Mortgage 101

11 Steps to Buying a House in 2022

Published on: February 11, 2022

steps to buying a house

Buying your first home may seem intimidating if you’re not familiar with the homebuying process, but it doesn’t have to be with a little planning and knowing the key steps to buying a house.

Given persistently low mortgage rates and low-down-payment loan options available to first-time buyers, it’s a good time to consider buying a first home. The steps to buying a house include understanding your goals and finances, working diligently through the mortgage process, and finding the right home at the right price.

Learn about each of the steps to buying a house in order so you can navigate the process more smoothly and get those coveted house keys in hand.

11 Steps to Buying a House

1. Decide if you’re ready to buy a house

The first step in buying a house is to do an honest assessment of whether you’re ready for homeownership and whether it fits with your long-term goals and lifestyle.

Evaluate where you are in life and where you want to be in the future. Your personal and professional aspirations will impact whether this home purchase is a starter home or your true forever home. Think about whether you’re planning on moving within the next few years or if you’re thinking about settling down and planting roots.

Prospective homebuyers sometimes overlook the maintenance and hidden costs involved in homeownership. When something breaks and needs repair or replacement, you won’t be able to rely on a landlord to foot the bill; that’s on you. You’ll be responsible for maintaining the exterior of your home and a yard if you buy a single-family home. Are you up for those tasks and the expenses that will follow? These are also important considerations that factor into your decision.

Homeowners tend to stay in their homes for an average of 13 years, according to the National Association of Realtors. While this might suit you just fine, homeownership will influence other parts of your life, including future job prospects, travel goals, and plans to have kids. You want to buy a first home that fits your lifestyle, not the other way around.

2. Calculate how much house you can afford

After assessing whether you’re ready to own a house, evaluate whether you can afford it.

It’s not enough to pass a lender’s minimum criteria when considering how much you can afford; you’ll want to live comfortably in your new home without being “house poor.”

Do an honest review of your spending habits and ensure you can meet both the monthly mortgage payments as well as your other monthly expenses without difficulty. These include recurring bills your lender doesn’t see on your credit report, such as healthcare expenses, childcare costs, groceries, and utilities.

A good rule of thumb is to keep your monthly mortgage payment to no more than 28% of your gross monthly income.

Monthly mortgage payments

Beyond the home’s sticker price, calculate the size of the monthly mortgage payments to more accurately assess how much house you can afford.

According to the 28/36 rule, keep your monthly mortgage payment to no more than 28% of your gross monthly income (before taxes), and tack on no more than 36% of your total monthly income when factoring in all other debts, such as auto and student loans.

The price of your first home will influence the size of your monthly payment; give it some thought before you try to borrow the max amount a lender will allow. Doing so could raise your monthly payments to an unaffordable level and cost you more interest over the long run. Consider paying more towards your initial down payment (if you can afford it) and try to get your monthly payment within a manageable level.

Monthly housing expenses

On top of your monthly mortgage payments, you’ll also need to account for other housing costs, including property taxes, homeowners insurance, and homeowners association (HOA) dues.

Property taxes and homeowners insurance are required for almost all homeowners, and are often rolled into a monthly mortgage payment. However, they can vary widely depending on the state you’re in and whether your target home is in an urban area or floodplain.

HOA fees also exist in many development communities and are typically paid by condominium owners. Combined, these costs can tack on hundreds, if not thousands, in added monthly expenses.

It’s a good idea to isolate these costs when house hunting. They can help you narrow down a location and what kind of house you want (or don’t want).

Use our home affordability calculator to help you calculate out how much house you can afford.

3. Shop with multiple mortgage lenders

Rates and fees among different mortgage lenders can vary widely. That’s why it’s a good idea to shop around and compare costs with three to five different lenders, including large banks, credit unions, and even online lenders.

Request loan estimates from each lender when getting preapproved for a mortgage. Having loan estimates detailing what your mortgage and closing costs might be based on current interest rates is key to choosing the right loan. Another tip: Try to obtain all your loan estimates on the same day to compare apples to apples, as quoted mortgage rates can vary from day-to-day.

Don’t worry about credit inquiries from multiple lenders dinging your credit score; the credit companies log multiple credit checks from mortgage lenders made within a 45-day window as a single credit check, according to the Consumer Financial Protection Bureau.

For each lender you talk to, check out third-party reviews and customer satisfaction ratings, particularly when it comes to loan servicing as well as loan origination. Often overlooked, these factors can impact the time needed to close and the mortgage repayment process long after closing.

4. Get preapproved for a mortgage

Once you’ve found a mortgage lender you’re satisfied with, you’ll want to get preapproved for a mortgage loan. The idea here is to establish a budget before you start home shopping.

Having a preapproval letter from a reputable lender is key to buying a home. Most sellers won’t even entertain offers from buyers who don’t have a preapproval letter unless they’re a cash buyer.

As part of the preapproval process, you’ll need to consent to a credit check and provide some basic documents, including:

  • Identification
  • Recent 30 days of paystubs
  • W-2s
  • Federal tax returns
  • Bank statements from the past 60 days

Keep in mind that each lender’s requirements may vary depending on the loan program. Still, gathering key documents ahead of time will enable you to keep the lending process moving along.

5. Find an experienced real estate agent

If you’re a first-time homebuyer, you don’t want to go into the process without expert guidance. That’s why it’s a good idea to hire a real estate agent who knows your local market and is skilled in guiding buyers through the process.

A good real estate agent can help you understand the local housing market, educate you about the process of buying a home, help you navigate paperwork, and negotiate transactions on your behalf. Your agent also has direct access to the local the Multiple Listing Services (MLS), a database used by real estate agents to list homes.

Real estate agents are paid after a home sale closes. Real estate commissions are typically paid by the seller and range from 5% to 6% of the sales price. The commission is split between the buyer’s and seller’s agents. Keep in mind that some sellers may build these costs into a higher asking price for their home.

6. Shop for the right home

Now that you have an idea of what you can afford, obtained a preapproval letter ready and hired a real estate agent, it’s time to shop for a home.

Before you start your home search in earnest, consider these factors when shopping for your first home:

  • Location
  • Home type (single-family home, townhome, condo, manufactured home, etc.)
  • Size and rooms needed
  • Move-in ready versus a fixer-upper that needs work
  • Local schools and their ratings
  • Nearby amenities (public transit, shopping, dining, recreations, etc.)
  • Exterior space and maintenance needs

As you evaluate these items, distinguish between “nice-to-haves” and “deal-breakers.” Ultimately, this will help you figure out what’s important in your first home, which also helps you and your agent narrow down the list of potential candidates.

7. Make an offer on a house

Once you’ve found the right home, it’s time to make an offer on the house. This step requires some research and preparation. An offer package typically includes your offer letter, which outlines the offer price, contingencies, and a proposed closing date.

Contingencies are conditions that must be met to ensure a successful closing and give you, the buyer, an exit from the transaction with no penalty. Securing lender financing or pending the results of a home inspection. However, in super-competitive seller’s markets where there are more buyers than homes for sale, adding a lot of contingencies to your offer could turn off potential sellers.

Your real estate agent can help you calculate a reasonable offer price based on comparable properties for sale in the area and recent home-sales data. You can adjust your offer price based on several factors, including:

  • Prices of similar properties in the area
  • How long the home has been on the market
  • Property condition
  • Ratio of buyers to sellers in the current market
  • Whether any other offers have been made on the home

The offer process is where your real estate agent’s negotiation skills can make or break your chances of going under contract. Once you and the seller agree on a price, you’ll have to put down an earnest money deposit then the deal will move into escrow.

8. Get a home inspection and appraisal

As a buyer, you have the right to get a home inspection prior to closing to ensure no structural or material defects exist in the home.

Your lender will also order a home appraisal. An appraisal is done by a professional property appraiser who gives an opinion of the home’s market value. This helps confirm that the sales price is in line with local market conditions to reduce the lender’s risk.

You’ll receive a copy of both the home inspection and appraisal reports. If everything checks out, it should be full steam ahead for closing. However, if any issues arise, such as the home requiring repairs or a lower-than-expected appraisal price, you may need to return to the negotiating table.

9. Review the final loan paperwork and prepare for closing

In the final days leading up to closing, check with your mortgage lender and real estate agent to confirm that all the paperwork is in order and nothing else needs to be done prior to closing. You’ll do a final walk-through of the property to ensure all repairs have been made (if those were negotiated earlier in the process), and that the home is vacant and ready for move-in.

You’ll receive a closing disclosure from your lender at least three business days before closing. This document summarizes all the transaction closing costs and fees, and should be fairly in line with the fees listed on the initial loan estimate, with some variances expected. Make sure you fully understand all the charges. Your closing agent will provide instructions on how to pay your down payment and closing costs on closing day. Many lenders require a certified check from your banking institution.

10. Sign the closing paperwork

On closing day, a closing agent, typically a title company representative or real estate attorney (depending on your state’s laws), will oversee the closing process, accept your payments for closing, and ensure you sign the necessary documentation. In addition to the closing agent, you, your real estate agent, your lender, and the seller’s real estate agent may attend the closing. Sometimes, the seller will participate, too.

Bring a government-issued ID and any documents your closing agent requests. Here is a list of the key forms that you’ll need to sign:

  • Closing disclosure
  • Mortgage deed of trust
  • Mortgage promissory note
  • Deed to transfer ownership

Once all the documents are signed and the checks received, you’ll receive the keys to your new home. Congratulations! You’re now a homeowner!

11. Settle in and budget for the future

Once you’ve completed all the steps to buying a house, you’ll move in, connect utilities and, most importantly, budget for maintenance and home-improvement projects.

Set up an emergency fund to cover any unexpected repair bills. Now that you’re a first-time homeowner, you’re on the hook when appliances break, the heater goes out or the kitchen sink leaks.

Gather a list of regular maintenance items you’ll need to tackle. Regular maintenance can help you catch small issues before they turn into big problems and keep repair bills low.

Finally, make a list of home renovation projects for the future. While you’ll probably be hard-pressed to undertake these right after buying a house, start thinking about the costs now so you can set aside a little money over time to upgrade the 90s kitchen or redo outdated flooring. Home improvements can help boost your home’s value after you’ve built up some home equity

Process of buying a home FAQs

How long does the homebuying process take?
The average time to complete all the steps to buying a house can take up to four months. This varies depending on how long it takes you to find the right home, how competitive your local market is, the seller’s timeline, and whether any issues delay closing.

How do I start preparing to buy a house?
Start by getting your finances in order. Some basic steps to prepare before buying a house include:

  1. Save enough for a down payment and closing costs
  2. Get your spending under control and pay down outstanding debt
  3. Review your credit report for any errors
  4. Improve your credit score
  5. Research first-time homebuyer programs

Are there any special financing options for first-time homebuyers?
Yes. There are first-time homebuyer programs offered by state or local governments that include grants, tax credits, and assistance for paying closing costs and a down payment to those who are taking the first steps towards buying a house.

There are conventional loans, which are not backed by the government, that require just 3% down. However, you typically need a credit score of 620 or higher to qualify. Some government-backed loans, though, allow for lower credit score minimums.

Loans insured by the Federal Housing Administration, or FHA loans, require just 3.5% down if your credit score is 580 or higher. Some lenders may have higher credit score minimums, though, so be sure to ask. Another option for military borrowers are loans guaranteed by the U.S. Department of Veterans Affairs, or VA loans. These loans require no down payment or mortgage insurance, but eligible borrowers typically pay a VA funding fee to offset the costs of the VA home loan program to taxpayers. While the VA doesn’t set a minimum credit score, many lenders require a FICO score of 620 or higher.

Check with your local housing finance agency or a FAM Loan Advisor near you to see if there are any programs unique to your area.

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