How to buy a house: a step-by-step guide

Buying a house can feel (read: IS) complicated and overwhelming. This guide can help.
White house with red trim in rural setting.
Photo by Scott Webb on Unsplash

A few weeks ago, I wrote about what it felt like to buy a home as a single woman. Though it’s not how I imagined buying my first home, it was thrilling and exhausting, and now I’m elated to have made what I think is a really good financial investment. And honestly, I’m glad I did it alone. Now, no matter what happens in my romantic relationships (i.e. the people you typically buy homes with), I’ll always have this piece of real estate in my name until I sell it. 

Whether you’re single or buying a home with someone else, it is a complicated, overwhelming and very exciting process. After I published my other article, I received some questions about the actual logistics of homebuying, so I thought as a follow-up it might be helpful to share some of the stuff I learned in the process. Here are the things that got me from “what’s a mortgage?” to homeowner in just a few months.

Start early

Even before you have enough money or are emotionally ready to buy a place, start looking at homes online regularly. This will give you a sense of general prices in your city, what you can expect in homeowners association (HOA — the management organization of a condo or subdivision) fees and taxes and what neighborhoods have places you like. I mostly used Realtor.com because I liked the interface and the payment calculator, which lets you adjust everything from how big of a deposit you plan on putting down to mortgage loan interest rate and payoff length so you can do some serious scenario planning.

Along with online browsing, start seeing places in person before you’re ready to buy too. This will help you narrow things down — you’ll get a sense of what types of layouts you like, what it would feel like to live on a busy street versus a quiet area and what actually feels like a dealbreaker when you’re standing in a place, like not having space for your dream sectional couch in your living room. 

The reason for researching and honing your senses early is that, once you’re ready, if you live in a hot housing market you’ll need to move fast when you find a place you like. As in, making an offer on the spot or within a day.

 I visited about 10 places over the course of eight months before I found the right place. Because of all my research and home visits, when I saw the place I now own, I was already familiar with the neighborhood, recognized how unique the floor plan was and understood what great value I’d be getting. I made an offer the next day.

Get by with a little help from your friends (and a good realtor)

I am a HUGE fan of crowdsourcing and learning from others, so I did this as much as possible in the homebuying process. I had lunch with friends who had recently bought places and asked them every question under the sun. Considering I was coming from zero knowledge (as in, barely understanding how mortgages work), my friends were a great place to ask what might have felt like dumb questions.

As for a realtor, because I was a first-time homebuyer and doing it on my own, I knew I’d need a lot of hand-holding. I chose my realtors based on multiple recommendations from friends and they were fantastic. They explained everything to me as many times as needed, never pressured me to look outside my price range and gave me the VIP treatment even though I was looking at modestly priced condos, not million-dollar homes. 

Your realtor is a really important person in this process: they’re going to accompany and advise you at every step. I highly suggest going with someone who comes with a trusted recommendation and working with a full-time realtor, not a hobbyist, because they’ll probably know the market better.

Learn mortgage basics

White calculator on yellow background
Photo by StellrWeb on Unsplash

The math on this might sound intimidating, but it’s not. You just need to be prepared.

How do mortgages work?

  • Your mortgage is the loan you get to buy your house. It has an interest rate that determines how much you’ll pay the lender on top of repaying the loan amount (it’s that thing they’re always talking about with the Fed) and you can shop around between lenders to compare interest rates. In fact, many lenders will match the best interest rate you’ve heard and will do whatever it takes to win your business, so it is definitely beneficial to speak to many of them. Mortgages typically come with 15- or 30-year repayment terms, meaning how long you’ll be making payments for, but you can go shorter or longer. Your interest rate can vary based on a bunch of things, like your credit score, your mortgage length and the amount of your down payment. 
  • 30-year fixed is the most common mortgage type. What that means is you pay one set, “fixed” interest rate throughout the entire repayment process. Variable-rate mortgages (sometimes called “adjustable-rate mortgages,” or “ARMs”) are also a thing, where the interest rate fluctuates over time according to the market. Some people like them because they typically come with an introductory interest rate deal and lower payments in the beginning of the loan, but overall they come with a degree of uncertainty that most people are not comfortable with.
    • Note on down payments: down payments are typically 10-20% of the value of the home. Some programs will let you put even less down, but they often come with higher interest rates or other costs. In many places, if you put less than 20% down on a home, you will be required to purchase mortgage insurance (also called “PMI” for “private mortgage insurance”), which is an additional cost that is meant to insure the lender in case you don’t pay off your loan or die or something.
    • What all this means in real-life terms: Let’s say you buy a $200,000 house. If you put 20% down ($40,000), you’ll get a loan for the other 80% or $160,000. Then, typically, you’ll make payments each month for 30 years to pay off the house in full.
    • All of what I’ve described here is for what’s known as a “conventional” loan. There are also other kinds of loans like Federal Housing Authority (FHA) loans that allow lower-income buyers to get lower interest rates and put less money down as a deposit, Veterans Assistance (VA) loans with favorable terms for veterans, Section 184 loans with favorable terms for Native Americans, and more. It’s worth doing some research to determine whether you qualify for these or other special programs.

How do I know what I can afford?

  • Unless you’re swimming in cash and planning to buy that bad boy in one swoop, figuring out how much you can afford to pay for a house is a bit more complicated than figuring out how much you can afford in rent. I suggest using a mortgage calculator, so you can be sure you’re accounting for not only your mortgage payment, but also adding in additional costs like property taxes, HOA fees and mortgage insurance. 
  • One other thing to make sure to consider are your closing costs — these usually amount to 2-5% of the total home cost and cover the appraisal fee, the legal fees, the application fee to your lender, escrow deposits for property tax, your first homeowners’ insurance bill and more. You pay closing costs at the same time as your down payment, so you’ll definitely want to factor them into your budget.

Buying: get ready for a wild ride

So you’ve seen a place you like and want to make an offer. Exciting! Here’s where the most expensive emotional roller coaster you’ve ever been on starts.

What should I offer?

The list price you see for a house is really just a suggestion. Your realtor should help you figure out the price per square foot of similar properties in the area to give you a ballpark idea of a fair price. Plus, you’ve been doing your online research, so you already have a bit of an idea of what is reasonable. But honestly, there are a million factors that go into how a house is priced by a seller and what someone ends up paying for it, so prepare yourself for a somewhat complicated game of risk and reward. (In addition to the gender bias factor reported on a couple weeks ago by NPR’s Planet Money — researchers at the Yale School of Management found that single women pay more for their homes on average than single men. This is obviously infuriating and I certainly don’t have a solution, but it bears mentioning.)

Scenario 1: You offer below asking price

You’ve decided the seller is asking too much for the place, or that you can’t afford to pay what they’re asking but you want in the game. Or maybe you’re not dying to have this house, but would be interested if you could get it for cheap(er).

  • Pros: You might get a house for less than the selling price.
  • Cons: You’re more likely to get outbid by others, and the seller might not take your offer seriously, pulling you out of the process early.
  • This approach is most likely to work in an environment that is less competitive for buyers, or for a home that has been on the market for longer than average.
Scenario 2: You offer at asking price

You’ve decided that the price is fair and it’s what you can afford.

  • Pros: You’re less likely to overpay for a house and the seller is more likely to take you seriously.
  • Cons: If you live in a hot housing market, people who REALLY want the place might offer more than the asking price and outbid you.
Scenario 3: You offer above asking price

You’ve decided you want this place bad, or that the home has been priced below its actual value by the seller.

  • Pros: This is the most competitive position you can be in, though others can also offer above asking price.
  • Cons: You might overpay for a house, and you might need more cash to close if the home doesn’t assess at the value you paid for it.
    • A note on home appraisals: once an offer has been accepted, a third party does a home assessment, where they evaluate what they think the home is worth. Your mortgage loan is based on this assessed value, NOT what you paid for the home. For example, let’s say a seller accepts your $250,000 offer on a home they priced at $200,000. If the home assesses at $200,000, you are responsible for bringing an additional $50,000 to closing on top of what you planned to put down.

Making the offer 

Key on house shaped key chain next to small house figurine
Photo by Tierra Mallorca on Unsplash

Once I saw the place I loved, I did a lot of soul searching (read: calling my parents and friends frantically to ask for advice) to figure out the highest possible offer I could or should make. Based on home prices in the area, I believed the seller had priced the home low to try to garner more interest and potentially start a bidding war. I made an above-asking-price offer and wrote a heartfelt letter to the seller about how excited I was about the home. And it was accepted! Joy joy joy! Then panic panic panic!

I sat on pins and needles and made a million spreadsheets about different financial scenarios as I waited to hear back about the assessed value. My fear was that it would come back low and I would have to take all the money I’d planned to use to update the house (the popcorn ceiling was so aggressive, small animals could have nested in there) to pay for the difference. I pictured myself eating ramen for months while I saved up for a new paint job. 

Luckily, the assessment matched my offer and I was able to do (read: pay someone else to do) a bunch of cosmetic work to the home before I moved in. 

My postscript as a homeowner (!!!) is that the process of buying a home is INCREDIBLY time-consuming, exhausting and overwhelming, especially if you plan to do renovation work or even pay someone else to do it. The weeks following making an offer involve so much work (calling around to compare mortgage rates and insurance rates, managing different inspections of the home, figuring out all sorts of financial stuff) that I don’t know how people without flexible jobs manage it. Be prepared to spend a lot of time and energy on this, at least in the short term.

Another thing that surprised me was how emotionally and physically jarring moving was. I used to move constantly, but I hadn’t done it in almost five years and it legit rocked me. I texted a friend, “Can you die from packing?” midway through boxing everything up, and after a few months of living in my new place, I still don’t feel settled and am constantly tired. It’s no wonder that events related to moving are considered some of the most stressful that can occur in your life. 

But overall, I’m ecstatic. As a single woman, it feels so powerful to own my own home and be building equity that will help secure my financial future. As one friend put it to me, “It feels so good to basically be paying yourself back with your mortgage, instead of just handing money off to someone else” as a renter. I’m happy and proud to be in my own place and can’t wait to really settle in.

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