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Buying a home can offer an incredibly rewarding life change, but it’s also an emotional and complex ordeal.

While the homebuying process can appear daunting at first, if you familiarize yourself with what you need to do, it’ll be much more straightforward than it first appears.

This step-by-step guide will help you through the process of buying your first home. It’ll also be a useful refresher if you’re looking to buy another home.

To make this guide even more useful, download the companion workbook below so you can keep track of your progress.

Download the New Homebuyer’s Guide Companion Workbook

Keep track of progress on your home buying journey with a free companion workbook

homebuyer-checklist

How to Know You’re Ready

Before you get started with your homebuying journey, you should be able to check three important boxes first:

  1. Build up enough savings for a down payment. One of the most important things you can do as you consider homebuying is to save for the down payment, which can cost 3% to 20% of the total mortgage purchase price. Ideally, you will be able to pay 20% to get access to the best possible interest rates.

    This process can take people years, so if you’re thinking about it, best get started. Also, if there is a chance of getting a “gift down payment,” make sure you understand how that works as well.

  2. Figure out your budget. Calculate all of your expenses and figure out how much of your monthly take-home pay can be allocated to a mortgage payment. Determine your average debt payments and see how a mortgage could fit into the picture.

    Also make sure you understand all the costs associated with a mortgage (which we’ll cover in the next section).

  3. Check and improve your credit score. Your credit score can make a big impact on your mortgage rate, so it’s good to boost it before mortgage shopping. Your score can be improved if you pay down debts, pay bills on time, and avoid frequently applying for more credit.

    The process of repairing credit can take a long time, so it’s good to get a handle on it early. 

Understand All the Costs

For your initial budget, outlining your monthly expenses and income is a good start. But to get a more precise budget, you need to understand all the costs of the homebuying process. This can seem intimidating at first, but it’s the best way to empower yourself to be an informed, confident buyer.

You get a rough estimation of your down payment and mortgage with a free mortgage calculator, but you should also consider how the following costs may impact your budget:

Pro Tip: As you create your budget, use a worksheet to check off which items you’ve included and which ones you still need to calculate.

Closing Costs

  • Impound account deposit — Also known as escrow accounts, the impound account is set up by a mortgage company to make sure you have enough money to cover things like taxes and mortgage insurance. A reserve deposit stays in the impound account until the mortgage is closed/refinanced and you typically get a refund within 30 days. Some buyers may be shocked by how much they have to put into this account.
  • Land survey fee — You may need to pay a land surveyor a fee to verify property boundaries in certain states.
  • Processing fee — This fee is paid to the mortgage company for processing your loan. It typically costs between $500 and $700.
  • Title insurance policy fee — You’ll want to pay a title company to make sure the deed to your potential home has no other owners or people who can make a claim to the property.
  • Underwriting fee — You’ll need to pay an underwriting fee to your lender for determining whether it should approve your loan.
  • Appraisal and inspection fees — These are out-of-pocket fees that you need to pay companies or individuals to appraise the value of the home and inspect it for issues.
  • Earnest money deposit — This deposit shows that you are a serious buyer. You’ll often need to put down 1% to 3% of the total purchase price that will later go toward your down payment.

Post-Closing Costs

  • Home repairs — There’s a very good chance that whatever home you buy will need repairs, some of which you’ll need to do in the first few years of ownership. These can include things such as HVAC fixes and filter replacements, fixing windows and doors, leaky faucets, paint retouching, furnace and appliance repairs, and more.
  • Utilities — utilities, like water and electricity, will be monthly expenses and the bill will likely be higher than what you were paying previously.
  • Moving costs — There’s a good chance you’ll need to hire professional movers if you’re settling into a new home. If you need to move a lot of possessions, movers can cost thousands of dollars.
  • Natural disaster insurance — Standard homeowner’s insurance does not cover damage from earthquakes and floods. If you live in an area with a history of earthquakes or flooding, you may need to purchase special insurance to protect your home.
  • Home insurance — When you’re done buying your home, you’ll need to purchase insurance to protect from theft and damage like fire and wind. Also, keep in mind that payment of your first year’s worth of home insurance may be required at closing.
  • Property taxes — Every year, you’ll need to pay property taxes to the county in which you live. Also, keep in mind that you may need to pay a prorated amount of taxes upfront at closing.

Read more about the hidden costs of homebuying 

Prepare Your Finances

Prepare Your Finances

Getting your finances in order is an important thing to do before starting the homebuying process. It’s smart to take a hard look early in the process, usually both six months before and three months before.

6 months before you begin your home search:

  • Continue to pad your savings. As outlined above, homebuying is an expensive process, so you’ll want to use this opportunity to continue saving money for the down payment, the earnest money deposit, and other related home-buying costs.
  • Research resources and programs to help you buy a home. Home buying programs may provide low rates, tax credits, and other incentives that can help with financing.

    These programs include:

    • Federal Housing Administration loan programs: These programs can get you a loan insured by the FHA, which can be ideal if you are a first-time homebuyer with a lower credit score.
    • Good Neighbor Next Door program: A Housing and Urban Development (HUD) program that specifically provides housing aid for law enforcement officers, firefighters, emergency medical technicians, and pre-Kindergarten through 12th-grade teachers.
    • USDA loan program: A loan program from the U.S. Department of Agriculture that aims to help low-income borrowers purchase a home in eligible rural areas.
    • VA loan program: A loan program from the U.S. Department of Veterans Affairs that makes it possible to have no down payment for active service members, veterans, and eligible surviving spouses.

3 months before you begin your home search:

  • Get pre-approved for a mortgage. Way before you get started, you’ll want to get pre-approved for a mortgage by a lender. This helps you understand the price range you can generally afford, what you should be looking for, and helps you assess any gaps in your financial situation.
  • Collect paperwork. Documents such as pay stubs, two years of tax returns, bank statements, and more will likely be needed for you to apply for a mortgage.

Read more about the benefits of preparing your financing for a mortgage.

Assembling a Team and Starting Your Home Search

With your paperwork collected, your budget finalized, and your finances in order, you’re ready to assemble a team and start your home search. Your mortgage broker should be happy to help you ensure all your paperwork and finances are ready to go.

So don’t worry about perfecting your budget before moving on to this step (just make sure you have a general idea of your cost constraints).

Finding the Right Real Estate Agent

Research real estate companies in the market you want to buy and take your time to talk with a few companies about what exactly you are looking for. Talk to family and friends to see if they have strong agent referrals. You can also attend open houses (even for homes you aren’t interested in) to talk to agents and see how they measure up in person.

Keep in mind that anyone with a real estate license can be a real estate agent in the market you’re looking for. However, you may want to work with a Realtor®, a real estate agent who is a member of the National Association of Realtors and follows a code of ethics designed to help homebuyers.

You may also want to think about what characteristics you value most in an agent, such as responsive communication, good listening skills, and empathy.

Finding a Mortgage Broker

The next step is to find a mortgage broker who can help you get the best possible deal on your mortgage. Mortgage brokers connect borrowers and lenders and work to find the best fit for those buying a home.

Brokers also help you gather important financial documents and pass copies of those to lenders as needed through the process.

When you begin working with a mortgage broker, it’s smart to ask a lot of questions, such as:

  • What kind of mortgage works best for my financial situation?
  • How much will the mortgage cost monthly and in total?
  • How large of a down payment do I need to get the best deal?

Starting Your Home Search

Now comes the fun part: shopping for homes with your real estate agent. It took a long way to get here, but now you can finally go house hunting to your heart’s content.

Use this time to look at homes in your price range and view all kinds of homes to help you get a better sense of what you actually want. You may start the process with a different style of home in mind and as you look at your options, you shift your priorities.

As you look for homes, think carefully about:

  • What type and style of home you’re looking for, whether it’s a single-family home, a duplex, a townhouse, a condo, or something else
  • What neighborhoods you like in your city
  • The price range of homes you should be looking for
  • How far the home is from work, schools, churches, and other important places

Thankfully, if you followed the recommendation of getting pre-approved for a mortgage before the process started, you should have an easier time figuring out what type of home works best with your budget.

Making an Offer and Finalizing the Purchase

Once you find your ideal home or condo, it’s time to make an offer. You’ll want to work carefully and quickly with your real estate agent to prepare a suitable offer.

A solid offer should typically include certain items. Make sure yours contains at least the following:

  • The sale price of the home or condo
  • The target date for closing
  • Earnest money deposit amount
  • Seller promise to clear the title
  • Type of deed to be granted
  • A time limit for the offer
  • Any additional terms and conditions of the purchase per discussions you’ve had with the seller

It’s also important to make sure your offer includes contingencies, such as if the inspection (which comes next) reveals any issues or if you are unable to get the financing you originally were seeking. And if the offer is declined or sent back with a counteroffer, you may want to work with your real estate agent to re-submit the offer one more time.

Order an Inspection

Once the offer is approved, you’ll need to quickly get the house or condo inspected by a home inspector. A basic inspection will focus on the home’s structure, plumbing, electrical systems, and heating and cooling. Depending on the market you are in, you may also want to get an inspector who can look for termites, lead paint, mold, and radon.

If your home has defects and serious problems that were not disclosed before you made the offer, you can then walk away from the deal. However, you may also try to negotiate with the seller to get them to fix the issue(s) if you are still interested in the home.

Shop for Homeowner’s Insurance

Buying homeowner’s insurance is required by the lender before you can close and it makes sure your investment is protected the second the deal is done.

Homeowner’s insurance generally offers coverage for:

  1. Damage to the home itself
  2. Damage to structures outside the home, like garages
  3. Damage to or theft of belongings in your home
  4. Personal liability to protect you if you’re sued for someone getting hurt inside your home
  5. Living expenses if you can’t live at home while your home is being repaired

You may also want to buy specific home insurance that provides coverage for natural disasters, such as flooding, earthquakes, and volcanoes. These types of events are not covered in standard home insurance, so you must seek them out separately.

Shop around with several companies and make sure you get multiple quotes for your homeowner’s insurance, as the premiums can vary greatly. You can get homeowner’s insurance in a binding policy, which means you only end up getting it after the transaction is closed.

Finalize the Purchase

Lenders must provide your Closing Disclosure three business days before you scheduled closing. Review this document closely with your team and act quickly to resolve any problems and ask any questions you might have. 

Once that’s done, it’s time to seal the deal on your new house or condo. Here’s where your team of experts you’ve worked with throughout the process can all chip in to help, including your mortgage broker (help with mortgage paperwork), real estate agent (help with final agreement or negotiations with the seller), and loan officer (authorizing the mortgage).

Each one can advise on what you need to do and what paperwork you need to sign quickly to get things in order.

This process will include finalizing the terms of your mortgage, paying your down payment, and working through the aforementioned closing costs like getting an appraisal, verifying the title, and paying the underwriting fee to your lender. As soon as the process is completed, then the home is all yours!

Prepare for Long-Term Costs

Now you’ve completed the deal on your new home, it’s time to revisit the longer-term costs that you will incur after the sale. You’ll want to budget carefully to make sure you’re able to pay these.

As mentioned before, these costs include:

  • Home repairs
  • Property taxes
  • Utilities
  • Moving costs
  • Natural disaster insurance
  • Home insurance

With all of the above complete, you're ready to enjoy your home and the peace of mind that comes with knowing you have all your financial bases covered.

If you're having trouble with any part of the home-buying process, schedule a free consultation with one of our loan experts by scrolling down and clicking the button to request a consultation.