How to buy a house: 13 steps to getting the keys to your new home

If you’re considering buying a house, you’ve probably already started looking at potential homes online. Naturally, you want to see the possibilities — and dream about your new place and neighborhood.

But just how do you buy that house you fell in love with online? Yahoo Finance has compiled 13 steps to simplify the home buying process.

Here’s how to buy a house, step-by-step.

13 steps to buying a house

Here are the landmarks you will want to achieve along the way to getting the keys to your new place.

Step 1: Know how much house you can afford.

To start, you’ll want to determine what you can comfortably spend. If you properly gauge your financial capacity, your monthly mortgage payment will feel right from the beginning and get even easier to make over time.

Divide your pre-tax monthly salary by four. That’s a good start for a target monthly payment. But that’s not just principal and interest payments. You will also want to include property taxes and homeowners insurance in the total.

Mortgage lenders often recommend your housing costs total around 28% of your gross pay. That calculation is known as your debt-to-income ratio.

Step 2: Be financially prepared

How much money do you need to buy a house?

The down payment will be the biggest chunk of cash that you’ll need. That can range from 3% of the purchase price (some lenders even offer 1%-down loans) to the optimum 20%. “Optimum” because with 20% or more down, you won’t be charged private mortgage insurance. PMI is a fee that protects the lender in the event that you default on the loan.

Other low- and no-down-payment options are available, which we’ll cover later.

Reduce debt

Prioritize paying off debt before buying a home. You’ll have plenty of new expenses after you move in and will want to have extra spending power available.

Check your credit score

Knowing your credit score is a must. Many financial services providers offer FICO scores for free, and the numbers will vary a bit from each. Knowing generally where you fall on the bad-to-excellent scale will suffice. The higher your score, the better your bargaining power for a lower interest rate and fewer fees.

Have a cash cushion

Lenders want to see that you’ve got some money left over after making the down payment and covering the closing costs. It doesn’t have to be a huge amount, but showing that you have a bit of a cash cushion during the purchase and once in the home is a good thing.

Step 3: Bank the down payment

That lump sum down payment has to be in a savings account or somewhere readily accessible. From the minimum 1% of the purchase price to the preferred 20% down, or anywhere in between, it’s got to be money ready to be in motion.

Step 4: Shop lenders for the best mortgage

It seems people may have finally learned this lesson. Over the last nearly 10 years, over 60% of home buyers said they shopped more than one lender, according to Fannie Mae research. Gone are the days when buyers just went with a real estate agent’s “preferred lender,” no questions asked. Comparison shopping mortgage lenders for the best rate and most favorable fees is a thing. Don’t skip it.

Step 5: Get preapproved

Getting a written mortgage pre approval in hand is another step rarely taken for granted these days. That’s because real estate agents and home sellers want to be sure you’re a serious shopper.

 Finance tip: The provider who gives you the preapproval letter doesn’t have to be your final lender choice. You’ll want to take one more pass at getting a better loan offer once you have a buy-sell agreement in hand.

Step 6: Find a buyer’s real estate agent

Now you’re set to shop for that perfect house. Almost. You need the right real estate agent on your side — and that’s not the seller’s agent shown on the “for sale” sign or the “listing agent” named in the home’s online profile. Talk to two or three buyer’s agents and find a strong negotiator and advocate.

Step 7: Find a house (or two)

The fun part: looking at houses. Sure, you skipped down to this house-hunting step a bit early, right? Not to worry, because now that you’ve completed steps 1 through 6, it’s time for a serious search for the perfect home.

Attend some open houses and scour the local market for neighborhoods and amenities that best suit you. Find a couple of contenders: one to make an offer on and some backup options if your favorite falls through.

Step 8: Make an offer

Your buyer’s agent will handle the details of making an official offer and negotiating counteroffers.

When you make an offer on a house, you’ll likely have to put up some earnest money with your written offer. That can be from several hundred to a couple thousand dollars. But don’t worry, this isn’t a new chunk of cash. It’s a small slice from your down payment and will be applied to the total money down later.

Lenders will also want to see a cash cushion available for maintenance, repairs, furniture, and other related expenses, such as moving costs.

Step 9: Get a home inspection and appraisal

Then comes a home inspection and home appraisal. Both protect you from unknown problems and a valuation issue. Inspection issues could include things such as a leaky roof, mold or plumbing and electrical problems.

The appraisal assures the lender that the property is worth enough to warrant a loan approval — and alerts you to the possibility of overpaying for a property that may be worth a lot less than you thought.

Step 10: Shop for homeowner’s insurance

It’s time to shop again, this round for insurance. Your lender will require it, and of course, you need it. It’s another round of comparison shopping between multiple providers. Bundle and save? You’ve got to put every sales pitch to a numbers test.

Step 11: Choose your lender and apply for a mortgage

With an offer in hand, you can get real-deal loan offers. Each lender vying for your business will give you a written offer. If you have each lender provide a zero-discount-points offer, you can compare apples to apples and then decide if you want to buy points to lower your interest rate.

Step 12: Do a final walk-through

Before closing, you’ll do one more walk-through with your agent to ensure everything is as promised. Repairs, if any, are completed; things like that.

Step 13: Close the loan

You’ll face a pile of paperwork, so be patient.

And there are closing costs. Figure those will amount to another 3%-4% of the home’s selling price.

Ask questions and understand what you’re signing. If there are any last-minute surprises, you can still walk away. But don’t worry, that’s not likely to happen. You’ll probably have a, “Am I really doing this?” feeling, but it will soon transform into delight and excitement when you get the keys.

Congratulations. You bought a house.