The nine steps at a glance
| Step | What you do | Calculator |
|---|---|---|
| 1. Budget | Decide what payment you can live with | Home affordability |
| 2. Credit and DTI | Check credit reports and your debt-to-income ratio | Debt-to-income |
| 3. Savings | Down payment, closing costs and a cushion | Down payment |
| 4. Preapproval | Get a lender's letter based on verified information | Mortgage |
| 5. Agent | Choose an agent and sign a written buyer agreement | Commission |
| 6. House hunting | Tour homes within your budget | Rent vs buy |
| 7. Offer | Price, contingencies and earnest money | Closing costs |
| 8. Inspection and appraisal | Check condition and value | PMI |
| 9. Underwriting and closing | Final approval, Closing Disclosure, signing | Amortization |
Step 1: Set your budget
Start with the monthly payment you're comfortable with, not the biggest loan a lender will offer. Your housing payment is more than principal and interest. Homeowners insurance, property taxes and private mortgage insurance are typically added to the monthly mortgage payment, and HOA dues, utilities and maintenance come on top.
Use the home affordability calculator to turn income and debts into a price range, and the mortgage calculator to see the full monthly payment for a specific price. If you're unsure whether buying makes sense yet, compare with renting using the rent vs buy calculator.
Step 2: Check your credit and debt-to-income ratio
Your credit score affects which loans you qualify for and your rate: higher scores reflect a better repayment history and make you eligible for lower interest rates. Get your credit reports, check them for mistakes and dispute any errors well before you apply.
Lenders also look at your debt-to-income ratio (DTI): all your monthly debt payments, including the new mortgage, divided by your gross monthly income. Limits depend on the loan. For example, Fannie Mae allows up to 50% through its automated underwriting system, and FHA's manual-underwriting standard is 31% for housing and 43% in total without compensating factors. Paying off a small loan or card balance before applying can lower your DTI quickly. Check yours with the debt-to-income calculator, and read DTI limits by loan type.
Step 3: Save for the down payment and closing costs
How much money do you need to buy a house? Three pieces:
- Down payment. With 20% down you typically avoid mortgage insurance on a conventional loan. Some lenders offer conventional loans with 3% down; FHA allows 3.5%; and zero-down programs exist for veterans, servicemembers and rural borrowers.
- Closing costs. The CFPB has suggested planning for 2% to 5% of the home price.
- Reserves. The CFPB recommends keeping emergency savings, suggesting at least three months of living expenses, rather than putting every dollar into the down payment.
| Home price | 3% down | 3.5% down | 10% down | 20% down | Closing costs at 2% to 5% |
|---|---|---|---|---|---|
| $250,000 | $7,500 | $8,750 | $25,000 | $50,000 | $5,000 to $12,500 |
| $350,000 | $10,500 | $12,250 | $35,000 | $70,000 | $7,000 to $17,500 |
| $450,000 | $13,500 | $15,750 | $45,000 | $90,000 | $9,000 to $22,500 |
Example: a $350,000 home with 10% down needs about $35,000 + $7,000 to $17,500 of closing costs, so roughly $42,000 to $52,500, plus reserves. With less than 20% down on a conventional loan, price the mortgage insurance with the PMI calculator; you can ask to cancel it when your balance is scheduled to reach 80% of the original value, and it ends automatically at 78% if you're current. Plan savings with the down payment calculator and the closing cost calculator.
Step 4: Explore loans and get preapproved
Learn the main loan types first: conventional, FHA, VA and USDA, fixed or adjustable, 15 or 30 years (see types of mortgage loans and 15-year vs 30-year). Then talk to more than one lender.
A preapproval letter says a lender is generally willing to lend to you up to a certain amount, based on certain assumptions. Lenders use the terms "prequalification" and "preapproval" inconsistently; what matters is whether the lender verified your information. It isn't a guaranteed loan offer, but it shows sellers you're likely to get financing. A preapproval amount is a ceiling, not a target.
Step 5: Choose a real estate agent
Interview a few agents, check their license with your state's real estate agency, and ask about their experience in your price range and area. Since August 17, 2024, agents who use an MLS must sign a written agreement with you before you tour a home, including virtual tours. The agreement must state the agent's compensation in specific terms and say that commissions are fully negotiable and not set by law. Read it before you sign. See how to choose a real estate agent.
Step 6: Go house hunting
- List your must-haves and nice-to-haves before you start touring.
- Look at commute, schools, flood risk and the property tax bill, not just the house.
- Recheck the monthly payment for each serious candidate, including that home's taxes, insurance and any HOA dues.
- For a condo or HOA home, read the rules and ask about upcoming special assessments.
Step 7: Make an offer and pay earnest money
Your agent helps you decide on a price based on recent comparable sales. The offer also sets:
- Contingencies that let you cancel and get your deposit back, typically for inspection, appraisal and financing, each with a deadline.
- Earnest money, a good-faith deposit held in escrow. NAR says deposits typically range from 1% to 10% of the price. It's usually applied toward your down payment and closing costs at closing, and you can lose it if you back out outside your contingencies.
- Seller credits, if you're asking the seller to help with closing costs. Loan programs cap these; see who pays closing costs.
- The closing date.
Read more in earnest money explained.
Step 8: Get an inspection and an appraisal
The inspection is for you. A home inspector checks the roof, structure, systems and safety, and you decide whether to ask for repairs or credits, renegotiate, or cancel within the inspection contingency period.
The appraisal is for the lender. An independent appraiser estimates the home's value using comparable sales. If it comes in below the price, you can renegotiate, pay the difference in cash, use the appraisal contingency to cancel, or ask the lender for a reconsideration of value. You're entitled to a copy no later than three days before closing. See what a home appraisal is.
Step 9: Underwriting and closing
- Choose your loan offer. Within three business days of your application, each lender must give you a Loan Estimate. Compare them line by line: rate, points, APR and closing costs. See what APR includes and mortgage points.
- Lock your rate when you're ready, and note when the lock expires.
- Underwriting. The lender verifies your income, assets, debts and the property. Answer document requests quickly, and avoid new credit, big purchases or job changes until closing.
- Closing Disclosure. By law you must receive it at least three business days before closing. Compare it with your Loan Estimate and ask about any differences.
- Final walk-through to confirm the home's condition and any agreed repairs.
- Closing. You sign the loan documents, pay your remaining down payment and closing costs, and get the keys.
Beware of wire fraud. The CFPB warns that scammers target homebuyers days before closing. Before you wire money, call your closing agent at a number you already know is real, never one from an email.
After closing, see how each payment splits between principal and interest with the amortization calculator. If you're struggling at any point, a HUD-approved housing counselor can help.
Sources: CFPB: Buying a House; CFPB: what is a mortgage?; CFPB: how much to spend on a down payment; CFPB: preapproval letters; CFPB: Loan Estimate; CFPB: Closing Disclosure; CFPB: removing PMI; CFPB: appraisals; HUD Mortgagee Letter 2014-02; Fannie Mae B3-6-02; NAR: settlement facts; NAR: escrow and earnest money.
Every worked example on this page was checked with Calcist's own engine and an independent reference.