Steps to Buying a Home

Buying a house requires a lot of time and effort, but these 10 steps can help make the home buying process manageable and help you make the best decisions possible.

Step 1: Start Your Research Early

As soon as you can, start reading Web sites, newspapers, and magazines that have real estate listings. Make a note of particular homes you are interested in and see how long they stay on the market. Also, note any changes in asking prices. This will give you a sense of the housing trends in specific areas.

Step 2: Determine How Much House You Can Afford

Lenders generally recommend that people look for homes that cost no more than three to five times their annual household income if the home buyers plan to make a 20% down payment and have a moderate amount of other debt.

But you should make this determination based on your own financial situation. Use our Affordability Calculator to see how much house you can afford.

To help you save for your down payment, try Discover Bank’s AutoSavers Plan, which makes it easy to put aside money each month.

Step 3: Get Prequalified and Preapproved for credit for Your Mortgage

Before you start looking for a home, you will need to know how much you can actually spend. The best way to do that is to get prequalified for a mortgage. To get prequalified, you just need to provide some financial information to your mortgage banker, such as your income and the amount of savings and investments you have. Your lender will review this information and tell you how much we can lend you. This will tell you the price range of the homes you should be looking at. Later, you can get preapproved for credit, which involves providing your financial documents (W-2 statements, paycheck stubs, bank account statements, etc.) so your lender can verify your financial status and credit.

Step 4: Find the Right Real Estate Agent

Real estate agents are important partners when you’re buying or selling a home. Real estate agents can provide you with helpful information on homes and neighborhoods that isn’t easily accessible to the public. Their knowledge of the home buying process, negotiating skills, and familiarity with the area you want to live in can be extremely valuable. And best of all, it doesn’t cost you anything to use an agent – they’re compensated from the commission paid by the seller of the house.

Step 5: Shop for Your Home and Make an Offer

Start touring homes in your price range. It might be helpful to take notes (using this helpful checklist) on all the homes you visit. You will see a lot of houses! It can be hard to remember everything about them, so you might want to take pictures or video to help you remember each home.

Make sure to check out the little details of each house. For example:

  • Test the plumbing by running the shower to see how strong the water pressure is and how long it takes to get hot water
  • Try the electrical system by turning switches on and off
  • Open and close the windows and doors to see if they work properly

It’s also important to evaluate the neighborhood and make a note of things such as:

  • Are the other homes on the block well maintained?
  • How much traffic does the street get?
  • Is there enough street parking for your family and visitors?
  • Is it conveniently located near places of interest to you: schools, shopping centers, restaurants, parks, and public transportation?

Take as much time as you need to find the right home. Then work with your real estate agent to negotiate a fair offer based on the value of comparable homes in the same neighborhood. Once you and the seller have reached agreement on a price, the house will go into escrow, which is the period of time it takes to complete all of the remaining steps in the home buying process.

Step 6: Get a Home Inspection

Typically, purchase offers are contingent on a home inspection of the property to check for signs of structural damage or things that may need fixing. Your real estate agent usually will help you arrange to have this inspection conducted within a few days of your offer being accepted by the seller. This contingency protects you by giving you a chance to renegotiate your offer or withdraw it without penalty if the inspection reveals significant material damage.

Both you and the seller will receive a report on the home inspector’s findings. You can then decide if you want to ask the seller to fix anything on the property before closing the sale. Before the sale closes, you will have a walk-through of the house, which gives you the chance to confirm that any agreed-upon repairs have been made.

Step 7: Work with a Mortgage Banker to Select Your Loan

Lenders have a wide range of competitively priced loan programs and a reputation for exceptional customer service. You will have many questions when you are purchasing a home, and having one of our experienced, responsive mortgage bankers assist you can make the process much easier.

Every home buyer has their own priorities when choosing a mortgage. Some are interested in keeping their monthly payments as low as possible. Others are interested in making sure that their monthly payments never increase. And still others pick a loan based on the knowledge they will be moving again in just a few years.

Step 8: Have the Home Appraised

Lenders will arrange for an appraiser to provide an independent estimate of the value of the house you are buying. The appraiser is a member of a third party company and is not directly associated with the lender. The appraisal will let all the parties involved know that you are paying a fair price for the home.

Step 9: Coordinate the Paperwork

As you can imagine, there is a lot of paperwork involved in buying a house. Your lender will arrange for a title company to handle all of the paperwork and make sure that the seller is the rightful owner of the house you are buying.

Step 10: Close the Sale

At closing, you will sign all of the paperwork required to complete the purchase, including your loan documents. It typically takes a couple of days for your loan to be funded after the paperwork is returned to the lender. Once the check is delivered to the seller, you are ready to move into your new home!

The Pros and Cons of Hiring a Real Estate Agent

Once you have decided to sell your home, you then have to consider how you want to go about selling it. Especially if you have never sold property before, you may be a bit confused about what to do next. Is selling your home as simple as calling a local Realtor and letting him or her take it from there? How do you find the right real estate agent? Do you even need to hire an agent?

The answer to these and most other questions regarding the sale of your home is “it depends.” It depends on how quickly you want to sell your home, how much time you have to devote to the sale of your home, how much you want to sell your home for (not to mention, how much of that sale price you are willing to pay to your agent as commission), and many other factors.

It is worth noting that approximately 93 percent of home sales involve an agent to some degree. In many cases, hiring a real estate agent is absolutely in the best interests of home owners. In others, it isn’t. As in all stages of home selling, it is important that you understand all of your options, as well as the advantages and disadvantages of each, when it comes to hiring – or not hiring – a real estate agent.

What Are the Advantages of Hiring a Real Estate Agent?

As with any other profession, there are great real estate agents and not-so-great real estate agents, with the vast majority residing somewhere in between the two extremes. Before you agree to hire an agent, be sure to do your homework. Trulia, Zillow, and Yelp are just three online resources you can use to find reviews on agents in your local area. Doing a bit of research on the Internet can save you a lot of time and frustration, helping you to weed out professionals with poor reputations in your community and zero in on those who have earned the trust and respect of their clients.

The advantages of hiring a real estate agent are plentiful – if you find the right agent. Bear in mind that many of these advantages depend on your hiring a full-service agent, which will cost you more in commission than a discount broker. Possible benefits include:

  • The avoidance of a lot of paperwork and red tape – A highly trained and educated agent will be able to sort through the dozens of pages of mostly fine print and make sure that your sale is done absolutely by the book. You are far less likely to have to worry about errors and omissions; if they do occur, a licensed real estate professional will have insurance to cover them, limiting your risk.
  • The saving of a lot of time and energy – Unless you want to devote your evenings and weekends to tours of your home, not to mention the staging of your home to make those tours worth your time, hiring an agent who will take care of it for you is a good idea.
  • Not having to coordinate repair and upgrading efforts on your own – A good agent will have a network of professional contacts, including inspectors, attorneys, landscapers, contractors, and other agents, to call on if necessary to getting your home into sellable shape.
  • Having an expert in your local real estate market on your side – No one will know your local market better than a qualified real estate agent. He or she will know the market trends, how to set appropriate price points, and the best avenues for advertising your home’s availability.
  • Not having to conduct negotiations yourself – Negotiation in selling a home is an art, and most of us have little experience with that art. A good agent will negotiate on your behalf, which could end up maximizing your profit in the end. In fact, having an agent in your corner will encourage potential buyers (or their agents) to bypass the lowball offer and cut straight to a reasonable offer, as they know they aren’t dealing with an amateur negotiator.

In order to find an agent that will provide all of the above advantages and more, there are certain questions you will want to ask as part of your vetting process:

  • How many homes have you sold for more than your original list price? How many have you sold for less? Overall, what is your list-price-to-sales-price ratio? (The closer to 100 percent, the better.)
  • How do you intend to market my home? How will you use the Internet as part of that marketing strategy? (A good agent will know how to use social media outlets such as Facebook and Twitter, as well as video sharing sites and other online resources, to your advantage.)
  • Do you have any references? Are any of your former clients available to provide feedback on your services?
  • How extensive is your network of professionals?
  • Do you have Errors and Omissions Insurance?
  • How many homes do you currently have to sell? (An agent with a large number of homes to sell might be more likely to prioritize speed over getting the best price for your home, regardless of your priorities and goals.)
  • What are your policies regarding cancelled agreements? How will working with you limit my monetary risk?
  • How familiar are you with my local community?

Here’s How to Buy a House: A Step-by-Step Guide for the First-Time Home Buyer

The steps to buy a house might seem complicated at first—particularly if you’re a first-time home buyer dipping a toe into real estate for the very first time. Between mortgage rates, property taxes, negotiating with sellers, and closing the deal, it’s easy to feel overwhelmed. There’s so much at stake!

Still, if you familiarize yourself with what it takes to buy your first home beforehand, it can help you navigate the real estate market with ease. So let’s get started! In this step-by-step guide, you’ll learn what it takes to buy your first home from beginning to end. Whether it’s your first time in the real estate market or you’re an experienced homeowner who wants to brush up on their skills, this list has you covered.

Step 1: Start gathering a down payment

The very first step every first-time home buyer should tackle is to figure out their finances. Buying a home (particularly for the first time) requires a mortgage, where a lender fronts you the money and you pay them back over time. However, in order to get a mortgage, you’ll need to put down some sort of down payment.

So how much do you need? Ideally a down payment on a mortgage should be 20% of the home’s price to avoid added fees, but if you don’t have that much, don’t worry. A mortgage down payment can be as low as 10%, 5%, or even 0% for certain types of mortgages like VA loans or a USDA loan.

Step 2: Check your credit score

In addition to having a down payment, a first-time home buyer will need a decent credit score. This three-digit number is a numerical summary of your credit report, a detailed document outlining how well you’ve paid off past debts like for credit cards and college student loans. A lender will check your score and report in order to estimate the odds that you will deliver your monthly payment to them, too. In turn, they will use this info to decide whether or not to loan you money, as well as how much, and at what interest rate.

If a lender sees some late payments or other blemishes in your credit report, this can lower your odds of getting a loan with a great interest rate, or perhaps even jeopardize your chances of getting any loan at all. So, it’s essential to know your score, and take steps now if necessary to bring it up to snuff. Here’s more on how to check your credit score and what number is best to buy a home.

Step 3: Get pre-approved for a mortgage

Before you head out home buying, you should seek pre-approval from a lender for a home loan. This is where you meet with a loan officer, ideally a few at various mortgage companies. Each mortgage lender will scrutinize your financial background—such as your debt-to-income ratio and assets—and use this info to determine whether they’re willing to loan you money, and what size monthly payment you can realistically afford. This will help you target homes in your price range. And that’s good, since a purchase price that’s beyond your financial reach will make you sweat your mortgage payment and puts you at risk of defaulting on your loan.

As a buyer, just keep in mind that mortgage pre-approval is different from mortgage pre-qualification. Pre-qualify, and you’re undergoing a much simpler process that can give you a ballpark figure of what you can afford to borrow, but with no promise from the lender. Getting pre-approved is more of a pain since you’ll have to provide tons of paperwork, but it’s worth the trouble since it guarantees you’re creditworthy and can truly buy a home.

Before they even meet with a lender, one step home buyers can take to begin understanding what they can afford as a monthly mortgage payment is to plug their info into an online home affordability calculator. This will calculate the maximum amount you can afford as a monthly payment.

Step 4: Find a real estate agent

Want a trusty home-buying guide by your side? Most first-timers will want a great real estate agent—specifically a buyer’s agent, who will help you find the right houses, negotiate a great real estate deal, and explain all the nuances of home buying along the way. The best part? Their services are free to first-time home buyers (since the seller pays the sales commission). Here’s how to find a real estate agent in your area.

Note: There is a subtle difference between a real estate agent and a Realtor®; the latter is a member of the National Association of Realtors® and adheres to a code of ethics. Consider having a Realtor additional insurance that you’ll get the help you need to ace the home-buying process.

Step 5: Go home buying!

This is the fun part! As a buyer, you can peruse thousands of real estate listings on sites such as realtor.com, then ask your agent to set up appointments to see your favorites in person. Since the sheer number of homes can become overwhelming, it’s best to separate your must-haves from those features you’d like, but don’t really need. Do you really want a new home or do you prefer a fixer-upper? Make a list of your wants and needs to get started, and whittle down your options.

Step 6: Make an offer

Found your dream home? Then it’s time to make an offer to the seller. Here’s more on how to make an offer on a house that a seller can’t refuse.

Step 7: Get a home inspection

A home inspection is where you hire a home inspector to check out the house from top to bottom to determine if there are any problems with it that might make you think twice about moving forward. Think: termites, faulty foundation, mold, asbestos, etc. Sure, a lot can go wrong, but rest assured that most problems are fixable.

Step 8: Get a home appraisal

Even if you got pre-approved for your home loan, your lender will want to conduct a home appraisal. This is where they check out the house to make sure it’s a good investment. It’s similar to a home inspection, but for your lender. Here’s more about the home appraisal process and what to expect as a buyer.

Step 9: Head to closing

Closing, which in different parts of the country is also known as “settlement” or “escrow,” brings together a variety of parties who are part of the real estate transaction, including the buyer, seller, mortgage representative, and others.

Closing is the day you officially get the keys to your new home—and pay all the various parties involved. That will include your down payment for your loan, plus closing costs, the extra fees you pay to process your loan. Closing costs can be sizable, averaging anywhere from 2% to 7% of the home price. Here’s more on closing costs for home buyers.

Step 10: Move in!

Done with closing? Got your loan? Congratulations, you’ve officially graduated from a buyer to a homeowner! See, the home-buying process wasn’t so scary after all, right? Now it’s time to kick back and enjoy the many benefits of becoming a homeowner.