What You Need in Order to Buy a House

Do you have dreams of becoming a homeowner? Starting the process is exciting, but it can also feel daunting. Here’s a step-by-step breakdown of what you need in order to buy a house. 

Financial readiness

Making sure you are financially prepared to buy a home is the first step.

Save for a down payment and closing costs

Although some programs for first-time homeowners require just 0% down, saving 3.5% of the estimated purchase price is a good starting point. 

For example, if your budget is $300,000, you should save at least $10,500 for your down payment. You’ll also need to cover closing costs, which will be around 1% to 5% of the home’s purchase price. That’s another $3,000 to $15,000.

Maintain an emergency fund

When you’re a homeowner, you’ll need savings on hand to cover unexpected repairs and other emergencies. A good general rule is to keep three to six months' worth of expenses in your savings account. This is in addition to the down payment and closing costs.

Good credit

Your credit score and history are major factors that lenders consider when evaluating your mortgage application. 

Build credit to qualify for better mortgage rates

The higher your score, the better your odds of obtaining a favorable mortgage rate. Focus on building a strong credit history by making payments on time, avoiding taking on new debt, and paying down any existing loans or credit card balances. 

Save and plan for down payment and closing costs

Once you’ve taken care of your debt and boosted your score, start working toward your savings targets. This step will be easier once you’ve eliminated some recurring debt payments. 

Credit and mortgage preparation

Now, you are just about ready to start shopping for a home.

Check and improve your credit score

Before you apply for pre-approval with a mortgage lender, check your credit score. You’ll need a score of at least 620 for conventional loans and VA loans, 580 for FHA loans, and 640 for USDA loans. 

If your score needs some work, consider adding positive payment history with a service like Kikoff. Kikoff reports verified rent payments, which can help increase your score. 

Get pre-approved for a mortgage

Next, get pre-approved for a mortgage. You may need to authorize a hard credit inquiry, which can slightly lower your score. However, there is a grace period after this happens. During this period, your score won’t be lowered any further if other lenders check your credit.

Take advantage of the grace period to compare rates and offers from multiple lenders.

Required documentation

You will have to submit quite a few documents to the mortgage company, and any mistakes can hold you back from closing on a home. Here’s a rundown of what you’ll need so you can prepare the documents ahead of time. 

Proof of income, bank statements, and identification

Before your mortgage is approved, you will need to submit the following:

• Proof of income
• Bank statements
• Government-issued ID card, such as a driver’s license

You may also need to provide additional supporting documents, such as a list of assets. The lender will take a deep dive into your financial history to assess your ability to repay the loan. 

Home search planning

Now that you’ve worked on your credit, built your savings, applied for pre-approval, and gotten your documents in order, you are ready to start searching for a home. 

Research neighborhoods and decide on home type

Create a list of neighborhoods that you would like to explore and decide what type of home you want to buy. Make a list of must-haves and nice-to-haves. This will help you focus once it’s time to schedule showings. 

Work with a trusted real estate agent 

Choose a real estate agent who knows the area and understands what you need in order to buy a house. You want an experienced professional who provides honest feedback and responds quickly to your communications. With the right agent and lender, you will set yourself up for a smoother homebuying process. 

Inspections and appraisals

After you put an offer in on a home and the seller accepts it, you and your lender will have a little time to look into the home more closely. If you find any major problems, this is your chance to back out and keep looking.

Schedule a home inspection 

Work with your agent to schedule a home inspection within the period listed on your contract. You will receive a report from the home inspector that lists any issues they have found. Depending on your contract, you could ask the seller to address these issues before moving forward.

Wait for the appraisal

The lender will schedule the appraisal. When this report is ready, you will find out either that the home appraised, which means that it is worth as much or more than the purchase price, or that it didn’t appraise. If it didn’t appraise, you may need to renegotiate the price or use cash to cover the difference. 

Closing preparation

It’s almost closing day, which means that the home will soon be yours.

Review and pay closing costs

You’ll need to wire your closing costs before closing day. Work with the title agency to complete this step. 

Sign final documents and take possession 

On closing day, you’ll sign a big stack of documents and take possession of the house. That’s it. You have just purchased a home. 

Conclusion

Want to make sure you have what you need in order to buy a house? Start by building your credit score and strengthening your payment history. Tools like Kikoff can help by reporting verified rent payments and certain utility payments to the credit bureaus.

Adding positive payment history to your credit report can lead to a higher score and make you more appealing to lenders. Build credit responsibly with Kikoff’s plans.