How to Buy a Home: A Step-by-Step Guide

Are you interested in the market to buy a home? In this post, I’ll share exactly what you need to do to purchase your first home, with or without a realtor.

Disclaimer
 I am not a realtor, attorney, or lender. The information that I provide below is solely based on my experience as a home buyer. Please seek professional advice if you have additional questions related to your unique situation.

11 Steps to Purchasing a Home

Home buying doesn’t have to be a scary thing. In fact, it was a process that I enjoyed learning from.

Since we actually purchased our home without a realtor, I provide tools for you to do the same if you so choose.

If you’re interested, I also have a podcast episode which goes in depth about the home buying process with a realtor. You can listen below.

1. Create a budget

If there’s anything that you need during the home buying process, it’s patience and cash. So, before you even step foot into a house or start binge-watching HGTV, you need a budget.

If you don’t already have a budget, I suggest that you create one to see how much house you can actually afford.

There are tons of tools online that will calculate how much financing you can be approved for, but you need to be looking at what you can afford. This means looking at your income and expenses and determining how much is left that can be put toward a mortgage.

As a baseline, we started with Dave Ramsey’s mortgage calculator. You can find something similar here.

You’ll notice that what your budget shows that you can afford and what your lender may approve you for are two different numbers. You should always go with your budget.

Creating your home buying budget

We created a budget that included all of our expenses. This gave us an idea of how much we could spend on a home and still live comfortably.

I highly recommend that you do this.  It is so incredibly important that you do your own budget and know what you can comfortably afford each month and not just take what the lender gives you.

So many people are in homes that they were approved for but cannot realistically afford. Being house poor is when the majority of your income goes toward paying for your home and you aren’t able to afford much or anything else. Don’t let that be you.

Once you’ve determined that number, start saving for a 10-20% down payment.

2. Start saving

When it comes to saving for your home, you need to start early. Don’t wait until a month before you’re ready to buy to start pulling together cash.

Even if you can get 100% financing, you’ll still need to come to the table with some money. How much is dependent on the stipulations of your sales agreement (ex. the seller may pay closing), the cost of the home, and your financing terms.

What to save for

We had a great lender who gave us a breakdown of all expected costs so that we could budget accordingly. Costs for these items can vary depending on where you live and the terms of your contract.

• Earnest deposit
• Down payment
• Inspections (general & pest)
• Appraisal
• Home insurance
• Title search
• HOA fees
• Closing costs
• Repairs or upgrades
• Moving costs

3. Find a lender

The next step in the process is finding a lender.

If you are debt-free or do not have a credit score, there is an option for manual underwriting. I share how this works in a post on credit scores. If this applies to you, I encourage you to read it.

Otherwise, you can choose to go the traditional route. In both cases, you’ll need to research lenders that offer the best rates and services.

Once you’ve found a lender, they can give you an estimate on what you will be qualified for.

4. Get pre-approved

Qualification and approval amounts are not the same. Many lenders will tell you that you are pre-qualified for a specific amount based on little information that you provide. Read about the difference here.

However, once they have access to your accounts, payment history, etc. they can give you a more accurate number on what you are pre-approved for.

In our case, our lender had an underwriter’s commitment process which is being fully approved for the loan upfront. This gave us our approval amount and a commitment to lend us the funds from the beginning. Therefore, there was no guessing or looking at homes out of our price range or questions of whether the loan would fall through.

Remember, regardless of the amount that you are pre-approved for, go with your budget. You can always ask for the letter to be amended to show a price that you are comfortable with. This will prevent the realtor from showing you homes out of your range.

5. Find a realtor and/or find an attorney 

This step is traditionally reserved for finding a realtor, but as I mentioned, we did this process without one. If you plan on using a realtor, I would recommend contacting more than one to get a feel for who you would work with best.

This person should be knowledgeable of the area that you’re looking to buy in and the industry.

Even if you are not using a realtor, I would still recommend talking to a few. This is how you can get valuable information.

Many of them provided us information, such as a process checklist, referrals for lenders, attorneys, and inspectors, and access to more up-to-date home search engines. Ultimately, we used all of this information even though we did not choose a realtor.

Finding an Attorney

if you choose not to use a buyer’s agent, you’ll need to find an attorney on your own. Since you will likely be drafting up the contract and other legal documents, it was critical that you have legal counsel.

Use the referrals from the realtor lists, to find those who come recommended.

If they know that you’ll be using their services for closing, they will be more than happy to assist you. Our attorney not only provided contract templates and other legal documents, but she also reviewed them for accuracy.

Having an attorney assist you during this process without a realtor is critical to avoid some costly legal mistakes.

6. Start searching for a home 

You’ve probably already started your Zillow and Trulia search for homes in the area. But, before you schedule a home tour, be sure to follow the prior steps.

Remember to get your pre-approval letter so that the seller’s agent knows that you’re serious. And, if you have a realtor, they know the budget that you’re working with.

One thing to note is that public sites like Zillow and Trulia do not update as frequently as the sites that realtors have access to. So a home that may be showing for sale may actually be under contract or sold by the time you see it.

If you’re ever in doubt, just reach out to the selling agent listed on the posting and they can give you the correct information. This is also the person that you’ll need to contact to schedule a home showing.

7. Put in an offer 

Your offer is essentially you presenting the seller with how much you are willing to pay for their home. This is different for new builds, where the price is typically the price.

To prepare for our offer, you or your realtor will do some market research. Essentially, they’ll look at similar houses in the area and how much they sold for. This is what a realtor would call comps, or “comparables”.

Realtors have access to a special program that will run comps for them. However, if you’re not using a realtor, you can go to your county’s website and see how much the seller and neighboring homeowners paid for their homes, the fair market value, and how much was paid in taxes.

This is all valuable information for determining how much you are willing to pay for the home.

In the end, the ultimate goal is to exchange property at a price that is agreeable to both parties. Don’t get so caught up in the nickels and dimes that you forget the main objective.

Prepare to Negotiate

After putting in your offer, prepare to negotiate with the seller. If you’re using a realtor, they’ll handle this for you. Otherwise, you’ll speak directly to the seller’s agent.

It’s important to note that you’re not just negotiating the price of the home. You may also negotiate items like the refrigerator, sound system, or even washer and dryer. Anything not permanently attached to the home is technically not apart of the buy and can be negotiated in.

A seller can either accept, counter, and reject your offer. If they accept, that means they’re willing to accept the price and terms that you’ve offered them. If they counter, they will modify the terms and/or price and present it to you.

You can then either counter back, accept, or reject their counter offer.

Lastly, they can reject your offer. This means that you’ve probably insulted them with your price and/or terms or they have another buyer with a better offer. Just be prepared for any scenario.

Be specific in your offer

Be mindful that every counteroffer is essentially a new offer. So if, in fact, you had the TV in the original sales agreement offer, you need to make sure it’s included every time you put in a counteroffer.

Items that are not permanently affixed to the home, like a washer and dryer or TV, but are being included in the sale, need to be documented in a separate legal document called a Bill of Sales.

Don’t just take the seller’s word for it. You want to make sure everything is documented and signed, so consult your attorney or realtor about this.

Have your earnest money ready

As a part of your offer, you will also need cash. Buyers will often put up earnest money to show the seller that they are serious about doing business.

This amount can vary but is expected to be anywhere from $300, $1000, or more. The amount that you offer as the earnest is also considered in the seller’s decision to accept, counter, or reject your offer.

When you submit your offer, you will include a copy of your earnest money check written out to the escrow agent. In our case, it was our attorney’s law firm.

If the seller accepts and you go under contract, this check will be deposited into an escrow account and held as a part of your down payment or refunded if the contract falls through under certain terms.

8. Go under contract 

If you and the seller(s) come to agreeable terms, you are now at a point of mutual acceptance and will now go under contract as soon as possible.

We used the standard contract given by our attorney and presented it to the seller’s agent to have the seller sign. However, if you have a realtor, they will handle this step for you.

It is very critical that you get this part right. This will be the basis for the sale and what your lender will use to determine financing amounts.

Before submitting it to the seller, have your attorney review it for completeness and accuracy. Standard contracts differ by state, so be sure to use one for your state.

The contract was essentially fill-in-the-blank, with the remaining portion being standard purchase agreement terms. You (or your realtor) will fill out the price that you’ve agreed to pay, terms for closing costs, and dates for closing and for inspections. Pay careful attention to all of this, as this is what you and the seller will be held to.

After signing the contract

Being under contract also means that the home is no longer for sale and the seller can not take offers from other potential buyers. Essentially, you’re locked in. So don’t be surprised if, after the offer is accepted, the seller’s agent is in a rush to sign the contract.

After signing the contract, you’ll need to deliver the earnest check to your realtor or directly to the escrow agent. At this time, you’ll also need to schedule closing with the attorney based on the date stated in the contract.

Once under contract, you are now legally bound to follow through with the sale, unless any of the agreement stipulations are violated.

For instance, if the home appraises for less than what you have agreed to pay, the seller can either agree to the lower price or you can terminate the contract and receive your earnest money back.

Unfortunately, in this example, you would have already paid for inspections and the appraisal. So, although you’ve saved yourself from a bad buy, you’ve also lost some cash.

9. Schedule inspections & appraisals

It’s time to begin scheduling inspections and appraisals for the home. This is where organization and communication are key.

To help stay on track, we created a checklist with due dates of everything that had to be scheduled, sent in, and paid for. Your realtor may assist with this, but I suggest staying on top of it as well.

You should stay in constant communication with the seller’s agent (or your realtor) and your lender to ensure that they get all of the information that’s required.

I can’t emphasize enough how important it is to be organized.

If you are doing this without a realtor, you will need to be able to schedule and manage everything on your own. This is where I see the true value in having a realtor if planning and organization aren’t your cup of tea.

What to expect during inspection & appraisal

Plan to be present for inspections.

Though pest inspection may not be required by your lender, you want to make sure you cover all of your bases before closing on the home. The last thing that you want is to not inspect and find things later.

Your lender will schedule your appraisal. If the home appraises for the price that you’ve agreed to or more (even better), you are good to go. It’s only if the home appraises for less that you run into the issues that I mentioned above under the contract.

During this time, you’ll begin to hear from your closing attorney about title searches and things needed for closing. You’ll also need to get home insurance and provide that information to your lender.

Start contacting your service providers

While under contract, you can go ahead and schedule movers and begin looking at furniture. Your lender will be watching your bank account intently, so shy away from large furniture purchases until after closing.

About a week before closing, you’ll need to contact the service provides for the home and notify them of the sale. Plan to have them transfer accounts into your name on the day of closing. This includes cable, utilities, gas, water, etc.

10. Close on your new home

It’s finally time to sign the papers and get the keys to your new home! This is where all the legal action takes place and where you should be most attentive.

Up until this point, the lawyer and the lender have been hashing out who pays what portion of taxes, HOA fees, closing costs, etc. During this time, you’ll have to sign more papers and you should be given a copy of your closing disclosure (CD).

This is a document showing how much money you’ll have to bring to closing. It also shows where every dime of the transaction is going. There are many pages, but it’s critical that you review this document before closing and note any errors.

An important note on closing

Even if you use a realtor, make sure you read everything and know what you’re agreeing to. This is even more important at closing, where you’re signing tons of documents. Take the time to read them.

We found thousands of dollars worth of mistakes in ours that we were able to correct before signing all because we read and knew what was supposed to be in our legal documents. It’s a tedious task, but remember, this isn’t just a buy from Walmart.

What to expect at closing

As I stated, this document will outline how much you will need to bring to closing. Don’t fret if you don’t receive the final number until the morning of your scheduled closing. This is expected.

Plan to go to the bank to get your certified check for your closing costs the morning of your closing. This ensures that the final documents have been sent and that you have the correct amount.

Make sure you consider this when scheduling your closing time.

Our closing took a little over an hour; however, I have read that some take longer depending on the complexity of the purchase. It was solely signing documents with the attorney and seller, exchanging money, and finally getting the keys to the home.

Note: Prior to closing, you will do a final walk-through to ensure that the house has still been maintained. We did ours the day before we closed. Give yourself enough time to identify anything that may need to be fixed.

11. Move into your home

It’s time to move into your new home!

Don’t forget to change the locks, forward your mail, update your driver’s license, voter registration, and to update your address with your employer, bank, and the folks that you do business with.

Take it all in….and then, start unpacking!

Give yourself a pat on the back, because you’re now a homeowner!

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