How to Buy a Home

How to Buy a Home

1. Start Financial Preparation

Buying a house is a big commitment. Before you start shopping for properties or comparing mortgages, make sure you're financially ready.

Start saving for your down payment (typically 20%) and remember to set aside 2-5% of the purchase price for closing costs. Calculate your debt-to-income (DTI) ratio to see how much you can afford each month, considering costs like property taxes and insurance.

Down Payment

While many believe you need 20% down, some loans require much less:

  • Conventional loans: as little as 3% down
  • FHA loans: minimum 3.5% down
  • VA/USDA loans: 0% down for eligible borrowers

A larger down payment can mean smaller monthly payments, lower interest rates, and no PMI if you put at least 20% down.

Closing Costs

Set aside 3-6% of the home price for closing costs (like appraisals and title insurance). Review your Closing Disclosure before closing for exact figures.

Other Expenses

Some loans require special inspections (e.g. pest inspections for VA loans). Budget for these extra costs.

Check Your Credit

Improve your credit score for better loan options. Pay down debt and correct any errors on your credit report. Many lenders require at least a 620 score, while 720+ typically gets the best rates.

Income & Employment

Lenders will want steady income and about 2 years of work history. Be ready to provide pay stubs, W-2s, or tax returns if self-employed.

Debt-to-Income Ratio (DTI)

DTI = monthly debt ÷ gross monthly income. Most lenders prefer DTI under 50%.

2. Get to Know Your Market

Start looking at homes online and visiting open houses to understand your local market. Define what features are most important to you and connect with a trusted real estate agent who can guide you and introduce you to other professionals like inspectors or lenders.

4-5 Months Before Buying:

  • Start browsing home listings online
  • Define your needs and wants
  • Hire a real estate agent
  • Keep track of spending and credit activity

3. Get Pre-Approved and Start Searching

Work with a lender or mortgage broker to get pre-approved. This shows sellers you’re serious. You’ll need recent bank statements, pay stubs, and tax returns. Most pre-approvals are valid for 60-90 days.

Types of Loans:

  • Conventional Loans: As low as 3% down.
  • FHA Loans: Lower credit requirements, 3.5% down.
  • VA Loans: 0% down for veterans and active military.
  • USDA Loans: 0% down in eligible rural areas.

2-3 Months Before Buying:

  • Get pre-approval letter
  • Save online home searches
  • Schedule showings with your agent

4. Make an Offer

Once you find the right home, submit an offer letter through your agent. Most offers include an earnest money deposit (usually 1-2% of the purchase price), which goes toward your down payment or closing costs if accepted.

Seller Responses:

  • Accept your offer
  • Reject your offer
  • Make a counteroffer

1-2 Months Before Buying:

  • Find your ideal home
  • Make and negotiate offers
  • Sign the purchase contract

5. Complete Escrow Tasks and Finalize Plans

During escrow (30-45 days), you’ll complete tasks like inspections, appraisals, and providing additional documents your lender may request.

Home Inspection

Although not required by lenders, it’s wise to get an inspection. The inspector checks for major issues (e.g. roofing, plumbing). Review your inspection report carefully. Negotiate repairs or credits if needed.

Home Appraisal

Lenders require appraisals to ensure the home’s value matches your loan amount. If the appraisal is low, you may need to renegotiate or contest the result. Protect yourself with an appraisal contingency in your offer.

Preparing to Move

  • Schedule movers
  • File a change of address
  • Set up utilities at your new home
  • Notify your landlord if renting

Under a Month:

  • Book a home inspection
  • Shop for homeowners insurance

6. Close on Your New Home

Right before closing, do a final walkthrough to check the home’s condition, especially if repairs were requested. During closing, you’ll sign all documents and pay closing costs. Then—you get your keys!

Closing Week:

  • Schedule final walkthrough
  • Sign closing paperwork
  • Get your keys and move in!
© 2025 How to Buy a Home Guide