How to Buy a House

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For many, buying a home is the American dream. In your 20s and 30s, you may want to stop renting and find a place to call your own. However, buying your first home is a complicated process with a steep learning curve. But if you’re ready to take the plunge and want to get started, we will share with you how to buy a house.

How to Buy A House

Are you Ready to Buy a House?

Before you decide to buy a home, you should think about whether it’s truly the best financial move. The common refrain is that renting an apartment is throwing your money. But if you buy a house, pay 5% in closing costs, live there for two years, then pay a realtor 6% closing costs when you sell, that too, is throwing money away. 

There are many things to think about when you’re starting to consider buying a house – that’s why I’ve written two posts dedicated to Renting vs. Buying Pros & Cons and Reasons to Consider Renting Instead!

Perhaps the most important consideration is to figure out if you’re willing to commit to being in one place for quite a while. While the math does vary, if you can’t commit to living in one place for at least five years, don’t buy.

Second, consider your income and employment status. If you think your job is at risk or if you are not steadily employed, you shouldn’t be buying a home. Continue to rent until you’re in a stable position to purchase a home. A mortgage is a big commitment, a lot bigger than renting an apartment. 

If you’re already sitting on a mountain of credit card debt, that should be a red flag to you that you aren’t ready to buy a home; get that under control first. Keep in mind that when applying for a mortgage, you will need to provide proof of income to prospective lenders. 

How is your credit health? Chances are, if you have poor credit, buying a home will be a complicated process, and you will end up with a costly mortgage. Work on getting your credit score in shape before embarking on the home-buying journey. 

What’s a good credit score? If you’re at 720 or above, you’re generally likely to get the best rate. At a 700 or above, however, you can be reasonably sure you’ll qualify for a decent mortgage. 

Home Buying Tips

Step 1:  Figure Out What You Can Afford

If you are ready to learn how to buy a house and are prepared to commit to the process, the first step is to determine how much home you can afford. 

There are two components in this equation:

  1. Income
  2. Down Payment + Closing Costs


Income is the first driver in figuring out how much house you can afford. Why? Because your income will dictate the monthly cash flow that you can put towards your mortgage, property taxes, etc.

A good rule of thumb is that your housing expenses shouldn’t be more than 28% of your gross monthly income. 

Let’s look at an example.

Your income is $75,000 per year or $6,250 per month. 28% of this is $1,750. Using the 28% rule, this means you should keep your housing expenses under $1,750 all in per month. Things to bake into this number include:

  • Mortgage payment
  • Property taxes
  • PMI (private mortgage insurance if putting less than 20% down)
  • HOA fees (if applicable)
  • Home insurance
  • Home repairs (we recommend budgeting 1% of the home value per year for maintenance)

Are you looking for an even more straightforward rule? Search for a home that is no more than 3 to 4 times your annual income.

If you’re looking for more guidance on what you can afford, check out this how much house can I afford calculator from SmartAsset.

Down Payment + Closing Costs

As I am sure you have heard before, you should save 20% of the purchase price before buying a home. Here’s the piece that often gets left out:  you should save 20% of the purchase price plus expected closing costs

Closing costs are all the transaction costs associated with buying a house (appraisals, title policies, inspection fees, etc.). While there are some transaction costs you can avoid (some of which we outline in our guide to refinancing), you cannot avoid most costs. And spoiler alert:  they aren’t cheap.

Closing costs typically run 2-5% of the purchase price. So, if you’re buying a $250,000 property, you can bank on paying $10,000 in closing costs. In reality, this means you need to save more like 25%. 

While the traditional advice is to save 20% (and what we recommend), it is possible to buy a home with less money down. However, below 20% down, you’ll end up paying an additional monthly fee called PMI (private mortgage insurance). PMI is insurance that protects your lender if you stop paying your mortgage. So, yes, you are paying for the lender’s insurance coverage if you put less than 20% down.

If you can’t afford to save at least 10% down, you’re not ready to buy a house.

For certain property types, there can be advantages to putting more money down. As an example, putting 25% down on a condo can help you get an even better mortgage rate.

Planning for Emergencies

Our closing thought here is that you must ensure you don’t pillage your emergency fund to buy a house. Do not tap every dollar to your name to make the down payment. If you get laid off a month after closing on your home, you’re going to have a big problem. Make sure you have a substantial emergency fund (ideally 6+ months of expenses) before purchasing your home.

Take it from me. Stuff will break in your home. I had to replace two kitchen appliances in the first few months in my place – be ready for it when it happens. 

Step 2:  Find a Real Estate Agent

Once you’ve figured out what you can reasonably afford, find yourself a trustworthy real estate agent. There is no secret formula here but check with friends to see if they have someone they like or look for reviews online.

I happened to find my real estate agent on Zillow. She had great reviews, and after discussing with her, I knew she was the right fit. Remember, you’re looking for someone who will be patient, answer your questions, and be an advocate for you throughout the process.

Keep in mind, the real estate agent you choose can often help recommend lenders, attorneys, etc. 

While I won’t go into details, the lawyer you choose to work with is an integral part of the process in getting the title policy (checking who owns the home and buying insurance), dealing with escrow (cash held until closing), etc. 

Make sure you find a lawyer you like and trust. I had one that missed a lien on the property, and I ended up having a major hassle trying to get the issue cleared up two years after closing. 

The realtor will often ask you to sign an exclusivity agreement to work with them exclusively for a specified time. 

Step 3:  Obtain Mortgage Pre-Approval

Once you have your real estate agent lined up (or before if you’re looking to move quickly), start looking for mortgages. You can do this simultaneously while looking for homes.

In a seller’s market, having your financing lined up before you find the home you like can be a significant factor in having your offer accepted. Think of it this way:  if you have two identical offers for a home, and one already has a bank committed to lending them money, which offer are you going to accept? Having pre-approval shows you are serious about the process.

You’ll also hear the terms pre-qualification and pre-approval. A pre-qualification doesn’t carry much weight, and it just tells you how much a lender would consider lending to you. A pre-approval, on the other hand, involves a lender reviewing your financial status and giving you a preliminary approval to fund your loan.

A pre-approval carries more weight with prospective sellers, so having this lined up can be beneficial. 

Just remember, even though a lender pre-approves you, you aren’t committed to using that lender. We recommend you continue to shop around for lenders while you shop for a house.

Mortgage Application

Step 4:  Find your Home & Make an Offer

As you’re looking for a house, you will start to figure out which features are important to you. Don’t feel obligated to jump on the first place you see. The more you look, the happier you’ll be in the end.

Everyone has different criteria, so my advice here is simple. You may not find everything you want in your price range, but try to find a place that checks off as many boxes on your list as possible.

Once you find a place you like, work with your real estate agent to make an offer. Figure out what a fair price is given the market (ask your real estate agent for guidance) and then make an offer. Your offer price can be impacted by how “hot” the market is, what you can afford, what other homes have sold for recently, etc. 

If you’re lucky, hopefully, the seller will accept your offer, and then you’ll move to the next phase! 

Once you’ve found the right home, the real work starts. You’ll have countless documents to read and sign, checks to write, phone calls to make, etc.

Step 5:  Arrange Financing

Once you’ve found the right house, decide which lender you want to work with on your loan. Keep in mind that different lenders not only have different rates but different closing fees and expenses. 

We recommend checking out our guide to refinancing, as it covers a lot of the mortgage basics and what to look for when shopping for a mortgage.

Apply with 4-5 lenders to find the one that gives you the best offer. In general, I have had better luck with smaller “no-name” lenders in terms of not getting ripped off on fees. You can bet that big banks will charge origination fees, while some smaller lenders do not. Check out Bankrate for lender reviews and to check prospective rates. 

When choosing a lender, you’ll have to provide heaps of documentation regarding your income, assets, work history, etc. While it is uncomfortable to give away so much personal information, it’s just part of the process.

In a nutshell, once you’re ready to commit to a lender, you will rate lock, meaning you will lock in an interest rate for a fixed period. During this period, you will have to jump through a whole bunch of hoops. Once you check all the boxes, you’ll be “cleared to close,” meaning the mortgage lender is ready to fund your mortgage (extend the loan) when you close on your house. 

Unfortunately, no two processes are identical, but the best thing to do throughout this process is to communicate with your lender to make sure you’re getting everything done that they need. You don’t want the hassle of financing delaying your purchase. 

Step 6:  Complete the Inspection & Appraisal

Simultaneously to the financing process, you’ll need an inspection and home appraisal. 


The inspection is for someone to come in and make sure everything is working at the prospective property. Keep in mind that the inspector is looking for the big items (electrical, plumbing, HVAC, etc.), and is not there to catch the cosmetic things. Be thorough in doing your inspection of the place. 

Open every drawer. Open every shade. Check every sink faucet (especially for hot water). 

Let me share a story with you. I came to the inspection and let the inspector do his job. He came up with a list of things to be fixed, all of which were addressed by the seller. 

On the day of my closing, I did my final walkthrough. Everything looked good to go. The night that I closed on my new place, I started closing the blinds. Upon closing them, I realized that many of them were damaged. They were pulled all the way open (clearly intentionally) for the final walkthrough, and I didn’t think to check them.

Long story short, it cost $2,000 to replace the blinds in my new home because I didn’t make sure they were okay during either the initial inspection or during the closing walkthrough. Learn from my mistakes. Check every nook and cranny. 

After the inspection (by both the inspector and you!), you’ll have a list of findings. You will now work with the seller on these items. The seller can either fix these problems or credit you for the repairs at the closing. While they may be willing to fix them themselves, you may prefer the credit at closing.

As an example, the place I was looking at buying needed new carpet. Rather than having the seller replace it (likely on the cheap), I chose to take the credit and choose what I wanted post-closing.


In addition to the inspection, you will need to have the home appraised. The appraisal is protection for the lender so that they don’t end up with a home that is worth less than you owe.  

99% of the time, the appraisal will come back at or above the price you’ve offered. Sometimes though, the house won’t appraise for what you agreed to in the purchase agreement. At this stage, it can cause a wrinkle with your financing, and you may end up back at the table renegotiating with the seller.

In general, though, don’t fear the appraisal. It’s just a routine step in the process of buying a house. 

Closing on House

Step 7:  Close on Your Home

Once you have your financing ready to go, home inspection completed, credits negotiated, and the home appraised, it’s time to close on your home.

In advance of the closing, you’ll get a cashier’s check for the down payment and closing costs, so you’ll have that ready to go. 

On the day of your closing, you will do a final walkthrough of the property. Make sure there are no new issues that have appeared since your initial inspection. While it’s not ideal to have to address a problem on the day of closing, this is your final chance to resolve any issues. 

After your walkthrough, you will meet with the lawyers to review and sign all the final papers (expect 100+ pages of documents). If you can get these in advance of the closing, I’d recommend doing so. That will give you a chance to read everything. 

Once all the documents are signed, the lawyer will hand you the keys. The home is now yours! You have successfully bought your house!

How to Buy a House:  A Summary

Learning how to buy a house is all part of the process for first-time homebuyers. It is often challenging, frustrating, and time-consuming. Just be patient and work through it with the team of people there to help you – your realtor and your lawyer are your biggest advocates. 

A quick recap of the steps in the process of how to buy a house:

  1. Figure Out What You Can Afford
  2. Find a Real Estate Agent
  3. Obtain Mortgage Pre-Approval
  4. Find Your Home & Make an Offer
  5. Arrange Financing
  6. Complete the Inspection & Appraisal
  7. Close on Your Home

Once you’re in your home, it’s great to be able to have a place that is truly yours. Owning a home is not without challenges either (just wait for your first major home repair), but it certainly still feels better than living in a building someone else owns.

We hope you’ve enjoyed this guide! If you’re looking to learn more about how to buy a house, check out Nolo’s Essential Guide to Buying Your First Home!

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