Buying A House In 2023: A Step-By-Step How-To
Victoria Araj18-minute read
June 24, 2023
*As of July 6, 2020, Rocket Mortgage® is no longer accepting USDA loan applications.
Are you ready to take on the challenge of buying a home in 2023? Make sure to read our how-to guide to buying a house before you jump in.
Table Of Contents
How To Buy A House In 13 Steps
Most home sales involve the following 13 steps.
Let’s take a closer look at what each of these steps involves and what you’ll do along the way.
Step 1: Decide Whether You’re Ready To Buy A Home
Buying a house is a major commitment. Before you begin the home buying process by shopping for properties and perhaps comparing mortgage options, you’ll need to make sure you’re ready to be a homeowner.
Wondering if you should buy a house? Let’s look at some of the requirements to buy a house as well as factors that lenders and homeowners alike should consider.
Income And Employment Status
Your lender won’t just want to see how much money you make. They’ll also want to see a work history (usually about 2 years) to make sure your income source is stable and reliable.
Preparing your income is all about pulling the right documentation together to show steady employment. If you’re on payroll, you’ll likely just need to provide recent pay stubs and W-2s. On the other hand, you’ll need to submit your tax returns and other documents the lender requests if you’re self-employed or receiving passive income such as investments, social security or other pensions.
Debt-to-income ratio (DTI) is another tool mortgage lenders use to evaluate your loan application. Your DTI helps your lender see how much of your monthly income goes to debt payments so they can evaluate the amount of mortgage debt you can take on.
Calculating Your DTI
DTI is calculated by dividing your monthly debt by your gross monthly income. For example, if your monthly debts (credit card minimum payments, loan payments, etc.) total $2,000 per month and your gross monthly income is $6,000, your DTI is $2,000/$6,000, or 33%. Your lender will use the debts shown on your credit report to calculate your DTI.
Depending on the type of loan you’re applying for, your lender may also calculate your housing expense ratio, also sometimes referred to as front-end DTI. This is a ratio that looks at your total monthly house payment (principal, interest, taxes and insurance) compared to your monthly income. For example, if you have a $1,200 house payment and the same $6,000 monthly income, your housing expense ratio is $1,200/$6,000, or 20%.
It’s smart to review your DTI before applying for a loan. You’ll need a back-end DTI of 50% or less to qualify for most mortgage options, although this number varies based on lender, loan type and other factors.
Even with the help of a mortgage loan, you’ll need liquid assets to fund the purchase of a home. Next are a few examples of these liquid assets.
Buying a home with no money down is possible, but most homeowners need to have some cash on hand for a down payment – the first major payment you make on your loan at closing.
The amount of money you’ll need for a down payment depends on your loan type and how much money you borrow. If a down payment is required, you can buy a home with as little as 3% down (although putting down more has benefits).
You’ll also need to pay for closing costs before moving into your new home. Closing costs are fees that go to your lender and other third parties in exchange for creating your loan.
The specific amount you’ll pay in closing costs will depend on where you live and your loan type. It’s a good idea to be prepared to pay 3% – 6% of your loan amount in closing costs. In some situations, part or all of the closing costs can be rolled into your mortgage or paid by the seller as part of agreed-upon seller concessions.
Your credit score plays a significant role in what loans and interest rates you qualify for. Your credit score gives lenders insight into your history of paying your debts on time, so it is an important number for them.
Taking steps to improve your credit score and reduce your debt can pay off big as you prepare to apply for a mortgage. Better numbers mean better loan options with lower interest rates.
Your credit score is based on the following information:
- Your payment history
- The amount of money you owe
- The length of your credit history
- Types of credit you’ve used
- Your pursuit of new credit
What score will you need to qualify for a home loan? Most lenders require a credit score of at least 620 to qualify for the majority of loans. A score above 720 will generally get you the very best loan terms.
At Rocket Mortgage®, you can qualify for an FHA or VA loan with a 580 median FICO® Score. However, to qualify for these with a median score below 620, you’ll need a housing expense ratio of no more than 38% and an overall DTI no higher than 45%.
Willingness To Live In One Place
A mortgage can be a 30-year-long commitment. Although you don’t need to live in your home for the entirety of your mortgage term, it’s still a big decision. When you own a home, it’s more difficult to move. Unless you’re buying a second home or investment property, you’ll likely need to sell your current home first, and this can take time.
Decide whether you want to live in the same area for at least a few more years. Consider your career goals, family obligations and more. Each of these factors will play a major role in the type of home you buy and where you set up your primary residence.
Deciding whether it’s a good time to buy a house depends on a variety of personal factors (such as financial readiness and lifestyle preferences) and market conditions (such as economic health and current mortgage rates).
Ultimately, the right time to buy a home depends on your unique situation. A loan officer can help you decide if the timing is right for you.
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Step 2: Calculate How Much You Can Spend On A House
Once you decide you’re ready to buy a home, it’s time to set a budget. A good place to begin is by calculating your DTI. Look at your current debts and income and consider how much money you can reasonably afford to spend each month on a mortgage.
Homeownership comes with several costs you don’t need to worry about while renting. For example, you’ll need to pay property taxes and maintain some form of homeowners insurance. Factor these expenses into your household budget when determining how much house you can afford.
Having trouble coming up with a number? Use the Rocket Mortgage Home Affordability Calculator to get a rough idea of how large of a mortgage you can afford.
Step 3: Save For A Down Payment And Closing Costs
You can save for your home purchase in several ways, including through investments and savings accounts. If you have relatives who are willing to contribute money, you may be able to use gift money toward your down payment. (If so, be sure to provide your lender with a gift letter.)
But how much do you need to save before buying a home? Let’s look at some of the major expenses related to the purchase, and how much you might want to save for them.
Your down payment is a large, one-time payment toward the purchase of a home. Most loan programs require a down payment.
Many home buyers believe they need a 20% down payment to buy a home. This isn’t true, though. Plus, a down payment of that size isn’t realistic for many first-time home buyers.
How Much Do You Need For A Down Payment?
Fortunately, buyers who can’t afford a 20% down payment have several options. For example, you can get a conventional loan with as little as 3% down. Federal Housing Administration (FHA) loans have a minimum down payment of 3.5%. Department of Veterans Affairs (VA) loans and United States Department of Agriculture (USDA) loans even allow eligible and qualified borrowers to put 0% down. Also, many states also offer down payment assistance programs to qualified buyers, so be sure to research whether any assistance is available to make your home purchase more affordable.
A larger down payment does come with certain advantages, however. For one, it typically means you’ll have more mortgage options. It also usually means you’ll have a smaller monthly payment and a lower interest rate. Plus, if you put at least 20% down on a conventional loan, you won’t need to pay for private mortgage insurance (PMI).
You’ll also need to save money to cover closing costs – the fees you pay to get the loan. Numerous variables factor into how much you’ll pay in closing costs, but it’s best to prepare for 3% – 6% of the loan amount. This means that if you are borrowing $200,000 for your purchase, you might pay $6,000 – $12,000 in closing costs.
What Factors Affect Your Closing Costs?
The specific closing costs will depend on your loan type, your lender and where you live. Almost all homeowners will pay for items like appraisal fees and title insurance. If you take out a government-backed loan, you’ll typically need to pay an insurance premium or funding fee upfront.
Before you close on your loan, your lender will give you a document called a Closing Disclosure, which lists each of the closing costs you need to cover and how much you’ll need to pay at closing. Look over your Closing Disclosure carefully before you close to know what to expect and catch any errors.
Other Costs Based On Loan Type
The type of loan you choose might require a specialized inspection as well. For example, a pest inspection is often required before being approved for a VA loan. Most lenders will schedule this inspection on your behalf and pass the cost along to you at closing.
These expenses might seem minor when held up against the other costs associated with buying a home, but they can add up, so be sure to budget wisely.
Step 4: Decide What Type Of Mortgage Is Right For You
Before you can apply for a mortgage, you’ll need to decide on the best type of loan for you and which one you’ll qualify for.
Conventional loans are mortgages that are not backed by an agency of the federal government. Most conventional loans are also conforming loans, meaning that they conform to the limits put in place by the Federal Housing Finance Agency (FHFA) to regulate how large a loan can be and remain eligible for purchase by government-sponsored enterprises (GSEs), Fannie Mae or Freddie Mac. However, jumbo conventional loans, which exceed these limits, are also available. Conventional loans are always a popular option for home buyers, and you can get one with as little as 3% down.
Backed by the Federal Housing Administration, FHA loans are less of a risk for lenders because the government insures them if you stop making payments. As a result, FHA loans have credit score requirements that aren’t as strict as conventional loans. You can be approved for an FHA loan with a down payment as small as 3.5%.
VA loans are mortgage loans for veterans, active-duty service members, reservists or National Guard members, and surviving spouses who all meet certain eligibility requirements. The most popular benefit of VA loans for home buyers is the absence of a down payment requirement.
Rocket Mortgage offers VA loans with a minimum credit score of 580. VA loans are insured by the Department of Veterans Affairs.
Another type of government-backed loan, a USDA loan helps people in rural and suburban areas buy homes. You can get a USDA loan with 0% down, but your home must be in an acceptable rural area and you must meet income eligibility rules.
Rocket Mortgage doesn’t offer USDA loans at this time.
Step 5: Get Preapproved For A Mortgage
When you’re ready to start house hunting, it’s time to get preapproved for a mortgage. After you apply, your lender will give you a preapproval letter stating how much you’re approved for based on your credit, assets and income. You can show your preapproval letter to your real estate agent so they can help you find homes within your budget.
To get preapproved, you need to apply with your lender. The preapproval process typically involves answering some questions about your income, your assets and the home you want to buy. It will also involve a credit check.
Rocket Mortgage offers a Verified Approval1 so you can make an offer confidently because you’ll know how much home you can afford. We verify your credit, income and assets with documentation you provide, such as W-2s, pay stubs and account statements. This can help strengthen your standing in a competitive bidding war with other buyers who may not have such an approval in hand.
Step 6: Find The Right Real Estate Agent For You
Multiple people are involved when getting a mortgage and buying a house. As your representative in the home purchase transaction, your real estate agent will look out for your best interests by finding homes that meet your criteria. They’ll also get you showings, help you write offers and negotiate on your behalf.
As a buyer, you can usually work with a real estate agent for free. In most cases, the seller will pay the buyer’s real estate agent’s commission. The buyer’s agent commission is usually 3% of the purchase price.
A real estate agent represents you and helps you understand how to buy a house. Your agent will show you properties, write an offer letter for you and assist in negotiations. Real estate agents are local market experts and can also advise you on how much to offer on a property.
Can You Buy A House Without An Agent?
It’s possible to buy a house without a real estate agent. But this isn’t recommended, especially for first-time buyers. The process of buying a house can be complicated and emotional. Having an agent by your side can help you navigate the real estate market, submit a legally sound offer and avoid overpaying for your property.
How Do You Find A Real Estate Agent?
How do you find the right real estate agent? Begin by asking family members and friends for recommendations. Direct referrals are often the best way to get unbiased information on agents in your area.
Consider working with a Rocket Homes℠ Verified Partner Agent. Rocket Homes agents have proven track records of success and are at the top of their field, so you know you’ll be getting expert information.
Tested. Trusted. Top-rated.
Visit Rocket HomesSM to get a proven real estate agent that’s handpicked just for you.
Step 7: Begin House Hunting
Your real estate agent will help you hunt for houses within your budget. It’s a good idea to make a list of your top priorities, some of which might depend on the type of house you’re looking for and whether you’re in search of a starter home or a forever home.
What To Look For When House Hunting
Here are some factors to consider when shopping for a house:
- Square footage
- Home condition and possible need for repairs
- Access to public transportation
- Number of bedrooms
- Backyard/swimming pool
- Local entertainment options
- Local school district ranking
- Property value trends
- Property/real estate taxes
Rank your priorities from most to least important and show your agent this list. Your agent will then show you homes that fit your criteria. You may need to spend some time searching for the perfect home, so don’t get discouraged if your hunt takes longer than you expected.
Only you can decide which property is right for you. Make sure you see plenty of homes before deciding which one to make an offer on. As with much of the home buying process, you can go online to do a great deal of house hunting.
Once you find a property that fits your needs and budget, it’s time to make an offer.
Step 8: Make An Offer On A House
When you decide to make an offer on a home, you must submit an offer letter in writing. Your offer letter will include details about you (like your name and current address) and the price you’re willing to pay for the home. It will also include a deadline for the seller to respond to your offer.
What Is An Earnest Money Deposit?
Most offers also include an earnest money deposit, which is a small amount of money that’s typically 1% – 2% of the purchase price. Your real estate agent will be able to tell you what’s common in your market. Your earnest money deposit goes toward your down payment and closing costs if you buy the home. If you agree to the home sale and later cancel, you’ll typically lose your deposit.
Your agent will almost always write the offer letter on your behalf, but you can write it yourself if you choose. Your agent will then get in contact with the seller or the seller’s agent to submit the offer.
What Happens After You Submit An Offer?
From here, the seller can respond in one of three ways:
- Accept the offer: If the seller accepts the offer, you can move on to the next step.
- Reject the offer: If the seller rejects your offer, the ball is back in your court. You can choose to submit another offer or move on to another home.
- Give you a counteroffer: The seller can also come back with a counteroffer of their own. They may change the purchase price or the terms of the sale. You can accept the counteroffer, reject it or make another counteroffer.
Negotiations may go on for some time after you submit your offer. Let your real estate agent help you manage negotiations – and don’t be afraid to walk away if you can’t reach an agreement. Once you and the seller agree to an offer, it’s time to get ready for the appraisal and inspection.
Make an offer that will get accepted.
Get a Verified Approval from Rocket Mortgage®.
Step 9: Get A Home Inspection
Lenders usually don’t require a home inspection to get a loan, but you should still get an inspection before buying a property.
During a home inspection, an inspector will go through the home and look for specific problems. They’ll test electrical systems, make sure the roofing is safe, ensure appliances are working and more. After the inspection closes, the inspector will give you a list of problems they found in the home.
What Do You Do With Your Inspection Report?
When you receive your inspection results, review each item line by line and look for major issues. If a home has a serious health hazard (like lead paint or mold), ask the seller to correct the problem before you close. If you can’t reach an agreement, you may want to move on and consider other options. Read over your inspection results with your agent and ask whether they noticed any major red flags.
Bear in mind that you’ll be liable for any major repairs after your sale closes. A clogged toilet or a sink that won’t drain aren’t major issues. However, if your home inspection reveals an expensive problem (like cracks in the foundation or poorly installed windows), you may want to reconsider the purchase.
How Does An Inspection Contingency Work?
It’s common for home buyers to include a home inspection contingency in in their purchase offer. A contingency gives buyers the option to back out of a purchase (or negotiate repairs) without losing their earnest money deposit if the home inspection reveals major issues with the home.
Step 10: Get A Home Appraisal
A home appraisal is a review that gives the current value of the property you want to buy. You will typically need an appraisal before buying a home with a mortgage loan.
Lenders require appraisals because they can’t lend out more money than a home is worth. If the appraised value comes back lower than your offer, you might have to consider different options such as increasing your down payment or re-negotiating your offer. Talk to your real estate agent to determine if you should contest the results of an appraisal. Your agent will be sure to have additional comparable homes to consider when appealing the value from the appraisal.
How Does An Appraisal Contingency Work?
Home buyers should also include an appraisal contingency in their offer. Appraisal contingencies are often drawn up to allow buyers to back out of a purchase (or negotiate a lower price) without losing their earnest money deposit if the home appraises for less than the offer amount. As with inspection contingencies, appraisal contingencies vary, so make sure you understand the nature of your agreement.
Step 11: Ask For Repairs Or Credits
After viewing your appraisal and inspection results, you might want to ask your seller to address some of the issues that were found. You can do this in one of three ways:
- Ask for a discounted purchase price in light of the results
- Request that the seller give you credits to cover some of your closing costs.
- Ask that the seller have the problems fixed before you close.
Your real estate agent will submit your requests to the seller’s agent. If you’re buying a house that’s for sale by owner (FSBO), your agent will negotiate with the seller directly. The seller might accept your request, or they might reject it. If your seller rejects your request, it’s up to you to decide how to proceed. If you have an inspection contingency in your offer letter, you can walk away from the sale and keep your earnest money deposit.
Need cash to fund your renovation project?
Apply for a cash-out refinance with Rocket Mortgage®.
Step 12: Do A Final Walkthrough
You should do a final walkthrough of your new home before you close, even if you’re 100% committed to the property. This time allows you to check and make sure the seller has everything as it should be.
Walk through the home and make sure the seller hasn’t left any belongings. Check your repair areas if you requested them and keep an eye out for pests. You may also want to double-check your home’s systems one final time to make sure everything is in working order. If everything looks good, it’s time for you to confidently move toward closing
Step 13: Close On Your New Home
Three business days before closing, your lender is required to provide you with your Closing Disclosure, which tells you what you need to pay at closing and summarizes your loan details. Read through your Closing Disclosure and make sure the numbers don’t vary too much from your Loan Estimate, which you should’ve received no more than 3 business days after your initial application.
What To Expect At A Closing
Once you’ve reviewed your Closing Disclosure, it’s time to attend your closing meeting. Bring your ID, a copy of your Closing Disclosure and proof of funds for your closing costs.
You’ll sign a settlement statement listing all costs related to the home sale. This is when you pay your down payment and closing costs. You’ll also sign the mortgage note, which states that you promise to repay the loan. Finally, you’ll sign the mortgage or deed of trust to secure the mortgage note.
After the closing finishes, you’re officially a homeowner.
Buying A House FAQs
Now that you have a better understanding of the home buying process, let’s take a look at a few frequently asked questions about home buying.
How long does it take to buy a house from start to finish?
On average, you can expect the length of time to buy a house from the start of the process to the time you move in to take about 5 – 6 months. This process may be shorter depending on factors like how much of the process you complete ahead of time, whether you’re selling another property at the same time and whether you’re paying with cash or applying for a mortgage.
How much money should I have before buying a house?
You’ll want to have enough for closing costs and a down payment. You may also need to save enough to have cash reserves to help cover your mortgage in case of emergencies. These reserves are typically equal to at least 2 months’ worth of mortgage payments. Depending on the type of loan you’re applying for and your qualifications, your lender may require more months of payments.
The Bottom Line On Buying A House
The steps to buying a house can make for a long overall process.
First, you’ll need to be ready to be a homeowner and set a budget. Next, you’ll work with a lender to get preapproved for a mortgage. Then, you’ll start shopping for properties, ideally with a trusted real estate agent at your side. Once you find a home, your agent will help you submit an offer and negotiate with the seller.
When you reach an agreement, you’ll get an appraisal and inspection. If the inspection turns up a major issue, you may want to negotiate repairs or credits with the seller. You’ll also do one more walkthrough of the house before buying it. If everything looks acceptable, you can finally move to close and enjoy your new status as a homeowner.
Do you think you're ready to buy a house? Start the mortgage approval process online with Rocket Mortgage. You can also give us a call at (833) 326-6018.
1Participation in the Verified Approval program is based on an underwriter’s comprehensive analysis of your credit, income, employment status, assets and debt. If new information materially changes the underwriting decision resulting in a denial of your credit request, if the loan fails to close for a reason outside of Rocket Mortgage’s control, including, but not limited to satisfactory insurance, appraisal and title report/search, or if you no longer want to proceed with the loan, your participation in the program will be discontinued. If your eligibility in the program does not change and your mortgage loan does not close due to a Rocket Mortgage error, you will receive the $1,000. This offer does not apply to new purchase loans submitted to Rocket Mortgage through a mortgage broker. This offer is not valid for self-employed clients. Rocket Mortgage reserves the right to cancel this offer at any time. Acceptance of this offer constitutes the acceptance of these terms and conditions, which are subject to change at the sole discretion of Rocket Mortgage. Additional conditions or exclusions may apply.
Rocket Homes℠ is a registered trademark licensed to Rocket Homes Real Estate LLC. The Rocket Homes℠ logo is a service mark licensed to Rocket Homes Real Estate LLC. Rocket Homes Real Estate LLC fully supports the principles of the Fair Housing Act.
For Rocket Homes Real Estate LLC license numbers, visit RocketHomes.com/license-numbers.
California DRE #01804478
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