Home Buying Process Step by Step: 2021 Guide on How to Buy a House

March 19, 2021 | 5 min read | Owning a home
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One of the most significant decisions that anyone can make in their life is purchasing a home. Many feel that buying a home is overwhelming and may be thinking, “I want to buy a house, where do I start?” Our goal is to make the home buying process as seamless and stress-free as possible. That is why we created a 2021 guide outlining the home buying process steps to help you get comfortable and familiar with standard terms and milestones.

1. Check your credit score and get your financials in order

The best place to start is to determine if you are in a financial position to take on the responsibility of owning a home. Your credit score sheds light on your ability to handle debts and impacts your mortgage interest rate. Having a higher credit score may make it easier for you to qualify for a loan program and get you access to better rates. Click here to learn more about ways to improve your credit score. 

2. Make sure you have a stable job and steady income

Another way to help determine if you are in the proper financial position to buy a home is to review your income and employment status. It is best to buy a home or apartment when you have maintained a regular income for a couple of years and plan on keeping the job for the foreseeable future. The mortgage underwriter will see if you have a reliable job and consistent monthly income to ensure your ability to repay the loan. If you recently changed jobs, you may need to provide employment and income documentation from your former and current position.

3. Review your current debts

Even if you may have a steady income, you should review how much debt you have before thinking about getting a mortgage. Having large debts can make it challenging to secure a mortgage, as adding on more debt will increase your debt-to-income ratio. Debt may include car loans, student loans, credit card debt, or medical bills. Try paying off these debts as much as possible before starting the home buying process!

  • The 36% Rule
    The 36% rule is a rule that mortgage companies follow when evaluating your current debt-to-income ratio. This rule states that a homebuyer should not spend more than 36% of their income on debts (this means ALL debt – car, student loans, credit card debt, a mortgage, etc.).

4. Determine your down payment amount

It is crucial to understand how much money you have saved or how much you will need to save for a down payment on a home before speaking with a mortgage lender. Understanding how much you have for a down payment will help you set more realistic expectations before searching for a home. 

Use a mortgage calculator to estimate how much house you can afford.

Once you have a better understanding of your income, debts, and down payment amount, use our homebuying calculator to generate estimated monthly payments. Feel free to input a few different scenarios to see which monthly payment may best fit within your budget. 

One way to determine a reasonable monthly mortgage payment is to see how far away (or above) you are from the 36% debt rule mentioned above. This will give you a better idea of what income will be available for a mortgage payment after accounting for your current debt obligations. 

5. Choose a mortgage lender

When you feel confident in your ability to buy a home, you will need to choose a mortgage company! Choosing a mortgage company is not always about chasing the lowest rate. Many people spend countless hours comparing rate quotes from various lenders but often overlook other critical factors to determine a positive mortgage experience. Instead, focus on the combination of the rates quoted, loan programs offered, and service provided. 

6. Apply and get pre-approved 

Now is time to apply for a mortgage, submit your documentation, and get pre-approved! After submitting your documents, a mortgage specialist will perform a more thorough review of your credit profile to determine your purchasing power and how much mortgage you will qualify for. From there, you will receive an official pre-approval letter! 

Remember – this is a critical step in the home buying process. A pre-approval makes you a more competitive buyer and aids in negotiating power when making a purchase offer. 

7. Find a real estate agent

After having a clear understanding of your budget, you can find a real estate agent to work with. Ask your friends, family, and colleagues for referrals! GuardHill also works closely with many real estate agents and can refer you to an expert in your area! 

Note: some home buyers have an established relationship with a real estate agent before getting pre-approved, or even before step 1, which is OK!

8. Start house hunting

Time to start searching for your dream home! 

Create a wants and needs list.

Write down your must-haves and dream features that you are looking for in a home. This may help you filter down your search (if you are looking online) or give your real estate agent better direction when scheduling showings. Click here to review some of our house hunting tips.

9. Make an offer on a home

Your real estate agent will help you determine a wise and fair offer based on neighborhood comparable and the market’s current state.

10. Get a home inspection

Before you finalize the terms of the sale and close on your mortgage, you must schedule a home inspection. This will help you evaluate whether there are any problems the seller needs to fix before you officially move in.  If any significant issues arise in the home inspection report, you can discuss your negotiation options with your mortgage specialist and real estate agent.

11. Order a home appraisal

Mortgage companies require an appraisal to determine the home’s actual value and protect you from overpaying for the property. Additionally, this helps ensure that the mortgage company is not lending you more money than the home is worth (also referred to as a loan-to-value ratio). 

12. Receive a loan decision

Once the appraisal and inspection are complete, the mortgage company will provide an underwriting decision. Your loan may be approved, approved with conditions, or denied. You may need to provide additional documentation to show that you qualify for the loan. 

13. Close on your new home

Congratulations, you received a final loan approval, and it is time to schedule your mortgage closing! You will review and sign all necessary documents at the mortgage closing to finalize the agreement. Given the current climate today, you may have the option to schedule a virtual or mobile mortgage closing

After your closing, you will receive the keys to your new home, and it is officially yours! Congratulations on your homeownership! 

If you or someone you know is looking to get started with the home buying process, feel free to get in touch with one of our mortgage specialists. We look forward to helping make your dream home become a reality.