How to buy a house for beginners

We know buying a house requires a lot of time, effort and research, but understanding what steps to take can make the homebuying process easier. 

Check out these 10 steps to buying a home so you can make an informed decision and get started today:

Before you start looking: The first five steps to buying a house

The process of buying a home should start before you look at houses. This involves taking an honest assessment of your financial situation, including your income, debt and credit. This will help you enter the homebuying process and find a home that fits your budget and your life.

Step 1: Find out your credit score

First, check your credit score. The higher your credit score is, the better chance you’ll have at qualifying for a lower interest rate. This can help lower your monthly mortgage payments. So if your credit score could use some help, consider delaying your purchase until you’ve improved your credit.

Step 2: Determine how much house you can afford

You’ll also need to determine how much you can afford to spend on monthly mortgage payments. This should include the principal and interest you’ll pay on your mortgage, as well as accounting for property taxes, homeowners insurance and any homeowner association (HOA) fees that may be charged monthly. 

Step 3: Save cash for a down payment

While financial experts usually recommend a down payment of 20% to avoid having to pay for mortgage insurance, some lenders may approve certain conventional mortgages with as little as 3% down. That said, having cash for a down payment can help lower your monthly payments and secure a better interest rate. 

If you don’t have money available, you may be able to qualify for down payment assistance programs or lender credits, which can provide you with grants or low-interest loans that you can use to finance your down payment.

Step 4: Budget for surprise expenses

After you've determined your ideal monthly mortgage payments, you still need to factor hidden costs into your budget. Making the move to homeownership can lead to new expenses you may not have considered. Some of these include renovations and maintenance fees. These unexpected costs can quickly add up.

It's also important to account for additional expenses, such as moving costs. You'll want to consider how a new location may affect your commute and how much you typically spend on gas each month, as well. While these may seem like small costs compared to buying your first home, they'll add up over time.

Step 5: Get prequalified for a mortgage loan

Before you start looking at prospective homes, you need to know how much you can afford to spend. A good way to do this is to get prequalified or preapproved for a home loan. Your mortgage banker will be able to review your financial situation, such as your income, investments, and any savings you may have, and tell you how much you'll likely be able to borrow.

Once you're prequalified for a mortgage loan, you'll know exactly how much house you can afford. Not only will getting prequalified help you stand out to potential sellers, but it'll also help you narrow down your home search. Additionally, when you start working with a real estate agent, you'll have these initial steps taken care of—and you'll know the price range you need to stay in.

Steps for when you’re ready to start looking

Now that you have your homebuying budget in place and know how much house you can afford, it’s time to start looking for a home.

Step 6: Find the right real estate agent

Finding a great real estate agent is a crucial part of your homebuying experience. While there are many real estate agents out there, you'll need to find one who's knowledgeable about the specific area you're hoping to move to. A quality real estate agent will be reputable, informed and help you at every step of the process.

Teaming up with a real estate agent who has your goals in mind will help make the homebuying process easier. Make sure to be thorough when discussing your needs. Whatever is most important to you, be sure to communicate to your real estate agent.

Step 7: Narrow down your search

Now that you've narrowed down your price range, are preapproved for your mortgage loan, and have found a real estate agent, you're ready to start shopping for your dream home. Your real estate agent will be able to help you narrow your search to homes that meet your budget and location requirements.

Remember that the area where you choose to live is as important as the home itself. A smaller home in a neighborhood with rising property values may bring more long-term value than a larger home in a neighborhood with declining values.

It's also important to make sure your new home will be near places you and your family frequent, such as work, schools, public transportation, shopping centers, and parks, to name a few.

Steps for when you’ve found a home you want to buy

It's okay to take as much time as you need when searching for your new home. After all, you want to ensure the house you've chosen suits your unique needs. Once you’ve found the right home, you’ll need to start the buying process.

Step 8: Make an offer

When you've settled on a home and are ready to move forward, your next step is making an offer.

Your real estate agent will help by assessing the value of comparable homes in the neighborhood. Then, you and your agent will determine an amount that reflects the value of the home and present your offer to the seller.

Step 9: Go through underwriting and escrow

After you and the seller reach an agreement, the house will go into escrow. During this time, all of the remaining steps in the homebuying process will need to be completed.

• Pay your earnest money: When you’re a homebuyer, you’ll be required to put between 1% and 3% down as earnest money. This money will be put into an escrow account until closing. After closing, the money will be used to cover your down payment or closing costs. 
• Get a home inspection: While you aren't required to have one, a home inspection is highly recommended. Getting your home inspection taken care of within the contingency period of your offer allows you to renegotiate based on the findings of the inspection.
• Schedule a home appraisal: Your lender will arrange for an appraiser to verify the value of the home. The appraiser isn't associated with the lender or agent, so they can provide an unbiased estimation of a home's value. Knowing your home's overall value helps your lender confirm your home has been valued appropriately. 
• Finalize negotiations and do a final walk-through: Depending on the results of the home inspection and appraisal, you may be able to renegotiate your contract, either asking the seller to make repairs and improvements or to reduce the purchase price of the home. You’ll also be entitled to pre-scheduled walkthroughs before closing to confirm that this work has been completed.
• Finish underwriting: You’ll need to provide additional financial information to your lender. This ensures you’ll be able to cover the costs of the mortgage before you close.

Step 10: Attend the closing

Your home has been inspected and appraised, now you're ready to close. The closing process can vary slightly depending on which state you're in, but you can likely expect additional paperwork and closing fees. Closing costs may include things like attorney fees, title insurance or property transfer taxes. Be sure to review your closing costs with your real estate agent.

In Summary

While the homebuying process can seem overwhelming at first, once you know what's expected, the whole transaction goes a lot smoother. If you’re ready to begin the homebuying journey, start with preapproval for a mortgage. You’ll know how much you can afford and be in a better position when you start house hunting.