Key takeaways

• A clear view of financial health can shape affordability and strengthen early decisions
• Preapproval helps define a realistic price range and signals readiness to sellers.
• Inspections, appraisals, and contingencies provide important checks during the process.
• Closing costs, loan terms, and market conditions can influence total ownership expenses.
• A structured step-by-step approach can make homebuying more manageable and grounded.

Buying a home involves multiple financial steps, and having a structured plan can make the experience more manageable.

Buying a home is one of the biggest financial decisions many households ever make. The homebuying process can be complex, especially in a market shaped by shifting interest rates and limited inventory. Preparation clarifies options and helps buyers feel more confident. Some households also consider the “rent versus buy” math of buying a home, and whether ownership is affordable, and future financial considerations.

Recent national data provides a glimpse into homebuyers today.¹ About 5% of U.S. adults are recent buyers, and have a median age of 42. Millennials make up the largest share or buyers (35%), followed by Gen X (23%) and Baby Boomers (23%). Buyers have a median income of about $97,600, compared with the national median of $74,600. The largest share of buyers lives in the south (40%), which also has the most available inventory. Most buyers (84%) use an agent at some point, and many describe the process as at least somewhat stressful — especially first-time buyers.

Step 1: Check financial health

A household’s financial picture shapes the affordability of homes on the market, and the range of loan options available. Lenders look closely at several elements of a mortgage applicant’s financial health, including:

• Credit score: A measure of credit risk based on borrowing and repayment history.
• Debt-to-income (DTI) ratio: How much gross monthly income is used to pay down debts.
• Employment history: The borrower’s record of job security and income from work.
• Income level: The total earnings the borrower typically brings in.
• Savings and assets: Funds and other assets that help provide a complete picture of a borrower’s financial reserves.

What a prospective buyer can afford becomes clearer when they consider their potential monthly mortgage obligations in full. Borrowers could follow the 28/36 rule, which suggests keeping housing costs below 28% of gross monthly income and total payments on existing debts below 36%.² Borrowers could follow the 28/36 rule, but these ratios often rise above the guideline in high-cost areas. Having costs and debts close to this ratio may help signal a borrower’s ability to repay, also known as creditworthiness.

To understand what size mortgage might be affordable, borrowers can estimate their full monthly payments, which include principal, interest, taxes, and insurance (PITI). PITI goes beyond looking at the mortgage interest rate alone, since that does not include these homeowner expenses.

Read more: Will 2025 be the year of the first-time home buyer?

Step 2: Consider working with a real estate agent

A trusted real estate agent could help navigate home listings, interpret local market dynamics, and prepare a competitive offer for buyers.³ Buyers’ agents negotiate on behalf of their clients, guiding them through inspections and contract contingencies (required conditions written into a purchase agreement) as well as mortgage closing costs.

Interviewing several agents can help identify someone who understands the buyer’s core priorities as well as the existing market and potential listings before they hit the market. Sellers sometimes list their homes without an agent; the buyer’s agent can still work with the seller to negotiate and close the deal, however.

Step 3: Get pre-approved for a mortgage

Pre-approval confirms a borrower’s price range and signals readiness to sellers.⁴ It differs from pre-qualification, which may only offer a buyer a general estimate of what they can borrow without full verification. Pre-approval typically requires documentation, such as W-2 forms, bank statements, and recent tax returns. It may also require a payment history for applicants who are currently renting their home.

With this information, lenders assess verified income, credit, debt, DTI, credit history, and available assets. Then, they determine the loan amount they are willing to offer, and at what annual percentage rate (APR). APR factors in fees, closing costs, and other expenses in addition to the interest rate of the loan itself. Loan terms reflect current interest rates, and homeowners could potentially refinance their mortgage later if interest rates decline, which could help reduce their APR.

Step 4: Start the house hunt

A clear list of priorities can streamline the early stages of the search. Location, school district, layout, and square footage are factors that could shape household preferences.⁵ Features such as updated appliances or outdoor space are potential options.

Buyers might consider organizing their search by making a list of needs versus wants. The features that affect long-term value, such as neighborhood quality, school district, commuting distance, and property condition may be of higher value than cosmetic updates, such as kitchen décor or other renovations.

Step 5: Make an offer and negotiate

Offer strategies are often shaped by the property’s condition and patterns seen in nearby recent sales. Earnest money, usually 1% to 3% of the purchase price, signals commitment to the seller and serves as a good-faith deposit held in escrow through the purchase process.⁶ These funds demonstrate a buyer’s intent to complete the purchase, and may be applied to the down payment or closing costs upon the sale’s finalization.

Thoughtfully applied contingencies, such as home inspections, appraisal, and loan financing, could provide structure and protection as the transaction progresses.⁷ These contingencies can help adjust or exit the agreement if certain conditions are not met, such as a home inspection uncovering the need for a major repair.

Negotiations may center on price, repairs, timing, or seller concessions. Other common points include closing cost credits, inclusion of specific appliances or fixtures in the house, and other financial adjustments based on inspections.⁸ Buyers and sellers may also negotiate the closing timeline to account for moving or financing needs.

Step 6: Complete due diligence

A professional inspection establishes a baseline understanding of a home’s current condition.⁹ Findings can help buyers request repairs or negotiate credits to offset future costs. In some cases, significant issues may require the buyer to step back from the agreement, such as critical issues with a home’s foundation or other repairs identified during a home inspection.¹⁰

Due diligence isn’t just for the buyer. Most lenders also require an appraisal to confirm that the agreed-upon price matches the property's market value.¹¹ If the appraisal comes in lower than expected, renegotiation or additional funds may be required to close the gap. Bear in mind that this may change if it is a seller’s market where little home inventory exists.¹² In that case, buyers may need to work with the seller’s agent or their mortgage provider.

Read more: Homeowners reach record high of $35 trillion in equity

Step 7: Close the deal

A final walkthrough offers one last opportunity to confirm the home’s condition before closing.¹³ Closing costs may include title fees, recording fees, prepaid taxes, and insurance.¹⁴ Fees could also include lender-related charges, such as underwriting, appraisal, and loan origination fees.

The final steps in closing on a home often include:

• Final walkthrough: Buyers and sellers complete one last inspection of the home to confirm that agreed-upon repairs are complete, and that the property is in its expected condition.
• Loan funding: The lender provides the mortgage funds after all closing documents are signed.
• Signing documents: Buyers and sellers sign the deed, mortgage note, and closing disclosure forms.
• Title transfer: Legal ownership of the property is transferred from the seller to the buyer and is recorded with the local government.
• Key exchange: The buyer takes possession of the property once the funds are released and the final paperwork is signed.

Closing day brings together the remaining documents, signatures, and funds needed to finalize the transfer once paperwork is complete and funds are released. With this, the transaction is complete.

Homebuying process checklist

There are several steps involved in buying a home. Here are the biggest common milestones.

• Check financial health: Review credit estimate and affordable monthly payment and confirm savings for a down payment.
• Consider hiring a professional: Some buyers choose to work with a real estate agent who knows the local market well, while others may handle the search on their own.
• Get preapproved for a mortgage: Secure a lender’s review of income, credit and documentation to confirm the loan amount available.
• Start the house hunt: Create a list of needs and wants, tour homes and evaluate property condition and neighborhood fit.
• Make an offer and negotiate: Use comparable sales to shape a competitive offer. Provide earnest money and include necessary contingencies.
• Complete due diligence: Conduct a home inspection and lender-required appraisal to confirm property condition and value.
• Close the deal: Complete a final walkthrough, review closing costs, sign documents, and finalize the transfer of ownership.

Buying a house, creating a home

There are many moving parts to buying a home, but each step brings people closer to a meaningful financial and life milestone. With preparation and a clear plan, the process could become more manageable, especially when would-be buyers know their budget and options. Coming in with a strong foundation — having preapproval in place, knowing the market, understanding what’s affordable as a down payment and in monthly payments — can turn a potentially stressful exercise into buying a major asset that has financial and personal benefits.

FAQs

How long does the homebuying process take?

A typical homebuying timeline includes a 30- to 45-day closing window once an offer is accepted. Searching for a home may vary widely depending on market conditions, the level of inventory in the desired location, and budget.

What is the first step in buying a house?

Financial preparation and mortgage preapproval often serve as the strongest starting points, helping clarify a realistic price range and supporting competitive offers.

Do buyers need 20% down?

Not necessarily. Some loan programs allow smaller down payments, including FHA loans. VA loans typically require no down payment. The right down payment amount depends on individual financial circumstances and long-term planning.

What are closing costs when buying a home?

Closing costs typically include lender fees, title insurance, taxes, and appraisal expenses. They generally range from 2% to 5% of the purchase price and are paid at the end of the homebuying process.

How does a home inspection protect buyers?

Home inspections identify potential structural, electrical, or plumbing issues before finalizing a purchase. It helps buyers make informed decisions, negotiate repairs, or reconsider an offer based on the home’s condition.