Buying a house is one of the biggest financial decisions a person can make. But the good news is, you don’t have to do it alone. Whether you’re buying your first home or coming back to homeownership after time away, the first steps are crucial. Before you start looking at homes, you need to look at your finances, your credit, and your long-term goals. This guide will walk you through the key steps to buying a home and help make the homebuying process less stressful and more successful.
The journey to homeownership doesn’t begin with finding your dream home—it starts with preparing your financial life. If you skip this part, you risk falling in love with a house you can’t afford. That’s why one of the most important steps to buying a home is organizing your finances early. This includes budgeting, saving for a down payment, checking your credit report, and understanding your debt to income ratio.
Getting pre-approved by mortgage lenders is also key before you start house hunting. A preapproval letter shows real estate professionals and sellers that you’re serious and financially ready. It also helps you focus only on homes within your price range, based on your income, savings, and credit.
Remember, each step builds on the one before it. Start smart, and you’ll have a smoother home buying experience.
There’s no single starting line for everyone. Some home buyers are saving for their down payment. Others are still learning how to build a monthly budget. Wherever you’re starting, the first thing to do is get your finances organized.
Think of it as laying the foundation for your future home. Without a strong financial base, the rest of the homebuying process can become much harder than it needs to be.
Let’s break this down.
If you’re paying rent, you already have some idea of how much you can afford in a monthly mortgage payment. But a home comes with more expenses than just the mortgage. You’ll also need to pay property taxes, homeowners insurance, and possibly mortgage insurance if you don’t put down enough money upfront.
Will your new place need repairs or renovations? Will you join a homeowners association that charges monthly fees? These are part of your new monthly payment responsibilities.
And don’t forget about savings. Experts recommend saving enough to cover at least six months of your living expenses. This emergency fund is critical. Not all home repairs are covered by insurance, and some issues—like a leaking roof or broken water heater—can’t wait.
Here are some basic budgeting tips:
If you need help getting started, consider a course like Budgeting 101 from Credit.org's FIT Academy. It’s a great step by step guide to building a budget and preparing for big financial goals.
One of the most well-known hurdles for home buyers is saving for a down payment. The old rule says you need 20% of the home’s sale price. While that’s a great target if you can reach it, it’s not a requirement.
In fact, many mortgage loans offer options with a much lower minimum down payment. FHA loans, for example, are backed by the federal government and are designed for first-time homebuyers. They allow down payments as low as 3.5%. VA loans—available to eligible military service members, veterans, and their families—often require no down payment at all.
Other loan options, like conventional loans, may accept as little as 3% down with good credit.
Still, saving more can benefit you. With 20% down, you can avoid paying mortgage insurance. This is an extra cost added to your mortgage payment when you put down less than 20%. By saving more, you’ll lower your monthly costs and build home equity faster.
In addition to the down payment, you’ll need cash for other costs, such as:
Pro tip: Look into gift money from a family member. Many loan programs allow a portion of your down payment to come from a financial gift. Just make sure to follow the rules—your lender will likely need a signed letter explaining that the funds don’t have to be repaid.
Too many buyers forget to budget for closing costs. These are the fees and expenses paid at the closing date—the day you officially buy your home.
Closing costs vary depending on your loan type and the local market but generally range from 2% to 5% of the purchase price. For a $300,000 home, that’s $6,000 to $15,000. Common closing costs include:
Some sellers may agree to cover a portion of these costs, especially in a slower or less competitive market. But in a competitive market, expect to cover these yourself.
Before closing, your lender will give you a closing disclosure. This document outlines every cost you’ll be responsible for on closing day. Review it carefully and ask your loan officer or real estate agent if anything looks off.
Your credit score plays a big role in whether you’ll qualify for a home loan—and what interest rates you’ll get. That’s why you should check your credit report early in the process.
You’re entitled to one free credit report each year from each of the three major credit bureaus (Experian, Equifax, and TransUnion) at AnnualCreditReport.com. Request your reports and check them for errors, late payments, or collections.
Fixing issues on your report can take weeks or even months, so it’s smart to do this six months before applying for a mortgage. If you find something negative, contact the credit bureau to dispute it. You can also work with nonprofit housing counselors to review your report and come up with a plan to improve your credit score.
Most lenders look for a minimum credit score of 620 for conventional loans. FHA loans may accept scores as low as 580. But better scores mean better loan options and interest rates, so it’s worth the effort to raise yours.
Avoid costly credit repair services that promise quick fixes. Instead, focus on:
Free educational tools, like “Understanding Your Credit Report” from the FIT Academy, can help you learn how credit works and how to improve your score over time.
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When applying for a mortgage, your debt-to-income-ratio (DTI) plays a major role in how much you can borrow. Your DTI compares how much money you owe each month to how much income you bring in. Most lenders prefer a DTI of 36% or lower, though some may go as high as 43% for certain loan programs.
Here’s how to calculate your DTI:
Example:
If your monthly debts are $1,800 and your gross income is $5,000, your DTI is:
$1,800 ÷ $5,000 = 0.36 → 36%
Reducing your debt or increasing your income can improve your DTI and your chances of qualifying for a loan. You may also be able to include a co-borrower’s income—such as a spouse or family member—to lower your DTI ratio.
Once your budget, savings, and credit report are in shape, it’s time to talk to mortgage lenders. Your first step is to get a pre approval letter, which shows sellers that you’ve already been vetted and qualify for a home loan.
Pre-approval differs from pre-qualification. A pre-qualification is a rough estimate based on self-reported financial info. A pre approval, on the other hand, involves a full review of your income, assets, credit, and debts. It’s a stronger sign to real estate professionals and sellers that you’re ready to make an offer.
To get pre-approved, you’ll need to provide:
Once approved, you’ll receive a pre approval letter. This tells you the total loan amount you’re qualified to borrow, your estimated mortgage payment, and what kind of loan type you’re eligible for. Most pre-approval letters are valid for 60–90 days.
There are many types of mortgage loans, and the right one for you depends on your credit score, income, down payment, and personal goals.
Here are some common loan options:
Ask your loan officer to walk you through your loan options and explain the pros and cons of each. Understanding the total loan terms, including the mortgage term (15, 20, or 30 years), can help you make the best choice for your situation.
Once you’re pre-approved and know your purchase price range, it’s time for house hunting! Partnering with a professional real estate agent will make this process smoother and more successful.
Your agent will:
Be honest with your agent about your budget and goals. If your agent understands your finances and your preferences, they can guide you to the homes that are best for you—and steer you away from those that are not.
You may also want to ask your agent about properties with low property taxes, reasonable homeowners association(HOA) fees, and manageable insurance premiums. These ongoing expenses will affect your total monthly payment.
When you find a home you love, your agent will help you make a formal offer. This usually includes a purchase price, contingencies (like inspections and financing approval), and the closing date.
Along with your offer, you’ll pay earnest money—a deposit that shows the seller you’re serious. This amount is usually 1% to 3% of the home’s sale price and is held in an escrow account until closing.
If the deal goes through, your earnest money is applied to your down payment amount or closing costs. If the deal falls through due to a valid contingency, you usually get the earnest money back.
After your offer is accepted, you’ll schedule an inspection. A qualified home inspector will check the home’s condition, including the roof, foundation, plumbing, electrical systems, and appliances.
The inspection helps you uncover any hidden problems and gives you the chance to renegotiate with the seller or walk away if serious issues are found.
At the same time, your lender will order a home appraisal to make sure the home is worth the purchase price. The appraised value helps the lender determine the total loan amount. If the appraisal comes in too low, you may need to negotiate with the seller or come up with additional cash to cover the difference.
Right before closing day, you’ll do a final walkthrough of the property. This is your last chance to ensure the home is in good condition and that any repairs requested after the inspection have been completed.
On the day of the closing, you’ll review and sign all your paperwork. You’ll get a closing disclosure at least three business days beforehand, which will list your final mortgage payment, closing costs, and any prepaid items. Review this document carefully and ask your loan officer to explain anything unclear.
Once everything is signed, the loan is funded, the title is transferred, and you get the keys to your dream home.
Your mortgage payment includes more than just the loan principal. It’s important to understand what goes into this payment so you can budget accurately and avoid surprises.
A standard monthly payment is made up of four parts:
Many lenders require you to set up an escrow account. This is where money for taxes and insurance premiums is held until they’re due. Your lender pays these bills on your behalf, using the funds you’ve deposited each month.
If your down payment is less than 20%, you’ll likely pay mortgage insurance, too. This protects the lender in case you default. The cost is added to your mortgage payment and may be required until you reach a certain level of home equity.
Tip: When comparing loan offers, ask for a loan estimate. This document gives a clear breakdown of your projected monthly payment, loan terms, interest rate, and estimated closing costs. Use it to shop around and compare lenders.
A great first step before you start the homebuying process is to work with a HUD-approved housing counselor. These nonprofit experts can help you understand how to buy a home, review your finances, check your credit report, and build a savings plan.
A housing counselor can guide you through:
They can also connect you with local or federal programs that reduce the costs of buying a house—especially if you’re a first time homebuyer or meet income qualifications. These programs may include grants, deferred-payment loans, or matched savings plans.
Housing counselors don’t work on commission, so their advice is always in your best interest. Best of all, many of their services are free.
You can find a certified counselor near you through HUD.gov or Credit.org.
If you’re buying a home for the first time, you may qualify for special programs to help reduce your upfront costs. Many first time homebuyers think they can’t afford a home because of the minimum down payment or high closing costs, but help is available.
Types of programs include:
Some programs even provide full forgivable loans if you live in the home long enough.
If you’re receiving gift money—say, from a family member—you’ll need to provide a gift letter. This document confirms that the funds don’t have to be paid back and are not a loan. Mortgage lenders will require this for documentation purposes.
Ask your loan officer what kinds of first-time homebuyer assistance might be available in your area, and whether the program you’re applying for requires a homebuyer education course. Completing one early can open up access to additional programs and incentives.
You don’t have to stick with one lender or even one type of loan. It’s smart to compare loan options from multiple sources:
Each may offer different interest rates, mortgage terms, and fees. Some may have stricter or more lenient rules on credit score, debt to income ratio, or documentation.
By applying with multiple lenders, you can compare their loan estimates side-by-side and choose the best deal for your situation. Be sure to apply within a short window (ideally two weeks) so that all credit checks count as one inquiry on your credit report.
Ask about:
This comparison shopping can save you thousands over the life of the loan.
After your offer is accepted, appraisal completed, and financing in motion, you’ll move into the final approval phase. This is where the lender double-checks all your paperwork before officially clearing you to close.
During this time, avoid any major changes in your financial life. Don’t open new credit cards, change jobs, or make large purchases—anything that could affect your DTI or credit score.
You’ll also get a closing disclosure, which outlines all your closing costs, the total loan amount, and your expected monthly mortgage payment. Review it carefully with your real estate agent or housing counselor.
On closing day, bring your ID and any required funds (such as your remaining down payment and closing costs). Once you sign the documents, the loan is funded, and you officially become a homeowner.
Your journey doesn’t end at the closing table. Now that you own your home, it’s time to plan for long-term maintenance and success.
Here’s how to set yourself up for stability:
Also, know when it might make sense to refinance. As interest rates change, you may be able to lower your mortgage payment or pay off your loan faster.
If you plan to sell your home later, staying on top of repairs and keeping records of improvements will help you get the best resale value.
Even with great preparation, the home buying process can be full of surprises. You may face a competitive market with bidding wars, delays in the approval process, or unexpected findings during the inspection. The key is to stay flexible and informed at every stage.
If your first offer doesn’t get accepted, don’t be discouraged. Use what you learned to make a stronger offer next time. Keep in close contact with your real estate agent, loan officer, and housing counselor to stay on top of every detail.
The more you know about each step—from getting pre-approved to the final walkthrough—the better decisions you’ll make. Homeownership is a long-term commitment, and taking the time to do it right will benefit you for years to come.
A walk through happens just before you close. It’s your last chance to check the property and confirm everything is in order before signing the final documents. It’s not a formal inspection, but you should still pay close attention.
During the walk through, check that:
If something isn’t right, talk to your real estate agent immediately. You may be able to delay closing or negotiate a solution. Never skip the final walkthrough—it can prevent costly headaches later.
When you calculate your monthly mortgage payment, it’s easy to focus only on the loan itself. But homeowners face many other recurring and one-time costs that should be part of your long-term plan.
Some of these costs include:
It’s smart to continue budgeting even after you move in. Use a portion of your income to fund a maintenance reserve. Many financial planners recommend setting aside 1%–2% of your home’s value annually for repairs.
Staying ahead of these expenses protects your home’s value and ensures you can afford unexpected issues without resorting to high-interest credit.
One of the greatest financial advantages of buying a house is building home equity. Each mortgage payment you make helps reduce your loan balance. Over time, as your home’s market value increases and your debt decreases, you gain equity.
You can use your home equity for future goals, such as:
However, borrowing against your home should be done carefully. Equity loans and lines of credit add debt and can put your home at risk if you can’t repay.
Treat your home like a long-term investment. Keep it in good condition, track its appraised value, and stay up to date on local market trends. If you ever consider selling or refinancing, you’ll be better prepared.
Let’s recap the most important steps to buying a home:
Homeownership doesn’t have to be overwhelming. With guidance from real estate professionals, housing counselors, and lenders, you’ll have a support system every step of the way. Taking a smart, informed approach will help you buy a house that fits your needs—and your budget.
Just remember, you don’t have to go it alone. There are HUD-approved nonprofit housing agencies standing by to offer their expertise, and the sooner you reach out for help, the better the home buying process will go for you.
