How to buy a house for the first time

Steps to buying a house for the first time

Once you're ready to start the process, consider these steps to buying a house:

1. Get your finances in order

Assess your financial situation: Analyze your income compared to your debt. If you're financing the home, prospective lenders may require a certain debt-to-income ratio, which means your monthly debt payments shouldn't exceed a certain percentage of your monthly earnings. You need to have a steady income to qualify for a mortgage.

Determine how much home you can afford: Progressive has a home affordability calculator, which will give you an estimate of how much house you can afford based on your income, debts, and expected mortgage rate.

Check your credit score: Get a copy of your credit score from the major credit bureaus from AnnualCredit.com and clear up any errors you may find. According to Experian, a fair rating of 620 will qualify you for a conventional mortgage with most lenders. If you apply for a FHA loan, you may get approved with a 500 score. A higher credit score may get you a better mortgage interest rate. ConsumerFinance.gov has a credit report checklist to help you review your scores.

2. Calculate your budget

Down payment: Knowing how much house you can afford will help you determine if you've got enough money for a down payment, often 20% of the home's value, but many people pay less — as little as 3% sometimes. However, the more you put down, the lower your monthly payments.

Earnest money deposit: An earnest money deposit is a check that will accompany your offer, typically between 1% to 3% of the home's value. This money is held in escrow and shows the seller you're committed to purchasing the home. Later, it's applied to your closing costs or down payment. Learn more about how escrow and homeowners insurance work.

Closing costs: Ensure you'll also have sufficient funds to cover closing costs. You'll receive a Closing Disclosure from your lender listing the closing costs, which include items such as loan origination fees, discount points, title searches, insurance, and more.

3. Get pre-approved for a mortgage

When you're ready to start house hunting, getting pre-approved for a mortgage or home loan lets you know how much of a mortgage you qualify for and shows sellers that you're a serious buyer. Some real estate agents require a pre-approval letter before working with you. It can also give you an advantage over someone who hasn't yet taken that step. Work with a mortgage loan officer or your bank to find out your pre-approval options.

4. Research and consider hiring a real estate agent

Preparing to buy a house can be stressful, but a real estate agent can help you navigate the home-buying process more efficiently, find houses that have what you want, navigate what to look for when you're buying a house, and negotiate with the buyer. It's their job to do everything in their power to find you a home that fits your desires within your budget.

5. Start your house hunt

First, consider what type of home you want. Would you prefer a new home so that you don't have to deal with the maintenance issues of older homes? If you're handy with tools and don't mind putting in the effort, a fixer-upper is one way to reduce costs.

Next, consider where you'd like to live. What's the best location for you? Consider proximity to schools, shopping centers, and hospitals as well as access to highways and public transportation.

Then, think about how much property you want. Do you want ample front and backyard space, or are you OK with your neighbors being closer to your house? What type of house appeals to you, such as a split-level, ranch, or a Cape Cod? Modern or traditional style? How many rooms do you need? What about an attached versus detached garage, an enclosed porch, a finished or unfinished basement, and landscaping?

Check your local real estate listings, attend open houses, and tour homes privately with your real estate agent. As you get familiar with the market, identify your deal breakers. You might not find a house with everything you want, but you can make sure it has everything you need.

6. Make an offer

Once you find a house that checks your boxes, consult with your agent, and consider what amount you're comfortable with to make an offer on the home. You'll put in an offer, typically with an earnest money deposit between 1% to 3% of the home's value. Consider including a home inspection contingency in your purchase agreement, which allows you to negotiate further or back out if major issues are found during the inspection. The seller may negotiate with you before you settle on a final purchase price and terms.

7. Get a home inspection and negotiate repairs

After the house is under contract (meaning the buyer accepted your offer), find a home inspector and schedule a home inspection. You pay for the home inspection out of pocket rather than as part of the closing costs. If the inspector finds aspects of the house that need repairs, you may negotiate with the seller to pay for the repairs or reduce the negotiated sales price.

8. Purchase a homeowners insurance policy

Homeowners insurance is required by most home lenders to protect not only your home, but also your wallet in the event you're found liable in an accident on or off your property. Dwelling coverage under your homeowners policy may cover damage to your home's structure and personal property coverage may cover your belongings. Learn more about the coverages found in a typical homeowners insurance policy.

Finding an insurer that combines the right amount of coverage at a rate you're comfortable with is key. Compare rates and coverages quickly to find a policy that fits your needs.

Get answers to your questions about homeowners insurance as a first-time homebuyer.

9. Get a home appraisal and do a final walkthrough

After your offer is accepted, your lender will typically order a home appraisal to verify the home's market value as it relates to the sale price. This helps ensure the home is worth the amount being financed and is usually paid for by the buyer. Then, shortly before closing, tour the home to confirm it is in the agreed-upon condition, any requested repairs have been completed, and all included fixtures and appliances remain in place. This is your last opportunity to identify issues before taking ownership of the home.

10. Close on the home

Your last step is the real estate closing, where the buyer and seller finalize the home purchase. Before closing, resolve any issues raised in the inspection, finalize the mortgage with your lender, and review the list of closing costs in the Closing Disclosure. At the closing, you sign your title transfer and mortgage documents and take possession of your new house.

Buying a house? Get a homeowners quote through Progressive.