Buying a House: Essential Steps for Success

Q: What happens if I can't afford the down payment?

Explore low-down-payment options like [FHA](/loan-types/fha-loan-requirements/) (3.5%), conventional 97 (3%) or [down payment assistance programs](/home-buying/down-payment-assistance-programs/). Many states and cities offer grants or forgivable loans to help with down payments. Some employers also offer homebuying assistance.

Q: What costs do I pay at closing?

[Closing costs](/home-buying/closing-costs-explained/) include loan origination fees (0.5-1%), appraisal ($300-$500), [title insurance](/home-buying/what-is-title-insurance/) ($1,000-$2,000), attorney fees (varies by state), prepaid taxes and insurance and recording fees. Total typically runs 2-5% of the loan amount.

To buy a house, you need a credit score of at least 580-620, a down payment of 3-20% of the purchase price, proof of stable income for the past two years, a debt-to-income ratio under 43% and cash reserves for closing costs. The entire process takes 30-60 days from accepted offer to closing, though preparation can add months to your timeline.

What Do I Need to Buy a House?

Buying a house requires meeting financial requirements, gathering documentation and having enough cash on hand. Here’s everything you need before starting your home search.

Credit Score Requirements

Different loan types have different minimums:

Loan Type	Minimum Score	Best Rates
Conventional	620	740+
FHA	580 (3.5% down)	680+
FHA	500 (10% down)	N/A
VA	No minimum*	660+
USDA	640	680+

*VA loans have no official minimum, but most lenders require 620+

Michael Torres had a 595 credit score when he started house hunting. He spent four months paying down credit cards and disputing an error on his report. His score jumped to 645, qualifying him for an FHA loan with 3.5% down instead of the 10% he would have needed at 595.

Down Payment Requirements

The 20% down payment is a myth for most buyers. Here’s what you actually need:

Loan Type	Minimum Down	PMI Required?
Conventional	3%	Yes, until 20% equity
FHA	3.5%	Yes, for life of loan
VA	0%	No
USDA	0%	Yes (annual fee)
NACA	0%	No

On a $350,000 home:

3% down = $10,500
3.5% down = $12,250
10% down = $35,000
20% down = $70,000

Income Documentation

Lenders verify your income to ensure you can afford payments. You’ll need:

W-2 Employees:

Last 2 years of W-2 forms
Last 30 days of pay stubs
Employment verification letter

Self-Employed:

Last 2 years of personal tax returns
Last 2 years of business tax returns
Year-to-date profit and loss statement
Business license or CPA letter

Other Income Sources:

Social Security award letters
Pension statements
Divorce decree (for alimony/child support)
Rental income documentation

Debt-to-Income Ratio

Your DTI measures monthly debts against gross income. Most lenders cap at 43%, though some FHA loans allow up to 50%.

Calculate yours:

Add all monthly debt payments (car, student loans, credit cards, etc.)
Divide by gross monthly income
Multiply by 100

Sarah Chen earns $6,200 monthly with $1,100 in existing debts. Her current DTI is 17.7%. Adding a $1,800 mortgage payment brings her to 46.8%—too high for conventional loans. She paid off her car loan, dropping the total to 31.6% and qualifying easily.

Cash Reserves

Beyond down payment, you need cash for:

Closing Costs (2-5% of loan):

Loan origination fees
Appraisal and inspection
Title insurance
Attorney fees
Prepaid taxes and insurance

Move-in Reserves:

Moving expenses
Immediate repairs
Furniture and appliances
2-3 months of mortgage payments in savings

On a $300,000 purchase with 5% down, expect:

Down payment: $15,000
Closing costs: $6,000-$15,000
Reserves: $5,000-$10,000
Total cash needed: $26,000-$40,000

What Does It Take to Buy a House? The Full Process

The homebuying process follows a predictable path. Here’s every step from deciding to buy through getting your keys.

Step 1: Check Your Financial Readiness (1-6 Months Before)

Before talking to lenders, assess your situation:

Pull your credit reports from all three bureaus at AnnualCreditReport.com. Look for errors, high balances and collection accounts.

Calculate your budget using the 28/36 rule: housing costs under 28% of gross income, total debts under 36%.

Build your savings to cover down payment, closing costs and reserves. Set up automatic transfers to a dedicated savings account.

Reduce existing debt to lower your DTI. Focus on credit cards first since they impact both DTI and credit utilization.

James and Patricia Williams spent 8 months preparing. He paid off $8,400 in credit card debt while she saved $400 monthly. By the time they applied for a mortgage, they had $22,000 saved and his score had jumped from 651 to 712.

Step 2: Get Pre-Approved (1-2 Weeks)

Pre-approval tells you exactly how much house you can afford and shows sellers you’re a serious buyer.

Documents needed:

Photo ID and Social Security card
Last 2 years of tax returns
Last 2 years of W-2s
Last 30 days of pay stubs
Last 2-3 months of bank statements
List of debts and assets

Shop multiple lenders. Get quotes from at least 3 lenders—rates and fees vary significantly. All credit inquiries within 14-45 days count as one for scoring purposes.

Pre-approval vs pre-qualification: Pre-qualification is a quick estimate based on self-reported info. Pre-approval involves document verification and a credit check. Always get pre-approved.

Angela Martinez got pre-approved for $385,000 at 6.875% from her bank. She also applied with a mortgage broker and a credit union. The credit union offered 6.625%—saving her $52/month or $18,720 over the loan term.

Step 3: Find a Real Estate Agent (1 Week)

A buyer’s agent represents your interests and typically costs you nothing—the seller pays the commission.

Look for an agent who:

Knows your target neighborhoods
Has experience with your price range
Responds quickly to messages
Explains the process clearly
Has strong references

Interview 2-3 agents before choosing. Ask about their experience, communication style and how many buyers they’re currently working with.

Step 4: Search for Homes (2-8 Weeks)

Now the fun part. Start your search with clear criteria.

Define your must-haves:

Location and commute requirements
Minimum bedrooms and bathrooms
School district (if applicable)
Lot size or outdoor space
Garage or parking needs

Define your nice-to-haves:

Updated kitchen
Finished basement
Specific architectural style
Pool or other amenities

Attend open houses and schedule private showings. Take photos and notes—homes blur together after seeing several.

The Chen family toured 23 homes over 6 weeks before finding their match. They created a simple scoring system: must-haves worth 10 points each, nice-to-haves worth 5. Any home scoring under 50 got eliminated.

Step 5: Make an Offer (1-3 Days)

When you find the right home, move quickly. Your agent will help you craft a competitive offer.

Offer components:

Purchase price: Based on comparable sales and market conditions
Earnest money: Typically 1-3% of price, shows good faith
Contingencies: Financing, inspection, appraisal conditions
Closing timeline: Usually 30-45 days
Inclusions: Appliances, fixtures, furniture to include

In competitive markets:

Offer at or above asking price
Limit contingencies (with caution)
Increase earnest money deposit
Write a personal letter (effectiveness varies)
Offer flexible closing dates

Marcus Thompson offered $5,000 over asking with a 20% earnest money deposit on a home listed at $289,000. Three other buyers offered at or below asking with standard 3% deposits. His offer won despite not being the highest because the large deposit showed commitment.

Step 6: Home Inspection (1-2 Weeks After Accepted Offer)

Never skip the inspection. A licensed inspector examines:

Foundation and structure
Roof condition and age
Electrical systems
Plumbing systems
HVAC systems
Windows and doors
Attic and insulation
Signs of water damage or mold
Pest evidence

Cost: $300-$500 for standard inspection. Specialty inspections (radon, sewer scope, mold) cost extra.

After the inspection:

Request repairs for major issues
Ask for credits toward closing costs
Renegotiate price based on findings
Walk away if problems are too severe

The Rodriguezes’ inspection found a failing water heater and outdated electrical panel. They negotiated a $4,200 credit—enough to replace both after closing.

Step 7: Appraisal (1-2 Weeks)

Your lender orders an appraisal to confirm the home’s value supports the loan amount.

If the appraisal comes in low:

Renegotiate the purchase price
Pay the difference in cash
Challenge the appraisal with comparable sales
Walk away using your appraisal contingency

Jennifer Walsh offered $340,000 on a home that appraised at $325,000. The seller refused to lower the price. Jennifer paid the $15,000 difference in cash to keep the deal alive—a risky move but worth it in a market where prices continued rising.

Step 8: Final Loan Approval (1-2 Weeks)

With appraisal complete, your lender finalizes the loan. This involves:

Final verification of employment
Explanation of any credit changes
Review of any large deposits
Final debt-to-income calculation
Preparation of closing documents

Avoid these mistakes during underwriting:

Changing jobs
Making large purchases
Opening new credit accounts
Moving money between accounts without paper trail
Co-signing for anyone else

Step 9: Final Walkthrough (Day Before Closing)

Walk through the property 24 hours before closing to verify:

Agreed repairs are complete
All included items remain
No new damage has occurred
Utilities are functional
The property is empty (or as agreed)

Step 10: Closing Day (1-2 Hours)

You’ll sign approximately 100 pages of documents including:

Mortgage note (your promise to repay)
Deed of trust (security for the loan)
Closing disclosure (final costs and terms)
Title documents
Insurance policies

Bring to closing:

Government-issued photo ID
Cashier’s check for closing costs (or wire transfer confirmation)
Proof of insurance
Any outstanding documents requested

After signing, you receive the keys. The home is yours.

What Is Needed to Buy a House: Document Checklist

Keep these documents organized throughout the process:

Personal Identification

Driver’s license or passport
Social Security card
Green card (if applicable)

Income Verification

2 years of tax returns with all schedules
2 years of W-2 forms
30 days of pay stubs
Employment verification letter
Bonus/commission documentation

Asset Documentation

2-3 months bank statements (all pages)
Investment account statements
Retirement account statements
Gift letter (if receiving gift funds)
Proof of earnest money source

Debt Information

Current mortgage statement (if applicable)
Student loan statements
Auto loan statements
Credit card statements
Divorce decree (if applicable)

Property Documents

Purchase agreement
Property listing information
HOA documents (if applicable)
Home inspection report
Appraisal report

What You Need to Buy a House: Cost Breakdown

Here’s what a $350,000 home purchase actually costs with different down payments:

Scenario 1: 3% Down Conventional

Cost	Amount
Down payment	$10,500
Closing costs (3%)	$10,500
Prepaid items	$3,000
Moving/reserves	$5,000
Total cash needed	$29,000
Monthly payment (P&I)	$2,259
PMI	$150
Taxes/insurance	$450
Total monthly	$2,859

Scenario 2: 10% Down Conventional

Cost	Amount
Down payment	$35,000
Closing costs (3%)	$9,450
Prepaid items	$3,000
Moving/reserves	$5,000
Total cash needed	$52,450
Monthly payment (P&I)	$2,093
PMI	$95
Taxes/insurance	$450
Total monthly	$2,638

Scenario 3: 20% Down Conventional

Cost	Amount
Down payment	$70,000
Closing costs (3%)	$8,400
Prepaid items	$3,000
Moving/reserves	$5,000
Total cash needed	$86,400
Monthly payment (P&I)	$1,862
PMI	$0
Taxes/insurance	$450
Total monthly	$2,312

When to Buy a House: Timing Considerations

Personal Readiness Signs

You’re ready to buy when:

You’ll stay in the area 3+ years
Your job situation is stable
You have savings beyond down payment
Your credit score is in good shape
Your debt load is manageable

Market Timing

Seasonal patterns:

Spring/summer: Most inventory but most competition
Fall: Less competition, motivated sellers
Winter: Lowest prices but limited selection

Interest rate considerations:

Lower rates = more buying power
Higher rates = less competition
Rate locks protect you during the process

Local market conditions:

Buyer’s market: More negotiating power
Seller’s market: Need to act fast and compete

Derek Adams waited 18 months for rates to drop, paying $1,800/month in rent. When he finally bought, rates had risen further. He spent $32,400 in rent while “waiting for the right time.”

Frequently Asked Questions

How much money do I need to buy a house?

Plan for 5-20% of the purchase price in total cash. This covers down payment (3-20%), closing costs (2-5%) and reserves (2-3 months of payments). On a $300,000 home, that’s $15,000-$60,000 depending on your down payment choice.

Can I buy a house with no money down?

Yes. VA loans (for veterans) and USDA loans (for rural areas) offer true zero-down financing. NACA mortgages also require no down payment for qualifying buyers. You’ll still need cash for closing costs and reserves, though some programs help with those too.

How long does it take to buy a house?

From accepted offer to closing typically takes 30-45 days. However, preparation (credit repair, saving, getting pre-approved) can add months. House hunting varies wildly—some buyers find homes in days, others search for months.

What credit score do I need to buy a house?

Minimum 580 for FHA with 3.5% down, or 620 for most conventional loans. VA and USDA loans have no official minimums but most lenders require 620+. For the best rates, aim for 740+.

Should I buy or rent?

Buy if you’ll stay 3+ years, have stable income and want to build equity. Rent if you might move soon, your income is unstable or home prices in your area seem disconnected from rents. Run the numbers using a rent vs buy calculator for your specific situation.

What happens if I can’t afford the down payment?

Explore low-down-payment options like FHA (3.5%), conventional 97 (3%) or down payment assistance programs. Many states and cities offer grants or forgivable loans to help with down payments. Some employers also offer homebuying assistance.

How do I know how much house I can afford?

Follow the 28/36 rule: housing costs under 28% of gross income, total debts under 36%. A household earning $8,000 monthly should keep housing costs under $2,240. Get pre-approved to see your exact limit based on your complete financial picture.

What costs do I pay at closing?

Closing costs include loan origination fees (0.5-1%), appraisal ($300-$500), title insurance ($1,000-$2,000), attorney fees (varies by state), prepaid taxes and insurance and recording fees. Total typically runs 2-5% of the loan amount.

Ready to buy a house? Follow these key steps.