How to Buy a House

Six Steps for Buying Your Next Home

Buying a new house is exciting, but it can also feel a little overwhelming. Our guide to buying a house breaks down the most important steps to help make the process easier and more manageable.

From deciding how much home you can afford to making an offer to the final walk-through, we'll explain these steps and everything in between so you'll know exactly what to expect throughout your homeownership journey.

Step 1: Decide How Much House You Can Afford

Estimating home prices that you can afford is a great place to start when you’re buying a house. Whether you're figuring out how to buy a house for the first time or the fourth, there are a few factors that determine home affordability.

Here are some of the things to consider when you're exploring how to buy a home you can afford:

• Income, expenses, and credit: Lenders want to see that your debt-to-income ratio isn't too high to afford the mortgage payments. While it varies by lender, your total monthly debt payments, including your new prospective mortgage, usually can't go above 43% of your income. Lenders also check your credit score to make sure you have been a responsible borrower.
• Down payment: Most lenders require you to make a down payment for a house so you have some equity in the property. Specific requirements vary by lender, type of loan, and whether the property is a primary residence or investment property, but the down payment usually ranges from 3% to 20%. Some loans even allow for no money down.
• Closing costs: Closing costs are the transaction fees associated with buying a home. They are usually between 2% and 5% of the value of a home according to Fannie Mae.
• Escrow account: Some lenders require you to pay into an escrow account to cover property taxes and insurance. You may have to make several months of payments up front, or even a whole year of payments up front.
• Cash reserves: You may be required to show you have enough money in savings to make several months of mortgage payments if you don’t have a clear or consistent source of income. Cash reserve requirements vary by lender.

When you are deciding how much money you need to buy a house, you need to make sure you have enough cash to cover your closing costs, down payment, escrow account, and lender's cash reserve requirements. You also need to make sure your income is high enough to meet the debt-to-income requirements.

Step 2: Get Prequalified or Preapproved

Most people need a mortgage to buy a house. Typically getting prequalified or preapproved for a home loan is an important and exciting step in your homeownership journey.

There are different types of mortgages you can use to buy your house, including:

• Government-guaranteed loans: These loans tend to be easier to get approved for and offer affordable interest rates but often have higher fees. Some examples are Federal Housing Administration (FHA) loans, Department of Veterans Affairs (VA) loans, and United States Department of Agriculture (USDA) loans.
• Conventional loans. These are not guaranteed by the government. You'll need better financial credentials to qualify, but you may have more choice of lenders and fewer fees to pay.

You can get quotes for different kinds of mortgages to see which one makes sense for you. Comparing rates from different lenders and on different loans can help you see how much your mortgage will cost so you can pick the right loan.

When you find a lender offering favorable terms, you'll then go through the prequalification or preapproval process.

Prequalifying means you provide some basic financial information and find out how much you can borrow. Preapproval is a more in-depth process that requires you to submit in-depth financial information to get a personalized rate and get closer to final approval.

Both prequalification and pre-approval help you avoid wasting time looking at homes that are out of your price range. Get prequalified with Freedom Mortgage today so you can start shopping for your perfect home with a clear idea of costs in mind.

Step 3: Start Shopping for Homes

Price is one factor that determines the home you'll buy, but you'll also want to narrow down what other features are important to you.

For example, are you willing to accept a smaller home to have a more convenient location? Do you want a fixer-upper for a lower price? There are always tradeoffs during the process of buying a house, so think about what features are most important to you. You should also:

• Search online to get an idea of what’s available: Most people start their search online as there are many websites available. One example is the Multiple Listing Service (MLS), the largest database of homes for sale.
• Choose where you want to live: The community where you buy your next house will have a big impact on how satisfied you are with your home purchase. You probably want a safe neighborhood with a reasonable commute to work and other necessities to maximize your chance of being happy in your home.
• Decide what you want. Make a list of features you’re hoping for in your home, including size, square footage, number of bedrooms and bathrooms, yard size, age, condition, amenities, and more.
• Go to open houses. Attending open houses is a great way to shop for your dream home. You can see properties first-hand and get to know different neighborhoods.
• Work with a buyer’s agent. Real estate agents can help you find houses, arrange showings, make offers, negotiate prices, and more. Freedom Mortgage partners can also put you in touch with a local real estate agent who can help with your home search. Learn more about this program.

According to the National Association of REALTORS®, the median house search lasted 10 weeks in 2024. This includes actively shopping for a new house, making offers, and having one of those offers accepted.

Once you've found your dream home, you're ready to move to the next step and make an offer.

Step 4: Make an Offer on Your Home

Once you’ve found a home, the next step is to make an offer. You probably have a good idea of how much you want to pay for the home, but the buying price is just one factor in your offer. Your contract will not just describe the price. Here are some of the other terms that should be in your contract:

• Contingencies: Contingencies are conditions that must be met before the sale goes through. For example, you may make your offer contingent, or conditioned, on the results of the home appraisal, home inspection, and title search. If the contingencies or conditions aren't met, you can walk away from the sale without losing your deposit.
• Prequalification and Proof of Funds letters. You should include proof that you were pre-qualified or preapproved for a mortgage that's large enough to buy the house. You'll also need to show that you have the cash to make a down payment and pay closing costs. This helps put the seller at ease because it shows you really can buy the home.
• Earnest money. Most home offers include earnest money. This is also called a good faith deposit. Putting some money down as a deposit shows that you’re serious about buying the home and will do what you can to close the sale.
• Other information. Your offer can sometimes include additional details about you and anyone who might be buying the house with you, as well as a proposed closing date.

Keep in mind that it’s common for sellers who are interested in your offer to negotiate before they accept it. A buyer’s agent can help you prepare an effective offer and can negotiate with the seller on your behalf.

Once you've made your offer, it's time to move forward with the final mortgage approval process, most likely with the lender who you were prequalified or approved with.

Step 5: Conduct an Appraisal, Inspection, and Final Walkthrough

With an accepted offer in hand, it's time to satisfy the conditions in your contract and finalize the pre-purchase details.

You'll work on completing the mortgage application process during this time, as well as making sure that there are no unexpected problems with the home you're buying.

At this phase of learning how to purchase a home, you can expect to take these key steps:

• Your future home will be appraised. Lenders require home appraisals to make sure your home is worth enough to act as collateral guaranteeing the loan. If your house doesn't appraise for what you're paying for it, you may have to bring more money to the table, negotiate a lower price, or walk away from the deal.
• The title company will perform a title search. Title shows who owns a home. Lenders require a title search to confirm that the seller is the legal owner and that there are no financial claims on the property.
• Your future home will be inspected: Professional home inspectors will do a careful review of your home to make sure there are no unexpected problems. If issues are found during home inspections, you can ask the seller to fix the problem or reduce the price, or you can walk away from the purchase if you made your offer contingent upon an inspection.
• You'll do a final walkthrough. Right before closing you'll get a chance to go through the house again. That way, you can make sure there were no major unexpected changes or deferred maintenance issues that you didn't know about.

You'll also need to shop for homeowners insurance, since your lender will probably require you to have a policy in place before closing to protect the collateral.

6. Close on Your Home

After going through all these steps, the big day arrives. You'll arrange closing, and the official transfer of ownership takes place.

Shortly before your closing day, you'll get a statement showing a final summary of all the costs and credits involved in the transaction. You'll find out exactly how much your closing costs are and how much money you need on hand for the down payment, closing costs, and money paid into escrow.

You'll need to do a wire transfer of the funds to the title company, attorney or other professional handling the closing process. Once you sign the paperwork, the money will change hands, and you'll get the keys to your new home.

Usually, your first mortgage payment will be due the following month after buying a house, so you'll also want to get ready to send in your payment to start building equity in your new dream home.

Final Thoughts on How to Buy a House

Now you know how to buy a house and you're ready to start your own journey to becoming a homeowner.

You can get a jump start by getting prequalified. Start exploring your mortgage options today through Freedom Mortgage so you can find the loan -- and the home -- that's right for you.

Buying a House FAQs

Still wondering how to buy a house? Here are the answers to a few more questions you may have.

How Long Does it Take to Buy a House?

It typically takes several months to buy a house. You need to get prequalified or preapproved for a mortgage, find a property you like, and complete certain steps before closing, such as a home inspection. The specific time this takes will depend on how selective you are in finding your home and how long it takes to get a seller to accept your offer.

What Do I Need to Buy a House?

You need good credit, a low debt-to-income ratio, and reliable income or substantial assets to get approved for a mortgage loan and buy a house. You will also need money for a down payment, closing costs, and you might have to meet your lender's requirements about having some cash on hand.

How Much Money Do I Need to Buy a House?

The amount of money you need to buy a house varies depending on many factors including home prices in your area. You'll typically need money for a down payment as well as closing costs that usually total 2% to 6% of the value of your loan.

How Do I Start the Homebuying Process?

To start the homebuying process, you should get prequalified for a mortgage with Freedom Mortgage to find out how much you can borrow. You'll likely want a real estate agent to help you through the process, and you can review your finances to set your budget and start looking at homes in your price range in your area.