Purchasing most homes involves just 13 steps. Let’s go through each step, and by the end, you’ll have a clearer idea of what to anticipate.  

A. Determine if you qualify to buy a house  

Houses come with a hefty price tag, that’s for sure. If you’re serious about making a purchase, it’s time to evaluate your financial situation closely.
 
Five essential factors will assist you – and your lender – in assessing if you’re prepared to buy a house.  

Income and employment status: Lenders prefer to see steady incomes, ideally for the past two years. You can demonstrate this with your W-2 forms and tax documents. Additionally, consider this for your own benefit. A reliable income is crucial for meeting long-term loan repayments.  

Debt-to-income ratio: Your DTI ratio indicates to lenders — and yourself — the portion of your monthly income that goes toward debt repayment. Generally, lenders look for a DTI of 43% or lower as evidence that you can handle mortgage debt.  

Credit score: Your credit score reflects your history of managing debt. A score of 620 will typically qualify you for most home loans, but a higher score increases your chances of receiving lower interest rates.   

Down payment: Making an upfront payment reduces your future monthly payments. If your financial situation permits, attempt to aim for a 20% down payment. Thankfully, for those who can’t meet that, you may be able to put down only 3% on many loans, or sometimes even have no down payment at all.  

Closing costs: Along with saving for the house itself, you need to budget for closing costs. Anticipate a fee ranging from 3% to 6% of your total loan amount, which will be paid to your lender and other third parties for their services.

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B. Determine your budget for purchasing a home  

Once you’ve established that you meet the criteria for buying a house, the next step is to assess how much you can realistically afford. Before getting carried away by online listings, it’s essential to calculate a viable monthly mortgage payment. This estimated budget should consider your current earnings, existing debts, and DTI ratio.

 
Be sure to factor in additional homeowner expenses like property taxes and homeowners' insurance. While this may reduce your total budget, being truthful about your finances now will benefit you in the long run.

 

Utilize our Home Affordability Calculator to gain an objective understanding of the suitable mortgage amount for your situation.  

 

C. Accumulate funds for your down payment and closing costs  

When preparing to save for a home, starting early is always advantageous. Savings accounts and investments can assist you in accumulating the necessary funds for the down payment and closing costs. If you have supportive family members, gifts can also contribute to your down payment, but don’t forget to present your lender with a gift letter.  

There isn't a universal down payment amount that fits all scenarios. Nevertheless, you can still make plans based on some key information.  

D. What down payment amount is necessary to purchase a home?  

Most lenders will expect you to put some money down. Providing a 20% down payment is an excellent option for many, but it's not mandatory, as there are several alternatives that allow you to contribute a smaller amount upfront. The specific minimum required largely depends on the type of loan.  

Loan type    Minimum down payment required  

Conventional loan                                                                           3%  
Federal Housing Administration loan                                           3.5%  
Veterans Affairs loan                                                                       0%  
U.S. Department of Agriculture loan                                             0%  

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If you can provide more than the minimum down payment without risk, you could enjoy several advantages:  
 

• You could have access to a broader variety of mortgage options.  

• You can reduce your monthly payments.  

• You’ll often benefit from lower interest rates.  

• If you can make a down payment of 20% or more on a conventional loan, you'll avoid the cost of private mortgage insurance.  

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Still worried about covering the down payment? Explore the down payment assistance programs available in many states. They might provide the necessary support to help you achieve your objective.  

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E. Determine which type of mortgage suits you best  

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With numerous loan options available, it can be tough to figure out which one to select. However, most individuals tend to choose from the more popular types.

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Loan types
Conventional loan: This widely used mortgage choice is not supported by the federal government but provides more flexible terms, making it suitable for individuals with good credit scores. They are typically conforming loans, meaning they comply with the limits set by the Federal Housing Finance Agency.  

FHA loan: FHA loans present a reduced risk for lenders as they are insured by the FHA in the event of a default. If your credit score is not very strong, FHA loans can be more accessible than conventional loans.  

VA loan: If you are a qualified service member, veteran, or an eligible surviving spouse, you may consider this loan insured by the U.S. Department of Veterans Affairs. With no down payment required, it is an excellent choice for many. Mortgage Lendes provide VA loans to individuals with a credit score of 580 or higher.  

USDA loan: If your property is situated in an area eligible for USDA loans, you might consider this option. It is government-backed and does not require a down payment. However, applicants must meet specific income limits. 
 

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F. Obtain a mortgage preapproval  

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Securing a mortgage preapproval is the subsequent step. During this process, you will discover the amount of money you are eligible to borrow, which is crucial for identifying the type of home you can purchase. Utilize a preapproval checklist to grasp the details of the application, but generally, mortgage lenders will want to examine the following:

• Your credit

• Your assets

• Your income

You will get a preapproval letter that outlines your borrowing limits clearly. This letter allows your real estate agent to search for homes within your financial range. Furthermore, possessing a preapproval letter enhances the appeal of your offer when competing for a home. If a mortgage lender has confidence in you, sellers will likely feel the same way.

 

Mortgage Lenders provide a Verified Approval. This procedure includes gathering documentation of your income and assets and a review by an underwriter, providing you with greater credibility than standard preapproval. We are here to simplify the process of determining how much home you can afford. Feel free to contact one of our Home Loan Experts for assistance.

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G. Choose the ideal real estate agent for you  

Your real estate agent serves as your primary supporter in the search for a home you will cherish. They leverage their knowledge to arrange showings, aid in drafting offers, and negotiate on your behalf. Their services are sometimes free for you; if the seller covers their fee at closing, not the buyer.  

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J. Start your search for a home.  

Your selected real estate agent will start looking for properties and presenting you with their findings. To optimize the house hunting process, give your agent a list of your priorities — what you desire, what you require, and what is essential for you. Think about the following as a foundation for your list of priorities:

• Price

• Square footage

• Property value trends

• Home condition and possible need for repairs

• Access to public transportation

• Backyard features

• Number of bedrooms

• Local entertainment options

• Local school district ranking

• Property taxes

Your goal is to visit as many properties as you can, but avoid stretching yourself too thin. Try to adhere to your list of must-haves and stay within your budget as much as possible. Searching for homes online can enhance your search, but you'll ultimately want to view the property in person.

 

Eventually, you will discover it: your ideal home. At this point, it's time to submit an offer.

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