What credit score do I need to buy a house?

While conventional loans typically require a minimum credit score of 620, FHA loans may accept scores as low as 580 with a 3.5% down payment. However, a score of 740 or higher will help you secure the best interest rates.

How much money do I need for a down payment?

While 20% down is ideal to avoid private mortgage insurance (PMI), many programs accept lower down payments. FHA loans require as little as 3.5%, conventional loans can go as low as 3%, and VA loans offer 0% down payment options for eligible veterans.

What are closing costs?

Closing costs typically range from 2-5% of the loan amount and include fees for loan origination, appraisal, title insurance, escrow, and various government charges. These costs are in addition to your down payment and must be paid at closing.

Home Buying Process

Financial Education Series

June 14, 2025

A Step-by-Step Guide to Purchasing a Home

Buying a home is likely one of the largest financial decisions you'll make. Understanding each step of the process can help you navigate this complex journey with confidence and make informed decisions along the way.

Phase 1: Preparation and Planning

Before You Begin Your Search

Assess Your Finances

Check your credit score: Aim for a score of at least 620, though 740+ will secure the best rates

Calculate your debt-to-income ratio: Lenders typically prefer below 43%

Build your down payment: While 20% is ideal to avoid PMI, many programs accept 3-5%

Save for closing costs: Typically 2-5% of the loan amount

Get Pre-Approved for a Mortgage

Before starting your home search, secure a mortgage pre-approval. This will:

Show sellers you're a serious buyer

Give you a clear budget for your search

Help you act quickly in competitive markets

Allow you to compare loan options from multiple lenders

Define Your Homebuying Goals

Create a clear list of your needs, wants, and deal-breakers:

Location priorities: School districts, commute times, neighborhood amenities

Home features: Size, bedrooms, layout, outdoor space, age of home

Timeframe: How soon do you need to move?

Long-term plans: How long do you plan to stay in the home?

Phase 2: House Hunting and Making an Offer

Finding the Right Home

Select a Real Estate Agent

A good buyer's agent can provide market insights, negotiate on your behalf, and guide you through complex paperwork. Interview several agents to find someone who understands your needs and has experience in your preferred neighborhoods.

Tour Homes Strategically

When viewing properties, be thorough and systematic:

Take photos and notes during viewings

Visit neighborhoods at different times of day

Look beyond cosmetic issues to structural elements

Consider future needs, not just current ones

Research Property Values

Before making an offer, research comparable homes ("comps") that have recently sold in the area. This information helps you determine a fair offer price and negotiate effectively.

Make a Competitive Offer

Work with your agent to craft an offer that includes:

Offer price and earnest money deposit

Contingencies (financing, inspection, appraisal)

Proposed closing date

Requests for seller concessions

Phase 3: From Contract to Closing

Due Diligence and Closing Process

Home Inspection

Once your offer is accepted, schedule a professional home inspection as soon as possible. The inspector will check:

Structural integrity

Electrical systems

Plumbing

HVAC systems

Roof condition

Potential pest issues

Based on the inspection results, you can renegotiate, request repairs, or even withdraw your offer if serious issues are discovered.

Appraisal and Financing

Your lender will order an appraisal to ensure the home is worth the purchase price. Meanwhile, you'll need to:

Submit additional financial documentation as requested by your lender

Lock your interest rate

Review your Loan Estimate and Closing Disclosure

Address any lender concerns or conditions

Final Steps and Closing

As you approach closing day:

Conduct a final walk-through to verify the property's condition

Arrange for homeowners insurance to be effective on closing day

Prepare a certified check or wire transfer for closing costs

Bring identification and any required documents to closing

At closing, you'll sign numerous documents, pay closing costs, and receive the keys to your new home. The closing process typically takes 1-2 hours.

Additional Tips for First-Time Homebuyers

Explore first-time homebuyer programs: Many states and local governments offer assistance programs including down payment assistance, closing cost help, and favorable loan terms for first-time buyers.

Don't forget about ongoing costs: Beyond the mortgage payment, budget for property taxes, homeowners insurance, HOA fees, utilities, maintenance, and repairs.

Consider the future resale value: Even if you plan to stay long-term, consider factors that might affect the home's future marketability, such as location, layout, and school districts.

Avoid major financial changes: During the homebuying process, maintain financial stability by avoiding new credit applications, large purchases, or job changes that could affect your loan approval.

This article is for educational purposes only and updated as of June 2024. Real estate laws, market conditions, and financing options vary by location and change over time. Always consult with qualified professionals including real estate agents, mortgage lenders, home inspectors, and attorneys for guidance specific to your situation.

Estimated Home Buying Costs

Down Payment Options

Conventional (3%)$9,000 on $300,000 home

FHA (3.5%)$10,500 on $300,000 home

Conventional (20%)$60,000 on $300,000 home

Closing Costs (2-5%)

Minimum (2%)$6,000 on $300,000 home

Average (3.5%)$10,500 on $300,000 home

Maximum (5%)$15,000 on $300,000 home

Government Home Buying Resources

FHA Loan Programs

The Federal Housing Administration (FHA) offers several programs to help first-time homebuyers and those with lower credit scores:

VA Home Loans

Veterans Affairs offers special home loan benefits for service members, veterans, and eligible surviving spouses:

VA Home Loan Benefits →

USDA Rural Development

The USDA offers homeownership opportunities for rural residents with no down payment required:

USDA Single Family Housing Programs →

Home Buying Checklist

Check and improve your credit score

Review your credit report and address any issues

Save for down payment and closing costs

Aim for 20% down payment if possible

Get pre-approved for a mortgage

Compare rates from multiple lenders

Find a real estate agent

Interview multiple agents to find the right fit

Start house hunting

Use your pre-approval amount as your budget

Make an offer

Include contingencies for inspection and financing

Complete home inspection

Review all major systems and structure

Finalize mortgage

Lock in your interest rate

Close on your home

Review all documents carefully

This content is educational in nature and updated as of 2025. We aim to relay factual financial information, similar to how a newspaper would report market data. For complete information about our services, please review our Terms of Service.