Buying a home is a big deal, so it’s no wonder the entire process can feel overwhelming and maybe a little confusing. Below are steps that outline what’s involved in purchasing a house. It’s a good place to start your home-buying journey.
Determine your budget: Before you start browsing homes, you need to know how much you can afford. Take a close look at your income, debts, and expenses to determine how much you can realistically spend on a home.
Explore lenders and financing options
It’s time to explore financing options and lenders! There are programs out there to help first-time homebuyers, Native American homebuyers, veteran homebuyers, and others with financing. Many of these programs operate by working with a lender, like your credit union, to offer special mortgages. For example, if you qualify for an FHA-backed mortgage from the Federal Housing Authority, you’ll want to look for lenders who offer that type of loan.
Get prequalified and preapproved
A pre-approval letter from a lender can make you a more attractive buyer to sellers. It will also give you a more accurate idea of what you can afford.
Local lenders, like credit unions, often have lower fees and better interest rates for community members. Prequalification is pretty easy (and doesn’t affect your credit score as no hard pull is made on your report!); lenders will ask for some basic financial information, like your income, total debt, and total savings and investments. Each lender will then give you an estimate of mortgage size they would approve you for.
With these prequalification numbers in front of you, it’ll be easier to decide which lender to pursue for mortgage pre-approval—probably the one who says they’ll give you the most money at the lowest interest rate.
Contact a realtor and look at houses
Explore the housing market early to get an idea of what you want and where you want to live. Select a real estate agent to help guide you through the paperwork and negotiations of putting in offers on houses.A good real estate agent will provide helpful information on neighborhoods, the home buying process, and negotiation options. Look for an agent who is knowledgeable about the local market and has a good reputation.
As a buyer, it won’t cost you anything to use an agent because they’re compensated from the commission paid by the home’s seller.
Make an offer (or several)
Once you've found a home you like, work with your real estate agent to make an offer. Your offer should be based on the home's market value, and you should have a clear understanding of the seller's asking price and any contingencies. From there, your agent will present the offer to the seller’s agent, who will then work with the seller to either accept or make a counteroffer.
Escrow
Reaching an agreement with the seller means moving on to escrow. You’ll make a good-faith deposit—i.e. money that you won’t get back if you walk away from the deal outside of agreed upon conditions—and the seller will take the house off the market. Escrow usually lasts 30 to 45 days, during which time the home inspection, appraisal, and closing will occur.
Home inspection
If your offer is accepted, you should schedule a home inspection to identify any issues with the property. A trained professional will inspect the home for building integrity, quality, and safety. Depending on the results, you may negotiate repairs or a lower price.
Home appraisal
Next up, your lender will want to have a third-party appraiser give an independent estimate of the home’s value. The appraiser will let you and the lender know if you’re paying a fair price for the house. If the appraisal comes in lower than the asking price, the lender will most likely not approve you for the full loan amount because they will believe you are overpaying. You would either need to pay the difference in cash or re-negotiate the offer price with the seller.
Purchase homeowner’s insurance
Before closing, you’ll need proof of a homeowner’s insurance policy. You can open a new policy with your existing insurance agent or shop around for one. Your lender may be able to help you coordinate a policy that can be paid through your monthly escrow account.
Closing
This is the finish line! Closing is mostly signing lots of paperwork for all the parties involved. Closing costs can include loan-origination fees, title insurance, surveys, taxes, and credit-report charges and can total anywhere up from 2% to 5% of the purchase price.
Move in
Congratulations! You're now a homeowner. All that's left is to move in and start making the house your own.