How to Buy a House in 9 Steps

1. Determine if Buying a House Makes Sense Right Now

Buying a house typically requires a large upfront investment in the form of a down payment and closing costs. The stronger your financial health, the more likely you'll be to get approved for a mortgage. Asking yourself the following questions can help clarify if you're indeed ready to buy a home:

• Do you have a solid emergency fund? Most financial experts recommend having three to six months' worth of expenses on hand. These cash reserves can provide a safety net in the face of job loss or other surprise expenses. It's a good idea to shore up your emergency fund, as buying a house may trigger pop-up expenses like home inspections and other unexpected costs.
• Do you have the funds to buy a home? This includes an adequate down payment, as well as funds to cover closing costs and moving expenses. If your budget is already stretched thin, you might want to wait to buy a house.
• Is your credit in order? Buying a house with bad credit is certainly possible, but you may have a harder time getting approved for a mortgage. Some lenders may charge you a higher interest rate or require you to bring on a cosigner. (We'll take a deeper dive into credit requirements shortly.)

2. Calculate How Much Home You Can Afford

It isn't an exact science, but one rule of thumb is to keep your housing expenses at or below 28% of your gross monthly income. Housing expenses can include:

• The mortgage payment, which covers loan principal as well as interest
• Property taxes
• Homeowners insurance
• Mortgage insurance
• Homeowners association fees
• Home maintenance costs like lawn care, pool care and the like

Your loan amount, term length and interest rate will all affect your monthly mortgage payment. A 30-year mortgage will have a lower payment than a 15-year mortgage because the loan balance is spread out over a longer period of time. Just keep in mind that a longer term means you'll pay more in interest over the life of the loan.

As for mortgage rates, the average rate for a 30-year fixed-rate mortgage is 6.6% at the time of this writing. Homebuyers can estimate their monthly mortgage payment with this free mortgage calculator.

3. Save Your Down Payment

Your down payment is how much you pay upfront for your home. You then finance the rest with a mortgage. Putting down 20% is often touted as the gold standard, but it's in no way a requirement for buying a house. A large down payment provides homebuyers with a good chunk of equity and allows them to avoid mortgage insurance, which is typically required for those who have less than 20% in home equity. A larger down payment also works out to a smaller home loan—and lower monthly payment.

But saving up a 20% down payment presents a huge barrier to many homebuyers. At the time of this writing, Zillow puts the average U.S. home value at $327,514. A 20% down payment would be over $65,500. According to the National Association of Realtors, the median down payment in 2021 was 13%. The type of mortgage you have can affect your down payment requirement, but you can be approved with a down payment of 3% to 5% of the home's sale price.

4. Don't Forget About Closing Costs

Closing costs represent the money you'll owe when finalizing your home sale. That can include things like:

• Loan fees
• Taxes
• Appraisal fees
• Title search fees
• Title insurance premiums
• Money to fund an escrow account
• Real estate attorney's fees

Closing costs generally range from 2% to 5% of the home's purchase price and are usually paid upfront. Some closing costs are negotiable.

5. Prepare Your Credit

You'll likely need a minimum credit score of 500 to 700 to get approved for a mortgage, though it varies by loan type and lender.

The following steps can help you get your credit ready for a mortgage application:

• Check your credit reports and scores. You can do this for free with Experian. Pay extra attention to charge-offs, past-due accounts and accounts in collections as these could affect your ability to get a mortgage.
• Pay your bills on time. Your payment history carries the most weight when it comes to your FICO^® Score^☉ —and a single late payment can stay on your credit report for seven years.
• Pay down debt. Mortgage lenders will evaluate your debt-to-income ratio (DTI), which shows how much of your income is going toward debt payments. The more debt you eliminate, the better this number will be. The maximum DTI for a mortgage loan typically ranges from 36% to 43%, depending on the loan type.
• Stop applying for credit. New credit applications will likely trigger a hard inquiry, which can temporarily decrease your credit score. If possible, wait to apply for other types of credit until after you are approved for a mortgage.
• Limit big purchases. High credit balances can also impact your credit score as well as your DTI. It's wise to hold off on buying big-ticket items until after you buy a home.

6. Get Preapproved for a Mortgage

The mortgage preapproval process is the same as applying for a mortgage. The lender will review the following information, then issue a preapproval letter that summarizes your expected loan amount, term and interest rate:

• Personal information
• Credit history and credit score
• Income
• Employment history
• Debts
• Tax returns

A preapproval letter, which clarifies how much home you can afford, is typically good for 90 days. With that letter in hand, you can go to open houses and make an offer if you find something you like. You'll then need to undergo the formal mortgage application process.

7. Find an Experienced Real Estate Agent

Finding a real estate agent is one of the most important steps to buying a house. You want someone who's experienced and understands your local market. The right real estate agent can:

• Search for properties that meet your specifications
• Schedule home tours
• Put in an offer and negotiate on your behalf
• Handle the paperwork for your home sale
• Ensure that you have access to necessary seller disclosures

Real estate agent fees, which are paid by the seller, are usually around 5% or 6% of the home price.

8. Arrange a Home Inspection

After finding a home and making an offer, the next step is arranging a home inspection. A home inspection, which typically costs a few hundred dollars, looks for any potential problems that may affect the home sale or present issues you'd rather not deal with. The inspector will go through all of the home's major components. That includes:

• Heating and cooling systems
• Plumbing systems
• Electrical systems
• Roofing
• Foundation
• Attic and basement
• Ceilings and floors
• Doors and windows

The inspection report may prompt you to negotiate with the seller to make repairs or lower the sale price.

9. Manage Your New Mortgage

After closing on your home and moving into your new space, you'll need to make all your loan payments on time to avoid foreclosure. This is when the lender repossesses the property and the owner is evicted. You'll also want to keep up on your homeowners insurance premiums and property taxes. Most mortgage lenders roll these expenses into your monthly mortgage payment and hold them in an escrow account. When these bills come due, they'll pay them on your behalf.

You can also look for ways to save money on your mortgage later down the road. That might include:

• Refinancing your mortgage
• Making an extra payment every year
• Ending your private mortgage insurance early

The Bottom Line

Buying a house is a big financial decision, and it's often associated with the American Dream. Getting there can be stressful, but knowing what to expect can help you prepare for what's ahead. Your credit history plays a critical role in getting approved for a mortgage. Free credit monitoring with Experian notifies you whenever there's a change on your credit report. That can help you identify fraud more quickly so you can protect your credit.