your boxes, don’t call off the search just yet. Renovations could bridge the gap between the homes available and your desired features or floor plan. There are also loan options that can help you borrow the money you need to buy the home and improve it, too, such as renovation mortgages or FHA 203(k) rehabilitation loans.
Making an o lffer and closing
You’ve found a home you’re interested in — congratulations. It’s time to make an offer to the seller and, if all goes well, close on your new home.
Submit an offer: Your real estate agent can help you write up a purchase offer to give to the seller. They may agree to your terms, or they may make a counteroffer if they dislike some components of your offer. Once you both agree, each will sign the purchase agreement, which documents the details of the proposed transaction.
Get a home inspection: Home inspections give a visual evaluation of the home's condition and can help you uncover potential problems. Seek out professional home inspectors, such as members of the International Association of Certified Home Inspectors (InterNACHI), to perform this task. A home inspection contingency is a clause in your purchase agreement that provides the seller with a set number of days to respond to the findings of the home inspection.
Finalize your loan application: Once you’ve compared loan estimates from several lenders, it’s time to select one and complete your loan application. The lender will review your application and verify the information you’ve provided. They’ll usually require documentation as well, such as tax returns or bank statements.
Get an appraisal: The mortgage lender will order an independent home appraisal to determine its market value. This helps you and the lender know whether you're paying a fair price for the property. If the appraisal doesn't match the purchase price, it could affect the purchase and your potential mortgage.
Shop for homeowners insurance: Mortgage lenders typically require you to have homeowners insurance on a home you’re financing. Begin shopping for a homeowners insurance policy early so that you can have it in place by closing.
Close on the loan: Once the underwriting process is complete, it’s time to close on the loan. Your lender will provide a Closing Disclosure at least three days before closing. This document provides the final loan amount, rate, terms, and other information. It also shows your monthly mortgage payment as well as the fees and costs you'll pay at closing. Compare this document to your loan estimates and ask your loan officer if you have any questions. If all looks good, on closing day, you'll sign the paperwork that legally transfers ownership of the home, including the mortgage and the deed.
Speak with a financial professional
Interested in taking the next step, but want to make sure your finances are as strong as possible? Consider getting help from someone who’s helped others. A local Guardian financial professional can listen to your concerns, explain your options, and tailor a solution to your specific needs and budget.