How to buy a house

Contrast that with the current day, where homebuyers generally need a mortgage loan in the hundreds of thousands of dollars—and mortgage interest rates that have soared due to inflation and Federal Reserve rate hikes.

While the purchase of virtually anything else has gotten vastly more simple thanks to the proliferation of online shopping—most obviously the behemoth that is Amazon—the purchase of a home has gone in the opposite direction. Today, there are something like a dozen macro-steps and countless micro-steps involved in the process, from finding the right agent to determining just how much earnest money you’re willing and able to plunk down. 

However, lengthy doesn’t have to mean complex. Provided you follow each step in carefully, the process of buying the right home for the right price can be surprisingly straightforward, and immensely satisfying. 

So let’s cover how to buy a house—without a Sears catalog. 

1. Determine if it’s the right time to buy a home

The very first question in the homebuying process is a Shakespearean one: 

To buy, or not to buy? 

You can gauge whether it’s a good time to buy a house by looking at several personal, financial and market-based factors: 

• Personal factors
  • Are you ready to settle down geographically?
  • Are you emotionally prepared to cohabitate with a cosigner (if you have one)?
  • Are you ready to handle the routine tasks of homeownership, including DIY maintenance, yardwork, HOA meetings, etc.? 
• Financial factors
  • Do you have good credit (670+) and stable income? 
  • Does your cosigner have good credit and stable income? 
  • Do you both have enough savings to cover a down payment, closing costs and ongoing monthly expenses (e.g. insurance, maintenance, utilities)? 
• Market factors
  • Do credible metrics like the Fannie Mae Home Purchase Sentiment Index (HPSI) suggest that it’s a good time to buy? 
  • Are mortgage interest rates rising? 
  • Can you truly afford a home in your area, and are you excited by what you can afford? 

While this is just a simple list of gut checks, answering “no” to any of them could be a sign that it’s best to pull back for now and keep saving. 

But if it seems like the stars are aligned, let’s move on to step No. 2. 

2. Make sure your credit, finances and cosigner are ready

Buying a home is like the “final exam” of personal finances. Your lender will obsessively analyze absolutely everything in your financial background, including your:

• Credit score
• Credit history
• Cash reserves
• Investment accounts
• Assets
• Debt-to-income ratio (DTI)
• Existing types of debt

And much, much more. 

The same goes for your cosigner, and in fact, most lenders look at the “lower middle” credit score on a joint mortgage to determine your loan terms. That means if your credit scores with Equifax, Experian and TransUnion are 801, 793 and 804, respectively—but your partner’s are 583, 601 and 570—the lender could put 583 on your application and may deny you for a loan entirely. 

That’s why it’s critical to have a transparent conversation with your cosigner from Day One about finances, debt, and credit history. The truth will come out eventually, so it’s best to open a dialogue now and start making any needed repairs to your “financial house” before moving forward.

Learn more: Best credit repair companies—and what they do well 

But provided you both have solid income, savings and credit, it’s time to move on to step No. 3.

3. Calculate how much home you can afford

A common mistake in the homebuying process is to let the amount you’re prequalified for dictate your budget. But lenders tend to prequalify you for way more house than you can afford, which was a key part of how we ended up in the 2008 Great Recession. 

Instead, it’s best to use an actual home affordability calculator to help you come up with a conservative budget. Freddie Mac and Zillow both have handy tools that can give you a quick idea, and for more, check out our feature on How much house can you afford? 

4. Start window shopping (literally)

Most guides like this will say that you shouldn’t start shopping until you’ve been preapproved for a loan, but I slightly disagree. I think that once you’ve established a rough budget, it doesn’t hurt to spend an hour or so browsing Zillow and Redfin just to see what’s out there within your financial reach. 

You may decide that the homes you can currently afford actually check all of your boxes. Conversely, you may decide that it’s best to save a little longer so you don’t have to deal with a fixer-upper or compromise on space. 

5. Prep for a hefty down payment

A traditional down payment on a home is 20% of the home’s sale price. But this number traces back to a time when life was vastly cheaper than it is today. 

Today, the median home price is $420,800, meaning a 20% down payment would run you close to $85,000. Toss in an additional 5% of the loan amount for closing costs, and your total cash due closing could be just north of $100,000. 

Learn more: How much should a house down payment be?

Thankfully, your down payment could be as low as 3% or even 0% depending on which loan type you qualify for (we’ll discuss that next). But 20% is still a good number to strive for, since it can seriously reduce your monthly mortgage payment and save you from the added cost of purchasing private mortgage insurance (roughly $30 to $70 per month for every $100,000 borrowed).

6. Find the right real estate agent for you

Full transparency, there’s plenty of healthy debate about whether you should find a real estate agent or a mortgage lender first. Personally, I fall into the former camp for one simple reason: a great agent can connect you to a great lender, but the inverse isn’t always true. 

But that’s just based on my personal experience. 

Either way, finding the right real estate agent is often a matter of networking. If you know friends, family or colleagues who bought within your budget and/or area recently, you can ask if they enjoyed working with their agent. Once you’ve connected with a few, you’ll want to ask them pertinent questions like: 

• Do you work nights and weekends? 
• Do you specialize in helping first-time homebuyers?
• Do you have experience in buying homes within our budget/target zip codes? 
• Do you have a lender that you like to work with?

Needless to say, a highly experienced real estate agent who works full-time-plus and has a great existing relationship with a lender is far more likely to produce favorable results than a part-time newbie. 

Oh, and if you’re curious about the difference between a real estate agent and a REALTOR—yes, all in caps—the latter are members of a trade association called NAR, meaning the National Association of REALTORs. 

REALTORs have access to additional tools and databases, and are held to the NAR’s Code of Ethics. But if you find a great real estate agent you click with and trust, don’t fret if they’re not a REALTOR. 

Once you’ve connected with a good agent, they can help you better define your budget, determine your search criteria and figure out how much house you can buy, schedule tours, craft offers, and generally ferry you through the process until closing. 

And as mentioned above, your agent can help you with one of the most critical and sensitive steps in the process—connecting with the right lender.

7. Find the right lender and loan type

In a general sense, there are three criteria that define a good mortgage lender: 

• They offer a competitive interest rate with reasonable fees.
• They’re available evenings and weekends and communicate/respond quickly.
• They can close faster than your average lender (<30 days).

To find a lender that meets this golden trifecta, the best person to ask is your real estate agent. Chances are that over the years, they’ve built a roster of trustworthy lenders that their past clients have been satisfied working with. 

But if you don’t have an agent yet, the process of finding a lender looks pretty much the same—ask your friends, family and colleagues for referrals. 

A good lender can also point you to the right loan type based on your situation. While most homebuyers go with a conventional loan, you may qualify for a Federal Housing Administration (FHA) loan or a Veterans Affairs (VA) loan with lower rates and down payment requirements. 

Once you’ve connected with a few lenders, it’s time to get preapproved.

8. Get preapproved (not just prequalified)

If you’ve begun researching mortgages, you’ve probably heard the terms “prequalified” and “preapproved” tossed around quite a bit. So let’s define those first. 

• Prequalification is like “preapproval lite.” Your lender basically takes a bird’s eye look at your credit score, income and general financial health and provides a ballpark estimate of what dollar amount you might get preapproved for.
  
• Preapproval involves filling out a complete mortgage application (budget one to two hours, approximately) and submitting it to your lender for a conditional approval for a loan. You’ll then get an official “preapproval letter,” which most home sellers require before accepting any offers. 

It’s worth getting preapproved by two to three lenders just to see who has the most competitive interest rate. If you find yourself in a situation where you like Lender A the best—but Lender B offers the best rate—you can ask Lender A to match it, potentially saving you thousands over the course of the loan if they’re willing to do so. 

Now that you’ve prepared your finances, found an agent, gotten preapproved by the right lender and established a budget, it’s time for the (mostly) fun part.

9. Start shopping (for real this time)

As you start browsing and touring properties, you may be surprised by how your list of needs and wants changes over time. 

My partner and I thought we wanted an older home in the neighborhood I grew up in, but when we saw how expensive they were—and how nature was slowly but successfully reclaiming them—we began looking for newer construction a little further out in the ‘burbs. 

She also had the genius idea of looking for homes that were relatively close to the highway so that a 25-mile commute downtown was still just about 25 minutes long. Once we started searching by proximity to I-285 instead of proximity to downtown itself, our options vastly opened up. 

Anyways, my final nugget of advice during the shopping stage is to not let fatigue and burnout cloud your decision-making ability and force you into a home you don’t like. Holly and I nearly closed on a home that was a 6/10 at best just because we wanted to be done with the whole process. But thankfully, we were able to pull out and take a two-week break from home shopping instead, which cleared our minds and led us to a much happier ending.

10. Make an offer on the home you want

Once you’ve found a property you like, you’ll let your agent know that you’re ready to make an offer. Together, you’ll discuss three key building blocks of the offer itself: 

• The offer amount. When coming up with the actual dollar amount to offer, you and your real estate agent will consider factors like the time the home has been on the market, comparable homes (aka “comps”) in the area, the perceived level of competition, the condition of the house, and of course, your budget.
  
• Earnest money. Earnest money, aka a “good faith deposit,” is a small percentage of the total home price (~2-3%) that you agree to leave in escrow until closing. If you back out of the deal before closing—and the reason isn’t protected by a contingency—the seller gets to keep your earnest money. If you go through with the purchase, your earnest money should be applied to your down payment.
  
• Contingencies. These are contract terms that allow you, the buyer, to back out of the deal before closing and take your earnest money with you. You can add contingencies that allow you to bail if the home inspection doesn’t go well, the appraisal comes in too low, you can’t secure sufficient financing in time or you didn’t sell your existing home in time. Needless to say, sellers prefer offers with few-to-no contingencies attached. 

Once a seller receives your offer, they can accept it, reject it or make a counteroffer. If it’s the latter, you can task your real estate agent with finding out where the pain points are—maybe the seller simply wants more earnest money or fewer contingencies, and you might be happy to meet them in the middle. 

Hopefully it works out, and then you’re on to the penultimate step. 

11. Complete your due diligence—and negotiate

Once a seller accepts your offer, you’ll enter a roughly 10- to 14-day period called due diligence. This is when you and your agent/lender duo will perform all of the homework, inspections and general prep necessary to close on the home and finalize the deal. 

Due diligence typically involves the following: 

• The home inspection, during which a licensed inspector will spend about two hours at the property to assess its overall condition and seek out any red flags like mold or faulty HVAC. 
• The home appraisal, which involves a third-party appraiser coming up with a true market value of the home. If the appraisal comes in far lower than the agreed-upon purchase price, you may need to renegotiate, come up with the cash to cover the gap between the sale price and loan amount, or back out (provided you have an appraisal contingency). 
• A title search to ensure that there aren’t any liens or lawsuits pending on the property that you could inherit if you take ownership. 
• A land survey to find the true boundaries of the property and make sure the neighbor’s fence isn’t cutting through your lawn (or vice versa). 
• Seller disclosures, aka a formal document where the seller lists known issues with the home (e.g. mold, foundation issues, suspicious death in the home). 
• The Closing Disclosure, which is a formal document provided by your lender at least three days prior to closing that outlines your loan amount, interest rate and precise closing costs. 
• Finding home insurance, since most lenders will require you to have coverage in place before closing. Both your agent and your lender may have suggestions for providers, but since home insurance quotes are quick and easy to get, you might as well get at least five and go with the most competitive rate from a trustworthy provider. 
• Prepping cash for closing, which typically involves putting a big pile of money into an escrow account as directed by your lender. 

That may seem like a lot, but an experienced agent/lender duo will walk you through your due diligence period, step by step, so all you have to do is follow their clear instructions. 

Once you have all of your ducks in a row, your real estate agent will schedule a meeting with the seller’s real estate attorney—and you’ll enter the home stretch (pun intended). 

12. Close on your home and do a dance

During your closing meeting, the seller’s real estate attorney will present you and your cosigner(s) with an almost-comical pile of paperwork to sign. If I recall, mine and Holly’s was roughly an inch tall. 

Closing meetings typically take one to two hours, and may also involve the buyer’s agent, the seller’s agent, your lender, and other stakeholders involved in the title transfer. But for the most part, it’ll just be 90 minutes of the real estate attorney pushing paperwork your way, briefly describing its purpose, and pointing where to sign. 

Closing documents typically include, but certainly aren’t limited to: 

• Loan estimate
• Updated/final mortgage application
• Closing Disclosure
• Proof of homeowners insurance
• Deed paperwork
• Title paperwork
• Escrow account statements and documentation
• Settlement statement
• Certificate of occupancy

And more. Bring your Bengay for pain relief, since this may be the most handwriting you’ve done since high school. 

At a certain point, the real estate attorney will simply look at you and your cosigner and utter a single word: “Congratulations.” 

The takeaway

As promised, the process of buying a house can be extremely lengthy and laborious—but it doesn’t have to be daunting or complicated. Provided you follow the steps above in order, it can actually be rather straightforward and lead to a satisfying conclusion. 

For more on how to master the process, check out our home base to see more mortgage-related articles that can help you understand specific topics in more detail. For example, we’ll help you understand how mortgage interest rates are set by lenders and whether an adjustable-rate mortgage (compared to a fixed-rate mortgage) is ever a good idea. 

Frequently asked questions

What credit score do you need to buy a house?

The minimum credit score to successfully apply for a conventional mortgage is typically 620. But some lenders and loan types (for example government-backed mortgages like FHA home loans) may have lower credit requirements.

How do you choose a mortgage lender?

You can find the right mortgage lender by asking friends, family, colleagues and your real estate agent for recommendations. 

Don’t just default to a big bank, since lenders may only work 9-5 and have longer closing times. The best lenders are usually local specialists who work evenings and weekends when needed, respond quickly, and can close faster than usual (<30 days).

Do you need a mortgage broker?

In short, no. A mortgage broker connects borrowers to lenders in exchange for a small fee. A good one may be able to save you a little time and make the rate shopping process easier, but there’s no guarantee that they’ll save you money in the long run. You may be better off trying to network your way directly to a lender.