We’ve simplified the homebuying journey into 15 key steps—a comprehensive checklist for buying a home. Each step involves decisions and actions. Some may be stressful, some exciting, and others, admittedly, a bit tedious. But every step brings you closer to achieving homeownership.
1. Make sure you’re ready
Financial preparedness is essential for buying a home (we’ll cover that in Step 2), but it’s also crucial to consider if you’re emotionally prepared. Even for a starter home, buying means a significant financial commitment and a sense of putting down roots.
Consider your goals for the next few years. Are you purchasing with a partner, and if so, are you aligned on financial priorities? Could you need to move for a job? Are you thinking of starting a family? Reflecting on these broader life questions can help you weigh the pros and cons of whether now is the right time to buy.
2. Organize your finances
Buying a home is likely one of the biggest financial choices you’ll make, so it’s essential to ensure your finances are in good shape before moving forward.
A home affordability calculator can help you set a realistic budget by factoring in your income, debts, location, and planned down payment (we’ll cover down payments shortly). This tool shows you what monthly mortgage payments could look like and how they’d impact your financial picture as a homeowner.
It’s helpful for keeping your goals grounded. You may qualify for a large mortgage, but that doesn’t mean you’ll want to dedicate that much of your budget to housing.
Review your credit score as well. A higher score is one of the best ways to secure a lower mortgage interest rate. Familiarize yourself with the mortgage options available for your credit level. If your score needs improvement, it may be beneficial to delay buying a home and work on boosting your score first.
3. Create a down payment strategy
Once you know what fits within your budget, you can decide how much to save for a down payment. Although a 20% down payment isn’t necessary to purchase a home, many buyers choose to put down less. A smaller down payment means less upfront cost, but it typically requires mortgage insurance, which can increase your monthly payments. The type of mortgage you choose will also determine the minimum down payment amount.
If you’re a first-time buyer or haven’t owned a home recently, consider looking into state programs for first-time buyers that provide financial assistance, including down payment help. Additionally, if you have a relative or friend able to contribute, you may use gift funds to boost your down payment, though specific rules for gift funds vary by loan type.
4. Make a list of must-haves
Some steps in the home-buying process are enjoyable, and creating a list of your must-haves and nice-to-haves is definitely one of them. Whether you’re searching for a starter home or a place you plan to stay long-term, there are many details to consider. Here are some major choices to guide your list:
Do you prefer a detached house or an attached unit? If a backyard is high on your priority list, a traditional single-family home might be the right fit. But if you’re in a more urban area or want less upkeep, a condo or townhouse could be a better option. In some cities, co-ops are available too—they’re often more affordable than condos but may be harder to finance.
What’s your ideal location? Once you’ve decided to stay within the state and have a general idea of where you want to live, it’s time to narrow down your neighborhood. Consider aspects like safety, available amenities (such as walkability, parks, or coffee shops), and costs, including property taxes and potential HOA fees if the area is governed by a homeowners association. It’s also wise to think about the local school district. Even if you don’t have children, the quality of the schools can influence your home’s value and impact your resale potential when you decide to sell.
Move-in ready or fixer-upper? Buying a house that’s ready to move into is the easiest option, as it requires minimal work. However, in a competitive or high-priced market, opting for a property that needs some repairs might allow you to afford a bigger home or enter a more expensive neighborhood. Keep in mind that a fixer-upper will require both time and money to make it livable, so make sure you’re prepared for the effort involved.
5. Choose the mortgage that suits your needs
The mortgage you choose to finance your home purchase will impact your qualifications for the loan, such as the down payment required and the repayment terms. Selecting the right mortgage option can improve your chances of approval and potentially save you money over time.
Before deciding on the best mortgage type, it’s essential to understand the pros and cons of each option. Here are some common types of mortgages:
- Conventional loans: These are not backed by the federal government and generally require lower down payments but have stricter qualification criteria.
- FHA loans: Backed by the Federal Housing Administration, these loans are easier to qualify for than conventional ones but come with more stringent mortgage insurance requirements.
- VA loans: Offered by the Department of Veterans Affairs, these loans are available to active-duty service members, veterans, and eligible spouses, and allow for zero down payment.
- Jumbo loans: These are for more expensive homes that exceed standard lending limits. They typically require higher down payments and stronger credit scores.
- Renovation loans: These allow you to finance both the home purchase and renovations in one loan. When mortgage rates are low, this option can be a cost-effective way to finance repairs compared to other home improvement loans.
For each of these mortgage types, you may have the option to choose between a fixed-rate or adjustable-rate mortgage (ARM). As the names suggest, fixed rates remain the same throughout the loan term, while adjustable rates can fluctuate. An ARM often starts with a lower interest rate than a fixed-rate loan, allowing you to afford a more expensive home with the same monthly payment. However, the rate can rise or fall over time.
You will also need to decide on the mortgage term. While 30-year mortgages are the most common, shorter terms like 10, 15, or 20 years may be available with lower interest rates.
6. Get preapproved for a mortgage
Now that you know your budget and have selected the right home loan for you, it’s time to start searching for a mortgage lender. There are various types of lenders to consider, from large, well-known banks and online-only lenders to smaller local banks and credit unions that might offer more personalized service.
When evaluating lenders, the first step is to ensure they offer the type of loan you’re seeking. For example, if you’re considering an FHA loan, make sure they are an FHA-approved lender. Once you’ve cleared that hurdle, compare their mortgage rates, closing costs, and origination fees. Some of this information may be available on their websites, while more specific details will require you to speak with a loan officer.
Getting preapproved for a mortgage is an essential step to determine your budget accurately. A preapproval will provide precise figures based on your financial information, which will involve a hard inquiry on your credit report. The good news is that if you apply to multiple lenders within a short period, it will count as only one hard inquiry, and shopping around could help you secure a better rate.
Gathering the necessary documents for preapproval can be a time-consuming process, but once you’ve collected everything for one lender, applying with others becomes easier. The effort is worth it because, in addition to a preapproval letter indicating how much a lender is willing to lend you, you’ll receive a Loan Estimate form. While this form is not final, it allows you to compare lenders’ rates, fees, and costs since all lenders use the same format. A preapproval letter is typically valid for up to 90 days before needing to be updated.
A preapproval letter also signals to sellers and real estate agents that you’re a serious buyer with the financial backing to proceed, giving you a competitive advantage over other buyers. You may have also heard of pre-qualification, which provides an estimate of how much the lender might lend based on self-reported information. While the terms are sometimes used interchangeably, a preapproval letter carries more weight, though neither guarantees that your loan will be approved.
7. Choose a real estate agent
Once you have your preapproval and a clear idea of the type of home you’re seeking, it’s time to find a real estate agent to assist you. The right agent can play a crucial role in your home-buying journey, from understanding the local market to offering support during the search and negotiating with sellers.
It’s wise to interview at least three agents. Consider asking friends or family who’ve recently bought a home for recommendations. However, be sure not to use the agent representing the seller of the property you’re interested in. You want an agent who will act in your best interest.
Typically, the seller pays the buyer’s agent’s commission, but compensation structures can vary. Be sure to carefully review the agreement to understand who is responsible for the payment in your situation.
8. Start house hunting!
It’s time to start shopping for your future home! This is when you move beyond browsing online listings and actually visit properties in person. Make sure to fully experience each walk-through, as you may only get one opportunity to see a home before making an offer, especially in a competitive market. Try not to let other buyers or the seller’s agent distract you during the tour.
Take photos with your phone to help you remember key details when it comes time to decide whether to place an offer. While it’s easy to remember appealing features like a cozy breakfast nook or an extra bedroom for an office, don’t forget to note any potential issues, like outdated appliances or a deck that needs repair. These factors can influence your offer or be important points to discuss with a home inspector.
9. Submit an offer
Found the perfect home? It’s time to put in an offer. Your real estate agent can be invaluable here, helping you with information on recent comparable sales and any insights they’ve gathered from the seller’s agent, such as whether the sellers are motivated to move quickly because they’ve already found a new home. In some states, it may also be beneficial to consult with a real estate attorney, as they’re required in certain transactions.
If the seller rejects your offer, you can either make a counteroffer or walk away, depending on the reasons for the rejection. If the seller counters your offer, discuss it with your agent to determine whether to accept it or make your own counterproposal. This is where a buyer’s agent can really be of help.
If your offer is accepted, congratulations! You’re almost there. At this stage, you’ll likely write your first check, called earnest money. This deposit goes into an escrow account and is typically credited toward your closing costs when the sale is finalized.
10. Secure a Mortgage
Now that you’ve selected the property and know the price, it’s time to choose a lender for your mortgage. You can either go with the lender who preapproved you or find a new one. Even if you opt for an online lender, you’ll likely work closely with a loan officer throughout the application process.
This step involves a lot of paperwork, so be prepared to upload numerous documents. Here’s what you’ll typically need:
- W-2 forms from the past two years (or more if you’ve changed jobs).
- Pay stubs from the last 30 to 60 days.
- Proof of other income sources, including documentation of any gift money.
- Federal income tax returns from the past two years.
- Recent bank statements (usually from the past couple of months).
- Details of any long-term debts, such as car or student loans.
- ID and Social Security number.
Once your application is submitted, it moves to underwriting, where the lender assesses whether the loan is too risky to approve. This process involves a detailed review of your finances, and you may be asked to provide additional documentation. The lender will also conduct an appraisal of the property (see Step 13) and request a title search.
11. Obtain Homeowners Insurance
It may seem unusual to get insurance for a home you haven’t officially purchased yet, but most lenders require homeowners insurance as a condition for approving your mortgage. You’ll need enough coverage to fully rebuild the home if necessary, which may not match the purchase price or appraised value. The policy typically needs to go into effect on your closing date.
12. Arrange for a home inspection.
A standard home inspection can identify potential issues and highlight repairs that may be needed in the future. This visual examination covers all parts of the home, from the foundation to the roof. If you have specific concerns, like mold or radon, you may consider additional specialized inspections. If the property includes features such as a pool, septic system, or retaining walls, it’s wise to have those inspected separately as well.
You are responsible for selecting and paying for the home inspection. If any problems are discovered that were not disclosed by the seller, you may be able to negotiate with them (see Step 14).
13. Get the home appraised
The home appraisal is distinct from the home inspection. While the inspection is for your peace of mind, the appraisal is primarily for the lender, ensuring they don’t lend you more than the home is worth. The appraisal evaluates the property you’re purchasing, along with recently sold comparable homes, to establish its market value.
Although your lender will select the appraiser, you will be responsible for the cost of the appraisal. Even if you’re purchasing the home with cash, it might be wise to hire an appraiser on your own to confirm the value of your investment.
14. Negotiate repairs or credits with the seller
While some items, such as prorating property taxes or HOA fees, may already be addressed in your offer letter, there could still be other aspects to negotiate before closing.
Your negotiating power largely depends on the market conditions. In a seller’s market, getting concessions can be tough since the seller can easily move on to the next offer. However, if there’s an issue that would come up in any inspection — such as a necessary repair — you might have leverage. In a buyer’s market, there’s typically more room for negotiation, including asking the seller to cover part of your closing costs or loan points.
15. Finalize the purchase of your new home
You’ve reached the final step! Getting to know the typical closing documents ahead of time can help ease any nerves during the closing process.
Your lender is required to provide the closing disclosure at least three days before the closing date. You should compare this with your Loan Estimate to check for any changes in the closing costs, so you know exactly how much cash you’ll need for the final payment.
On or near the closing day, you’ll do a final walk-through with your real estate agent. While excitement may be high, make sure to confirm that everything is in order — for example, that all the agreed-upon appliances are still in the house.
After all the excitement and paperwork — and likely the biggest check of your life — you’ll soon be holding the keys to your new home. Congratulations, you did it!