Homebuying Process 101: Ultimate Checklist and Process
So, you’re ready to buy a home — or at least, you’re pretty sure you are. Maybe you’ve got the money for a down payment (or at least a good chunk of it). You’ve been running your own business for at least 2-3 years and the money’s good. Heck, you probably even know where you want to live (roughly anyway) and have a good idea of what you want your home to look like.
That’s great news! It’ll make the homebuying process that much easier.
But… you might not know all of the necessary steps to purchasing your first home. Even if you know the basics already, it doesn’t hurt to have a step-by-step guide to make things just a little bit easier — especially since the self-employed life can already be tricky at times.
Without further delay, here’s how the homebuying process works, a checklist of things you’ll need to make the process easier, and the typical requirements to becoming a first-time homeowner.
Ready? Let’s go!
What is the Homebuying Process?
To keep this brief…
The homebuying process is the process of purchasing a home from beginning to end. It starts with deciding it’s time to buy property and goes well beyond making an offer to closing on your future home.
The exact process depends on the individual. Because of this, your process might not be the exact same as the next person’s.
That being said, purchasing a home is a pretty major commitment — financially speaking, yes, but also emotionally. That’s why you'll want to take your time throughout the process and ensure you're doing it right for your own sake.
So, what does the homebuying process take and what can you expect? Well, we'll get to the in-depth steps in a moment. But for now, here's what it generally takes:
Knowing what you want in terms of a home — features, age, construction type, square footage, neighborhood, price, etc.
Understanding your homebuying budget — including monthly and total costs
Recognizing your timeline and being prepared for potential delays or complications
Making sure you’re financially prepared — and that your line of work (whatever it might be) is stable and that the money’s there
Being prepared for the upfront costs — primarily, the down payment, closing costs, and moving expenses
Knowing if now’s the right time to make the purchase for yourself and, if you’re buying with someone else, them
You don’t have to have all the answers right now. But the more you know and are prepared for now, the easier it will be to buy the home of your dreams.
How To Buy A House In 22 Steps
Okay, now onto the exciting part — the step-by-step process of actually buying a house. As you go through the process, remember that it’s okay to take certain steps in a different order. It’s also possible that some of these steps won’t 100% apply to you.
Keeping that in mind, here’s how to buy a house.
1. Check Your Credit Score
If you’ve ever applied for any type of financing before — a credit card, a line of credit, a car loan… — chances are you know your approximate credit score.
But just in case you haven’t checked it in a while, it’s good to check your credit score around 6-12 months before applying for a mortgage loan. That way, you’ll have time to improve it if needed. And if your score is already as fabulous as you, then knowing what it is can be one less thing on your plate.
You can get a free annual copy of your credit report from each of the three major bureaus — TransUnion, Experian, and Equifax — from AnnualCreditReport.com. You can also get a copy of your report from the individual credit bureaus by going to their websites.
If you just want to know your credit score, you can typically check with your credit card company. For example, Capital One lets you monitor your credit via CreditWise. Or you can use a site like Credit Karma to get a fairly recent score and report overview from TransUnion and Equifax.
Keep in mind that some companies (Credit Karma included) will show your VantageScore not your FICO Score. Even though your FICO and VantageScore might be different, even knowing just one of them can help you understand your credit health.
As a general rule, you’ll want to shoot to have good credit (670+ FICO) before applying for a mortgage. If you have good credit or better, you could qualify for lower interest rates — in other words, you could pay less in interest over time.
You could still qualify for certain home loans with a lower credit score. For example, you may be able to get an FHA-insured mortgage loan with a 500+ credit score and a 10% down payment. Your rates might be higher, though, or you might qualify for a smaller loan amount.
2. Start or Continue Saving Up
With most home loans, you’ll need a down payment to qualify. The exact amount depends on a few factors, such as the mortgage type and the loan amount. Here’s what you’ll usually need for your down payment (as a percentage):
Conventional loan — 3% to 5% down payment (20% down payment to avoid private mortgage insurance)
Jumbo loan — 10% down payment in most cases
FHA loan — 3.5% down payment (with a 580+ credit score) or 10% down payment (with a 500 credit score)
USDA loan — 0% down payment (conditions apply)
VA loan — 0% down payment (conditions apply)
Keep in mind that these are the typical minimum requirements. If possible, try to save up more for your down payment as this can potentially:
Increase your approval odds
Get you a more competitive mortgage interest rate
Help you qualify for a larger loan amount (for a more expensive home)
Reduce your financial burden (since you’ll need a smaller loan)
Get you a more flexible repayment term (say, 15 years instead of 30 years)
Besides saving up for the down payment, you’ll also want to be aware of other costs that come with purchasing a home. It’s way too easy to forget about these, so here are the big ones to think about:
Closing costs: These are upfront costs that you’ll typically need to pay before closing on the loan. They vary by state, but could be anywhere from 2% to 5% of the home purchase price. Closing costs may include appraisal fees, title insurance fees, tax service provider fees, and government taxes.
Moving costs: How much you spend to move depends on several factors, such as where you currently live, how far you need to move, how much stuff you have, whether you’re hiring a professional service, etc. It’s wise to set aside at least some money for this.
New furniture: As with moving costs, you may want to save up for things like new furnishings or decor. This isn’t totally necessary, but think of how great it’ll feel to be able to splurge a little on your new home once you’ve got the keys!
Maintenance costs: As a general rule, it’s wise to have at least 1% of your home’s current market value set aside for yearly maintenance expenses. Say you’re home is worth $400,000. That means you should have a fund of about $4,000 for any maintenance costs. You might not need this right away, especially if you’re buying a brand new home, but it doesn’t hurt to have the money saved up anyway.
Penalty for breaking your lease: If you’re renting an apartment and choose to break your lease early, you might have to pay a penalty. If you instead decide to keep your current place until the lease ends, you should account for those months where you’ll need to pay mortgage and rent.
Start saving up as much as is realistically possible. If you can increase your savings amount here and there, definitely do that. A few extra hundred dollars a month? An extra thousand or two? It adds up.
3. Evaluate Your Wants and Needs
Before you get too far in the homebuying process, take some time to make a list of your wants, needs, and nice-to-haves. Your list is going to be unique to you, but here are a few examples to consider:
A small backyard for your dog? Could be a need. That extra acre for a garden you might (or might not) plant? Probably a nice-to-have.
Three bedrooms for you, your partner, and your future child (or home office)? Could be a need. Two additional bedrooms just because? Probably a want.
Two bathrooms? Walk-in closets? Two living rooms? A mudroom? A screened-in front porch to keep out the mosquitoes (for our fellow North Carolinians out there)? You decide.
Your list is bound to change as you go, so make an initial one early on and make adjustments a few months into the process. Then, as you start shopping for the home you’re going to make an offer on, update your list once more to see what makes the cut — and what can be let go of (without it feeling like a sacrifice or loss).
4. Evaluate Your Timeline
Okay, so about your timeline.
You might have your entire down payment saved up and be raring to go buy that house. But… you also might not be quite ready yet.
If you’re really, truly ready, buying a house can take a few weeks or a couple of months. But there might be delays. Some of these could be outside of your control, like a delayed construction of your chosen neighborhood or plan. Others might be things you need to work on, like saving up more for your down payment or closing costs.
Whatever the case, think about your timeline. Ask yourself how much time you realistically need to get ready. Then, determine when you want to buy the house.
Is it based on your current apartment lease? Is it based on the birth of a new child? Or perhaps you need a little more time with your work to qualify with a lender.
Be honest with yourself. And whatever else, try not to stress yourself out by giving yourself too strict of a deadline. In our experience, that only leads to frustration (and maybe a few tears).
5. Calculate How Much You Qualify For (Prequalification)
Knowing how much house you can qualify for is a key part of the homebuying process — and something you can do at any point. But if you haven’t done it yet, now’s the time.
One of the best ways to do this is to get prequalified. This process lets you determine how big of a loan you might get and at what rates. It doesn’t require a credit check, so it won’t affect your credit score. Just know that the result you get won’t be 100% accurate to what you actually get approved for.
You can find free prequalification calculators online. To use one, you’ll typically need to know the following information:
Your estimated credit score or a range of scores (e.g., 500-580 or 670-740)
Your annual gross income (income before taxes)
Preferred mortgage term (like 15 years or 30 years)
Expected interest rate (you can base this off of the average mortgage rate for the loan type and term you’re considering)
Your employment status (in this case, you’d probably choose something like “self-employed”)
Expected down payment amount
The monthly debt payments you currently have (or anticipate having when the time comes to apply for a mortgage loan)
Any major issues that might show up on your credit report (like a bankruptcy)
Based on the information you provide, you’ll get an estimate of what mortgage loan you could qualify for. You can use this as a baseline to what you might be able to afford.
6. Determine Your Budget
Knowing how much you can technically qualify for is a good start, but it’s not the same as knowing your budget. When you apply for a mortgage, a lender might offer you a loan that’s larger than what you can realistically — or comfortably — manage.
There are a lot of ways to calculate your mortgage buying budget. One option is to follow the “2.5 times your income rule.” This is something we use as it gives us a better idea of what we can afford without undue stress.
Here’s how it works.
Start by calculating your gross (before taxes) annual income. If you have multiple clients or income streams, this might fluctuate. In that case, average out your income over the past several years (or for as many years as you’ve been doing what you do).
Once you know your gross annual income, multiply it by 2.5. This is how much mortgage you should shoot to get (after putting forth a down payment).
Here are a couple of examples:
Your gross annual income is $100,000. Your maximum mortgage loan should be $250,000.
Your gross annual income is $150,000. Your maximum mortgage loan should be $375,000.
Your gross annual income is $200,000. Your maximum mortgage loan should be $500,000.
Of course, the 2.5 rule doesn’t work for everyone. It might also be hard to follow if the average cost of a home in your area is on the expensive side. One way to combat this is to have a larger down payment — the greater your down payment, the more expensive the house you can potentially get.
Something else to keep in mind is your deb-to-income ratio, or DTI. This is essentially the percentage of your monthly gross income that goes toward your recurring debts. Most mortgage lenders prefer you to have a maximum DTI of about 35% to 43%. If yours is higher, you might not qualify for a loan.
To calculate your DTI, take your monthly debts and divide that amount by your monthly pre-taxed income. For example:
Gross monthly income = $5,000
Monthly debt payments = $1,500
DTI = 30%
DTI also matters because it helps determine how much money you actually have leftover each month. If you owe a lot toward other debts, you might not be in a good position to buy a house just yet. In that case, you may need to pay down your debts before applying for a loan — or go for a less expensive home.
You can also use a monthly mortgage calculator to help determine what your monthly payment would be — with or without extra fees like taxes, insurance, and HOA dues. This can give you a clearer idea of whether the new (estimated) payment fits into your budget or not.
7. Consider Your Other Financial Goals
Even if you can comfortably afford your monthly mortgage payments, make sure you don’t overburden yourself by stretching your budget too much. So, when looking into buying a house, consider your other financial goals.
Think about your other financial goals. Do you want to save up for a child’s education? A trip to Japan (that’s us!)? An early retirement? More money to help your business grow?
Whatever the case, make sure your homebuying goal doesn’t interfere with your other goals. Or, if it does, try to minimize how much it interferes so that you don’t stress yourself out.
8. Reevaluate Your Work’s Sustainability
So, you can do this step in the homebuying process at any time. But you’ll probably want to do it early on as well as about midway through the process. And, for good measure — if you’re anything like me anyway — you’ll probably want to do it just before you start applying for mortgage loans.
Okay, but what exactly does it mean to “reevaluate your work’s sustainability?”
Essentially, it means looking over your current line of work and determining:
How stable it is (especially your monthly/annual income)
How long your contracts are going to last (if you have any)
How many types of income streams you’ve got coming in (and how stable each one of those is)
Whether you can make it even more stable (such as by implementing contracts or adding on another source of income)
You should be able to confidently say that you’ll be able to manage a mortgage loan — before you get one. This means making sure that you’re not going to experience any sudden dips in earnings. Or, if your earnings do drop, it’s strategic or planned — nothing unexpected.
It also means that you’ll be able to prove to a lender that you’re good to go financially. You’ll typically need to provide proof of at least 2 years’ worth of income anyway, so this should be a given.
But forget about the lender and what they want for a moment. This is your life, your future, and your commitment. Make sure your current, past, and future earnings are stable. Otherwise, you could end up stressed out or, worst case scenario, unable to afford the home you do get.
9. Get Your Finances In Order
As part of determining how stable your line of work is and saving up for a down payment, you’ll also want to get any other finances in order. This could mean paying down any debts you’ve got — like credit cards or other loans. It could also mean increasing your income so that you’ve got more wiggle room in your budget. Heck, it could even mean assessing your financial goals.
All of this is stuff you’ve probably already started doing. But just in case you haven’t, it doesn’t hurt to do it now — and once more before you apply for a loan.
10. Determine the Mortgage Type
Moving on to the next step: It’s time to determine which type of mortgage you’re going to get. There are several different options here, but here are the main ones and why you might want to go with one of these:
Conventional loan: Conventional loans typically require a 3% to 5% down payment. You may need to pay for private mortgage insurance if your down payment is less than 20%, though. Typical repayment terms are 15 and 30 years. These loans usually have a fixed interest rate that does not change over the life of the loan. They may be cheaper than, say, FHA loans, but they can be harder to get.
Jumbo loan: A jumbo loan is another type of mortgage, one that’s designed to cover more expensive homes. These loans can be more expensive than conventional loans. They may also require a higher down payment and have stricter requirements, making them harder to get for first-time homebuyers.
FHA loan: FHA loans are designed to help first-time homebuyers purchase property. They have similar terms to conventional loans. They usually have a fixed interest rate as well. However, they may have more lenient requirements — such as a lower minimum down payment or credit score requirement.
USDA loan: The United States Department of Agriculture (USDA) has a home loan program to borrowers who fall within a certain household income threshold. These loans require as little as a 0% down payment. To qualify for a USDA loan, you may also need to purchase property in an eligible rural area. Keep in mind that the list of “eligible rural areas” is not frequently updated. What this means is that you could theoretically get a USDA loan even if the neighborhood you’re interested in is a little more built up. You’ll just need to check your eligibility.
VA loan: The U.S. Department of Veteran Affairs offers VA loans to eligible borrowers. This includes active service members, veterans, and eligible surviving spouses. With a VA loan, you typically don't need a down payment. However, you'll still need to meet other credit score and income requirements. There are different types of VA loans, so check them out here.
There are also nonqualified mortgage loans (non-QM loans), which are generally designed for borrowers who don’t meet the financial or credit criteria of typical home loans. Someone who’s, say, self-employed or has a unique income structure, may want to consider one of these loans.
The downside is that non-QM loans often have higher interest rates, higher closing costs, and stricter eligibility requirements. They might also have a different repayment structure. For example, some non-QM loans require a balloon payment. This is essentially when you make a larger than normal payment at the end of the loan term to pay off the remaining balance.
11. Shop Around And Find Lenders
Once you know what type of home loan you want, you can start shopping around for lenders that offer that type of financing. You should ideally have a list of 3-5 lenders before continuing on in the homebuying process.
When shopping for lenders, here are some key questions to ask (to help you narrow down your options):
What types of home loans do they offer?
What are their typical rates and terms?
Do they have any additional fees?
What are the typical closing costs like?
Are they licensed to operate in the state you’re buying a home?
What’s their online reputation like? (Check on sites like the Better Business Bureau to see what other customers are saying)
What are their eligibility requirements and do you meet them?
Do they specialize in working with any particular type of borrower (e.g., self-employed or business owners)?
Do they offer a rate lock? (This lets you lock in your mortgage interest rate for a set amount of time while shopping around for a home)
What’s their application process like (e.g., online only, in person only, hybrid)?
How long does it typically take to close on a home? (if applicable)
How hands-on are they (and does it work for you)?
Do they have a prepayment penalty for paying off your mortgage early?
This isn’t something you’re going to want to rush, so take your time as you shop around. After all, the lender you choose will more than likely be the lender you work with for the entire duration of your home loan — which could be up to 30 years in some cases. Even if you refinance your mortgage later or sell your home early, you’ll still want to work with a lender you trust — and who treats you well.
12. Get a Preapproval Letter
Next up: Preapproval!
Prequalification will have given you a basic idea of what you might qualify for. Preapproval takes this a step further.
With preapproval, you’ll need to complete an application with your chosen lender (or lenders) to see what type of financing you can actually get. The process does involve a credit check, so be prepared to see a slight ding to your credit score — in the form of a hard credit inquiry. But the good news is that you can apply for preapproval with several lenders within a 45-day window and only have it count as one hard inquiry.
When you get a preapproval letter, you should also get a loan estimate from the same lender. This document will show you things like the lender’s fees, rates, and related costs. Get a few loan estimates from different lenders to compare offers.
Preapproval isn’t absolutely required… but it can give you peace of mind knowing you’re (conditionally) qualified for a mortgage loan. Plus, showing a seller your preapproval letter could put you at the top of their list of buyers to consider.
Keep in mind that your preapproval letter won’t last forever. Most of the time, it’s only valid for between 30 and 90 days — depending on the lender. If the homebuying process takes longer than that, you’ll typically need to reapply.
13. Gather Your Documents
Next up, it’s time to get your mortgage application documents in order. These may include:
Pay stubs or W-2 forms (if traditionally employed)
Federal income tax returns for the past 2+ years
3-6 months’ worth of past bank statements
Profit/loss statements from your business
Your business’s balance sheet (if applicable)
Proof of additional income sources (e.g., rental income, investment dividends, alimony, etc.)
Personal credit score (it doesn’t hurt to know your business credit score, too)
Valid or current contracts with clients
Proof of business insurance
Any business licenses you may have
List of any assets and liabilities (e.g., debts) you have
Government-issued ID (like a passport, state ID, driver’s license, or birth certificate)
Social Security number
If you have any other documents that you feel will help your application, get those together, too. And if you want to be extra prepared, make copies of everything — that way, you have them just in case.
14. Get a Real Estate Agent
A real estate agent isn’t required get a home, but it doesn’t hurt to have one — especially if this is your first time buying real estate. You can find local agents by running a quick online search. Or you can ask around to see if someone you know has used a particular one that they’d recommend.
However you go about it, make sure they’re licensed and familiar with the area you’re interested in buying. To really make sure you find the right one, speak with a few agents and vet them before settling on one.
Avoid using the same real estate agent as the person selling the home. You’ll want somebody who’s objective and 100% on your side. If you go with the seller’s agent, you might run the risk of them being a little more subjective — and a little less willing to go the extra mile for you.
15. Look For Homes
Now for the exciting part: It’s time to really start shopping around for homes.
This means driving around different neighborhoods, checking out listings online (with and without your realtor’s help), schedule walk-throughs, and ask a bunch of questions. Be sure to bring your list of wants, needs, and nice-to-haves so you don’t forget anything!
Oh, and you might want to take some photos — or at the very least, some notes — as you go. These notes should include all the things you like about the home… and the things you don’t (or potential issues). That way, you’ll be able to more easily compare different homes and choose the best one for you.
16. Make an Offer (and Negotiate)
Once you find your dream home, it’s time to make an offer. You can do this on your own, but if you have a real estate agent, you can also have them act as the intermediary between you and the seller. Depending on where you live, you might also need a real estate attorney to help wit the offer and official real estate contract.
If the seller declines your offer, you can either negotiate with a new one… or walk away and try again with a different home. It really depends on why they said no and how much you want this specific property.
And if they accept? Then, you’re nearly there — all that’s really left at that point is to apply for a mortgage and complete the last few steps.
One way to improve your chances of getting the “YES!” is to put forward earnest money. This is money that shows the seller you’re serious about purchasing their home. If accepted, the earnest money will usually be put toward your down payment. If the transaction fails (through no fault of your own), you should get the money back.
17. Get a Home Inspection
You’re going to want to get a home inspection done unless you’re totally confident that the property you’re purchasing has no issues whatsoever. The thing is, though, that’s a bit hard to guarantee — especially if you haven’t had an impartial third-party come in and check it out.
Get a licensed home inspector who’s objective and will tell you what you need to know — not what you want to hear. Even if they perform a basic inspection, they should be able to uncover issues like:
Structural issues (e.g., roof, wall, or foundation defects)
Mold
Other hazardous materials
Infestations
Mechanical, plumbing, or electrical system issues
Getting a more thorough home inspection done before buying a home could save you tens of thousands of dollars later. And depending on the mortgage contract, you might be able to back out of the transaction if the inspection comes back with some serious problems that you don’t want to deal with.
All in all, a home inspection can save you time, headache, and a lot of money down the road.
18. Apply for the Mortgage
Next, it’s time to formally apply for financing. You should already have all of your paperwork in order, so all you’ll really need to do is set aside some time to sit down and fill out the application. Most lenders should have a loan officer to help you with the process.
Once you’ve applied, you’ll need to wait for the underwriting process. This is essentially when the lender goes over everything and decides whether or not to offer you a loan. The lender might also request additional information from you at this point, so keep an eye out for any emails or phone calls from them.
Some lenders will also require you to get homeowners insurance before finalizing the loan. Check with your lender about their requirements on this, and when they’d advise you to get a policy.
19. Get an Appraisal and a Title Search
You’ll probably need to get an appraisal done before a lender will officially approve your loan application. The appraisal will determine the market value of the home. If the property is worth less than the seller is selling it for, the lender might not approve your loan.
Getting rejected for financing might initially sucky, but it could also be a good thing. After all, you don’t want to end up with debt that costs you far more than the property is worth.
Along with an appraisal, you’ll need to get a title search done for the lender. In North Carolina, this usually costs around $100 or less. It’s often tacked on to any closing fees.
20. Review the Contract (And Negotiate)
You’ve already done some negotiating on things like the home purchase price and property taxes, but you’ve got one more chance to do it before finalizing the sale. If, for example, something came up in the inspection that needs to be addressed, you could try negotiating that with the seller.
How much you’re able to negotiate depends on the real estate contract and the current market. In a seller’s market, you might have less leeway. In a buyer’s market, you might have more.
21. Set Up Escrow
With certain loans, like FHA loans, you might be required to set up an escrow account. This account can keep your earnest money, if you have it.
Perhaps more importantly, it can also keep your property taxes and homeowners insurance payments. These payments come out of your monthly mortgage payment.
At the end of the year, or whenever your taxes or insurance come due, your loan service provider will use the money in your escrow account to pay the bill. This can help ensure you don’t fall behind on these important payments. It can also give you peace of mind knowing you don’t have an additional bill to worry about.
22. Closing Time!
And finally, it’s time to close on your new home!
Before your scheduled closing date, your lender will give you a closing disclosure. Review it and cross-reference it with your loan estimate to make sure everything matches up. Pay close attention to closing costs since you’ll typically need to pay for those upfront.
If you can, do one last walk-through of your new home before you close. This can give you a chance to see if everything’s accounted for, or if anything is amiss. Try to be as objective as possible so that you don’t miss anything important. You can even bring your realtor along as a second set of eyes.
Everything looks good? Perfect!
Then, it’s time to sit down, look over and sign any final documents, pay the down payment and closing fees, and get the keys! Of course, this can still take a decent chunk out of your day, so prepare for that. You can — and should — always celebrate after!
Is the Homebuying Process Different for First-time Buyers?
Whether you’re a first-time or a repeat buyer, the process of getting a home is mostly the same. Mostly but not entirely. Here are some of the main differences:
Repeat buyers tend to have a higher down payment. The average person who’s owned a home before has a 17% down payment. The average first-time buyer only has a 6%-7% down payment. This could be due to a number of reasons, such as repeat buyers having sold their previous home and used some of the proceeds for their next purchase.
The process can be more confusing for first-time buyers. Perhaps unsurprisingly, first-time homebuyers might get tripped up on some aspects of the homebuying process. Repeat buyers who’ve experienced it at least once already probably have a better idea of what to expect. They might also make fewer mistakes as they go along.
First-time buyers might not have a preferred lender or realtor. If you’ve never bought real estate before, you probably don’t have a lender, real estate agent, or attorney you prefer to work with. A repeat buyer might have a team they prefer.
Repeat buyers might be seen as “lower risk.” It’s possible that lenders will view repeat buyers as a lower risk — provided they’ve got good credit and built solid rapport. This doesn’t mean new buyers are automatically seen as “high-risk” borrowers, though.
Typical Homebuying Process Checklist and Timeline
At this point, you already have a good idea of what to expect when buying a home, so let’s keep this simple. Here’s the typical homebuying process checklist and an estimated timeline (based on our experience so far):
Check your credit score — a few minutes
Improve your credit — 30-60 days (if correcting errors) or a few months/years (if building credit)
Save for a down payment — several months or years
Evaluate your wants and needs — 7 to 10 days (so that you’re really sure)
Determine your homebuying budget — a few hours or days
Review your finances and work's stability — a few hours or days
Determine the mortgage type you want — 1 to 2 days
Shop around for lenders — 1 to 2 days
Get a preapproval letter — 7 to 10 days
Gather your mortgage documents — 7 to 10 days (less if you already have good records)
Find a realtor — 7 to 14 days (to give you time to compare)
Shop for homes — 3 to 12 months
Make your offer — varies
Get a home inspection, appraisal, and apply — 30 to 60 days
Finalize any other steps — varies
Close on the home — 7 to 10 days
Expect the homebuying process to take anywhere from 6 to 18 months. If you already have good credit and a decent down payment saved up, you could shorten the process significantly.
What are the Requirements to Buy a House?
Whew, okay! So, you’ve got the process of buying a house down pat (or you’re getting there anyway). The next step is to review the typical eligibility requirements and make sure you meet — or ideally exceed — them.
Keeping in mind that every lender and home loan works a little differently, these are the general homebuying requirements.
Income Requirements
The income requirements for buying a house vary across home loan programs. With USDA loans, for example, you might be able to get a home loan if you have “low” or “moderate” income.
Here’s an example:
A 2-person household (with no minors) earning $120,000 a year could qualify for a USDA loan in Wake County, North Carolina. The maximum income for the Section 502 Guaranteed Rural Housing Loan Program is $130,300.
FHA loans don’t have a specific minimum or maximum income limit. However, these loans are also geared toward borrowers who might not qualify for other mortgage types.
On a personal note, you’ll want to earn enough to be able to cover your mortgage payment and any associated costs. When in doubt, follow the “2.5 times your income” rule.
Debt-to-income (DTI) Requirements
Your DTI can’t exceed a certain threshold if you want to qualify for financing. With most lenders, your maximum DTI ratio is 43%. The lower your DTI is, the greater your approval odds.
Knowing your income is a good starting point in determining your DTI. If your income is too low, or your debts are too high, you may need to work on improving your situation before applying for a home loan.
Credit Score Requirements
Your mortgage lender is going to check your credit score when you apply for a loan. So, you’ll want to have a rough idea of what yours is beforehand. You should also know what shows up on your credit reports as this can give you a clearer idea of any areas you need to work on (if any).
Credit score requirements vary by home loan type. As an example, here are the minimum credit score requirements for the following loans:
500 FICO credit score for an FHA loan (with 10% down)
580 FICO credit score for an FHA loan (with 3.5% down)
620 or 640 FICO credit score for a conventional loan
Around 700+ FICO credit score for a jumbo loan
Review your credit score carefully. Check for any errors on your reports. If you find any, dispute them with the reporting bureau.
And if your credit score is already stellar? Then, that’s excellent news — you’re good to go on this front!
Down Payment Requirements
With some loans, like USDA and VA loans, you might not need a down payment at all. With others, like FHA, jumbo, or conventional loans, you’ll probably need to save up a percentage of the home cost before applying.
Generally, the more money you have for the down payment, the higher your approval odds for the home loan. And if you put down at least 20% on a conventional loan, you can skip the PMI (which adds to your total costs).
Other/Specific Requirements
You’ll need to have some money set aside for closing costs as well — up to 5% or so, though you’ll typically have to pay a lot less than this. You’ll also need to have proof of income or employment. If you’re self-employed, make sure you have all of your ducks in a row and your books organized.
What Should You Do After Closing On Your New Home?
You’ve come so far, so take a moment to congratulate yourself. You’ve done that? Good — then let’s go over what you should do after you’ve closed on your new home!
Here’s a bit of an after closing homebuying checklist for you:
Deep clean your new home. Even if it’s a new construction, you’ll still want to clean each room before bringing in all of your stuff.
Do minor maintenance. Maybe you need to repaint a certain wall or room. Or maybe you need to update the trim. Whatever the case, doing this before moving in is probably your best bet (unless you’re in a hurry to move in, of course).
Change the locks. Especially if someone else lived in the home previously, it’s a good idea to change every lock. This is also a good time to update the locks or home security system.
Service your HVAC units. Unless they’re brand new, you should probably service and clean your heating and air conditioning systems. You might also need to replace the filters. While you’re at it, check the water heater, too — and don’t be afraid to adjust the settings if needed.
Test the smoke detectors. Make sure your smoke detectors and CO detectors are functioning properly. Better to be safe than sorry!
Take care of any other known issues. Depending on what your inspection report said, you might want to take care of these issues early on. That way, you’ll be able to settle in without them hanging over your head.
Secure your closing documents. Your closing documents — like your home epurchase agreement, home inspection report, and title insurance policy — should be kept safe and sound… somewhere you don’t need to see them but can always reach if needed.
Update your address. If you haven’t done it already, now’s the time to update your shipping and mailing address. Inform the DMV, the post office, your credit card companies, your friends, and so on. Change your driver’s license and car’s registration address, too. If you forget someone or something, don’t worry — you can always update your address with them later.
Get homeowners insurance. If you don’t have a policy yet, you should definitely get insurance right away. And if you do have a policy, but want to add onto it, now’s a good time to do so.
Set up utilities. You’ll also need to set up water, gas, electricity, internet, and so on at your new home. The sooner you do this, the sooner you can enjoy all your new home has to offer.
Your Guide to the Homebuying Process: You Did it!
Okay, so at this point, much of this might still be theoretical. But with any luck, you’ve got a clearer idea of how to buy a house and what to expect throughout the process. You might even be well on your way to the actual purchase — depending on things like your credit score, income, DTI, and down payment.
If you’re interested in following along with us as we continue on with our homebuying journey, sign up for our weekly newsletter! Or if you just want something cute, fun, and a little bit educational (at times), check out our comics. They’re pixellated :).
For now and for the future, here’s to you and your journey — may it go fantastically (and smoothly)!