8 Tips on How to Buy a House in 2019

Step-by-Step Tips to Help You Buy a House

Buying a home can be an exciting milestone in your financial journey. But along with the prospect of a positive investment and a place to call your own, comes some confusion and even frustration for home buyers trying to make sense of the terminology and steps involved in the home buying process.

If you’re ready to dive into real estate but have found yourself asking the basics like “What do I need to buy a house?” or “Where do I start if I want to buy a house?” follow this guide to help you navigate the steps you’ll need to take and inch closer toward a milestone in your financial future. Use the links below to jump to specific subtopics or read through end-to-end.

Step-by-Step Guide: Buying a House in 2019

1) Find the right mortgage

2) Hire a real estate agent

3) Identify your dream house needs and wants

4) Shop for homes

5) Make an offer (and negotiate)

6) Home inspection

7) Home appraisal

8) Closing

What Do I Need to Buy a House?

Before we get into the step-by-step process, let’s discuss what you need to buy a house in 2019.

Good Credit

It’s no secret that your credit score can have a substantial impact on your financial profile and financial future. From credit card approvals to rental applications, credit scores are used to evaluate consumer finances in a variety of circumstances—and having a high score can provide many benefits to consumers.

One way good credit behavior can help consumers is during the home loan application process. Mortgage lenders look at a variety of elements when evaluating a home loan applicant—including credit score, existing debt, total assets, and current income. Before applying for a loan, or even starting the home buying process at all, you may want to check your credit score to see where you stand before applying for mortgages that you might not qualify for.

According to TransUnion, a “good” credit score falls within the range of 700 to 749, but the decision to approve or deny your home loan is ultimately up to your lender. Again, credit is just one thing lenders consider when approving home loans. There are plenty of options for home buyers with lower credit scores, which we’ll discuss a little later on.

Verified Employment History

In order to decide whether or not a loan applicant will be able to afford their loan payment (based on regular monthly income), mortgage lenders typically verify two years of employment history. This step also helps determine what an applicant’s debt-to-income (DTI) ratio is. This number gives lenders an idea of how much an applicant may be able to afford their loan payment based on how much debt they currently need to pay off. According to the Consumer Finance Bureau, mortgage lenders generally look for a DTI ratio that is below 43%.

A Healthy Savings Account

Buying a home is a big investment and home-buyers can expect to encounter an array of fees throughout the home buying process. From down payments to closing costs and unexpected expenses, the bills can really rack up when you’re buying a house. Having an established savings account can help prepare you to make your down payment and pay off other associated fees without your credit card taking the hit.

Pre-Approval Letter

A pre-approval letter is a document from a lender that verifies that a potential buyer has already been approved to take out a mortgage. Obtaining a pre-approval letter has many potential benefits for home buyers: first, it lets you know how much house you can afford to help guide your real estate search; and second, having a pre-approval letter can sweeten the deal for sellers by letting them know that you’re ready to buy and already have the (borrowed) cash you need to seal the deal.

In the past, sellers have favored cash buyers since cash sales are generally less likely to fall through, compared to loans that have not yet been approved. For this reason, pre-approval letters have become standard for many home sellers and agents to request.

Step-by-Step Guide: Buying a House in 2019

Now that you know what you need to buy a house, let’s discuss how to buy a house step-by-step. We’ve included a task timeline for each step based on averages provided by the Home Buying Institute to help you get a better idea of how long the home buying process takes.

1) Find the right mortgage

Task Timeline: 3-7 days

Shopping for a mortgage is often the most tedious part of the process for home buyers. A lot of organization, number-crunching, and financial planning goes into this decision, so take your time to really understand how to get a mortgage, and what you can do to get the best rate you can.

Mortgage shopping checklist

Before you walk into a lender’s offer and ask for a lump sum of cash, the Consumer Financial Protection Bureau recommends taking the following eight steps.

• Check your credit score
• Assess your spending
• Budget for expenses
• Identify your down payment—and whether you want a fixed or variable rate mortgage
• Decide how much you can (and want to) spend on a house
• Ask yourself if it’s the right time to buy
• Reach out to your network of advisors (other homeowners, financial advisor, real estate agents)
• Create a home loan application packet

Types of mortgages

Adjustable-rate mortgage (ARM)

Adjustable-rate mortgages have an interest rate that may fluctuate throughout the loan term. ARMs generally start out with a lower fixed-rate at the beginning, with higher rates later on. This mortgage type can be attractive to home buyers that want to make smaller monthly payments initially—but with that comes the uncertainty of the adjusted-rate later on.

Fixed-rate mortgage

A fixed-rate mortgage is a type of home loan that has a static interest rate that lasts the entirety of the loan term. Home owners will generally pay a fixed monthly installment until the loan is paid off.  The main benefit to a fixed-rate mortgage is that the rate and payments are consistent throughout the loan term. According to Freddie Mac, the 30 year fixed-rate mortgage is the most common mortgage type for Americans, accounting for nearly 90% of home loans.

Government-insured home loans

• FHA Loans: An FHA loan is a type of mortgage backed by the government. These loans are available to first-time and experienced home buyers thanks to the Federal Housing Association. FHA loans typically accept lower minimum credit scores and income requirements than other lenders.
• VA Loans: The U.S. Department of Veteran’s Affairs offers home loans for veterans and active service members to obtain funding to buy, or maintain a home for their occupancy. VA home loans are provided by private lenders and guaranteed by the VA to help secure better loan terms for the borrower.
• USDA/RHS Loans: The U.S. Department of Agriculture facilitates a housing service and loan program that focuses on providing aid for communities in rural areas. Rural Housing Services (RHS) include loan guarantees, loan application help, housing preservation, and community revitalization initiatives.

What credit score is needed to buy a house?

It depends on the lender and other factors in your financial profile, but a minimum credit score of 600 may be a good goal to have before applying for a home loan. If your score falls below this number, you may want to work to improve your credit with the help of tools from Turbo by Intuit.

Creating a home loan application packet

While you’re shopping around for mortgages, you may want to have these items prepared so that you can compare rates with different lenders—and have the information you need always at the ready.

• W-2 forms and signed tax returns from the last 2 years
• Your 2 most recent bank statements
• A photo ID (driver’s license or passport)
• Social security number
• Documentation showing your ability to pay the down payment such as an investment or savings account
• Pay stubs from the last 30 days

Bonus: a certificate of housing counseling or home-buyer education

2) Hire a real estate agent

Task Timeline: 1-7 days

Hiring the right real estate agent is an important step in the home buying process. The right agent can not only help you find hidden gems in your search area, but they can also help guide you throughout the buying process—beyond just scheduling open houses.

When searching for a local real estate agent, the Consumer Financial Protection Bureau suggests reaching out to your personal network first to help you find agents with experience buying homes in your preferred neighborhood. Additionally, the CFPB says that home buyers should not feel pressured to work with a friend or family member who is a real estate agent, and instead base their decision on who they think is right for the job.

If you don’t have any personal connections with real estate agent recommendations, the Connecticut State Department of Consumer Protection says home buyers should:

• Visit a few local real estate offices in the area and speak with potential agents
• Consider the presentation of the office — is it organized and attractive? Are they open 7 days a week? Can you access the listings from all agents in the company?
• Interview prospects and choose an agent who you feel comfortable working with

Once you’ve chosen a real estate agent, you may want to sit down with them and lay out expectations and processes ahead of time to see how you work together best. The Connecticut State Department of Consumer Protection recommends getting everything in writing to protect both parties.

3) Identify your dream house needs and wants

Before you even start shopping for homes, you’ll probably have an idea of what you want and need in your new abode. Maybe you’re searching for an updated kitchen or perhaps you’re on the hunt for more square footage and a walkable neighborhood. Whatever it is that’s prompting your move, having an idea of what you want ahead of time can help your real estate agent identify homes that may make sense for you—and likely help you stay focused during your search.

4) Shop for homes

Task Timeline: 3-6 weeks

Shopping for homes is probably the most exciting part of the home buying process. You get to pick out your ideal neighborhood, hunt for the kitchen or your dreams, and visualize your life in a home that’s your own. But besides evaluating the pros and cons of an open-concept floor plan, there are some other things you should consider when shopping for the home of your dreams.

According to Credit.org, these are the top five things you should consider when buying a house:

• True Cost: Your mortgage is likely going to be the biggest cost of your home, but it’s probably not going to present a full picture of your home-related expenses. Before you commit to a home at the top of your budget, you may want to consider how these costs fit into your budget first: HOA fees, taxes, home maintenance, moving costs, and any major repairs that may be needed.
• Size: Deciding what home size you need can be challenging as you never truly know what life has in store— maybe you’re planning to have a family and need some extra space as the kids grow. Or perhaps you’ll change your mind down the road or decide that you don’t really have a use for 5+ bedrooms. Before buying up those extra square feet, buyers may want to consider how much space they’ll actually
• Location, Location, Location: You’ve probably heard this one before—but this infamous real estate adage still holds ground. The neighborhood you buy in not only impacts the resale value of your home, but it can also shape your overall happiness as a homeowner. Location can be connected to access to schools, commuting options, safety, and potential for damage (i.e. flooding, fires).
• House Position: The position of a home can affect how big your yard is, whether or not there’s potential for expansion, and even how much natural light flows into your space— which could help regulate heating and cooling costs.
• Student Debt: Homebuyers will probably want to consider all of their existing debts when buying a home, but substantial balances like for student loans could have a big impact on how their DTI is calculated in a mortgage approval.

What is a HUD house?

If you don’t think buying a house is in the cards for you, you may want to look into local home buying programs from the U.S. Department of Housing and Urban Development— otherwise known as HUD. HUD buys residential properties that been foreclosed and then sell them to the public below their market value (generally). These foreclosed properties are often FHA mortgages that have defaulted.

In addition, HUD offers discount programs to help promote home ownership in neighborhoods that are being revitalized. HUD’s Good Neighbor Initiative offers home buyers a 50 percent discount on qualified homes in these areas. This program can be a good option for residents that might not have become homeowners otherwise.

Keep in mind: HUD does not provide direct financing options, so buyers will need to source their financing with cash or by working with a mortgage lender.

5) Make an offer (and negotiate)

Task Timeline: 24-48 hrs

So you’ve found the home of your dreams and you’re ready to buy—now what? It’s time to put an offer in! At this point, you probably have a good idea of your budget for buying a house, so now you and your real estate agent will use that information to help guide your offer on the house of your choice.

Freddie Mac outlines the four-step process to make an offer on a home:

1. Determine your price

You and your real estate agent will work together on this step to find a price that works for you and the seller. Your real estate agent will consider the recent sales prices of homes in the same area, the condition of the home, as well as your budget when determining your offer.

2. Submit your offer

When you and your real estate agent have agreed on a fair offering price, they will submit your offer to the selling real estate agent. The offer should include the purchase price and related conditions, plus:

• A target date for closing
• A deadline for the selling party to accept or counter the offer
• Any contingencies that may affect the offer (an appraisal and home inspection)

If the seller accepts, then they must sign the written offer to create a binding contract indicating that they accept the sale.

3. Negotiate with the seller

It is common for the seller to come back with a counteroffer—generally asking for a higher sale price or more favorable closing terms. If this happens, you can decide if you want to accept their counteroffer or if you wish to make an additional counteroffer.

4. Confirm your final offer

Once both parties have come to an offer agreement, the written offer will need to be signed by the seller and the buyer to establish a contract.

6) Home inspection

After a seller accepts an offer on their home, most home buyers will request a home inspection before closing the sale. Home inspections are not required by law, but they can help protect buyers in the event that an inspector finds substantial damage or risk on the property that might impact the integrity of their investment.

When hiring a home inspector, the U.S. Department of Housing and Urban Development recommends doing your due diligence to make sure you hire the right person for the job. Consider asking them the following questions before going through with an inspection.

• What does your inspection cover?
• Do you have experience and training in residential inspection?
• How long will the inspection take?
• How much do you charge to conduct a home inspection?
• Will I be able to attend the inspection?
• Are you a member of a professional home inspector association?
• Do you participate in continuing education to stay up to date on regulations and standards?

Asking these questions can help you find a home inspector that is thorough and knowledgeable—which could end up protecting you from making a risky investment in a home that requires a lot of expenses and repairs later down the road.

7) Home appraisal

Once you’ve determined the home’s condition with a home inspector, you may wish to have the home appraised by an unbiased appraiser before closing the sale. And if you’re using a mortgage to purchase a home, your lender will require a home appraisal to confirm that the lending amount is appropriate based on the true value of the home.

So what goes into the appraisal process? Most home appraisers will use the Uniform Residential Appraisal Report from Fannie Mae, which asks the appraiser to describe and evaluate a number of different details on the property including the condition or the property, the sale history, and ultimately, their assessment on the value of the home. This number should ideally align with the amount the lender has agreed to lend, and the home should be priced fairly according to the property’s condition.

8) Closing

Task Timeline: 30-60 days

You’ve almost made it! You can practically feel the keys in your hands, but there’s just one step left—it’s closing time. And no, we’re not talking about the popular hit by Semisonic. It’s time to finalize your paperwork and costs so you can finally step into life as a homeowner.

What will you need to close on a house?

• Home inspection and appraisal paperwork
• Loan documents
• Homeowners insurance
• A final walkthrough

In addition, you may expect to pay some closing fees including appraisal fees, tax service provider fees, title insurance, government taxes, property taxes, homeowners insurance, and interest on your mortgage preceding your first payment.

Closing disclosure

According to the Consumer Financial Protection Bureau, mortgage lenders are required to provide final details about your loan before you close on a home. This five-page document should include information such as your loan terms, projected monthly payments, and loan fees associated with your mortgage. This information should reflect the loan terms you agreed upon when you first got approved for your mortgage.

Use the CFPB closing disclosure tool to help you ensure that all of your mortgage loan details are correct before you close on your new house.  If you have any questions or concerns about the closing disclosure, CFPB recommends bringing this up with your mortgage lender ASAP.

Main takeaways for buying a house

How long does it take to buy a house?

According to the Home Buying Institute, buying a home can take anywhere between several weeks to several months depending on different variables in the home buying process. Maybe finding the right house will take longer than expected or perhaps you find a house right away, but the offering process and closing take up the most time. Buying a house is a different experience for everyone—so keep in mind these task timelines are averages, not deadlines.

Is buying a house a good investment?

It depends! Housing markets vary from state to state and even city to city—and the quality of the investment can depend on a variety of factors including taxes, the mortgage rate, and how long a homeowner intends to live in the home before selling. Consumer Reports references a common rule of thumb which states that buying a house only makes sense if you’re planning to live in the house for 5-7 years.

While there’s not really a surefire way to determine whether or not it’s the right time to buy, Investopedia says these six things may signify that it’s a good time for you to buy a house:

1. You’re ready to jump into the process
2. If owning costs less than renting
3. It’s a buyers market (home prices are dipping)
4. Mortgage interest rates are low
5. You have the funds for a down payment
6. It’s the season for buying — Pro Tip: Homes tend to be listed in the springtime

Buying a home can be a good investment in many ways— from becoming a place to build memories with your family, to the opportunity to open home equity loans to further invest in your home. Whether you’re buying a house to have some room for your family to grow, or you’re investing in real estate as a hobby— there’s a lot to consider and learn before taking the plunge into the home buying market. Use these tips to help you navigate your journey to homeownership!