If you are considering buying a home, it can be difficult to know where to begin. The temptation to start scrolling through available houses online is strong, but it’s easy to get ahead of yourself.

By starting with the more practical, albeit less fun, part of the home buying process, you can avoid burnout and set yourself up for success. So, what exactly does the home buying process look like? We put together a step-by-step guide to walk you through what to expect and some tips to help you along the way.

1. Talk to a lender and secure financing

2. Choose a REALTOR®

3. Find your new home home

4. Make an offer

5. Sign the contract

6. Option and inspection period

7. Get an appraisal

8. Close on your house and get your keys

1. Talk to a Lender and Secure Financing

Buying a home is often the single most expensive purchase you will make in your lifetime, and the cost of homeownership is much more than just the price of the home. Monthly utilities, property taxes, maintenance costs, closing costs and, in some cases, HOA fees will also have to be taken into consideration. Before you even look at houses, get your finances in order and find out exactly how much house you can afford.

2. Know Your Finances

First, check your debt to income (DTI) ratio by dividing your monthly debt payments by your gross monthly income. A DTI of 36% or less is ideal and will help you get the best mortgage interest rate possible. If you have a high debt to income ratio, you may want to pay down some of your debt before moving forward with a home purchase.

You should also check your credit score and analyze what is on your report. Your mortgage rate is partially determined by your score, so it’s a good idea to go into the process knowing this information.

3. Save for a Down Payment

Next, start saving for a down payment and a monthly emergency fund. It’s a good idea to have separate savings accounts for each. A mortgage down payment is typically 5% - 20% of the cost of the home, though that can vary with different types of mortgages.

Keep in mind that a larger down payment upfront will give you smaller monthly mortgage payments. A 20% or higher down payment will also guarantee that you won’t have to pay the added cost of private mortgage insurance.

Your monthly emergency funds should be enough to see you through two months, in case of a lost job or a similar financial setback. Bonus points (and the wonderful feeling of financial freedom) if your emergency funds can see you through six months. Mortgage companies like for you to have at least 2 months of cash reserves, calculated by dividing your total funds by all monthly expenses associated with homeownership, before buying a home. Having a comfortable emergency fund will ensure you can meet that requirement easily.

When saving, don’t forget to allot for the closing costs you will need to pay, which usually amount to 2% - 7% of the cost of the home. Closing costs can include discount points, title insurance, escrow fees, attorney fees, a termite report, recording fees, appraisal fees, document preparation fees, notary fees, and loan underwriting fees. They are typically due in cash at closing, though they can sometimes be rolled into the mortgage.

4. Explore Your Lender and Loan Options

Once you are ready to start the home buying process, it’s important to select a mortgage lender you want to work with. Make sure they are always available and you never feel uncomfortable asking questions.

Don’t be afraid to talk to several lenders and look up customer reviews. Ask about any specific fees a lender may charge, such as the origination fee or discount point, as these may be charged to you but are not always necessary. Your lender should be able to explain each fee and why it is charged. If they can’t, or you don’t like what you hear, don’t be afraid to look elsewhere.

There are many different types of mortgage loans, from conventional to VA to FHA. Each loan program presents different advantages and disadvantages, as well as income limitations and credit score requirements. Discuss all of your options with your mortgage lender before selecting one to ensure you have chosen the loan program that best fits your needs and offers the best interest rate and terms.

5. Get Pre-Approved for a Home Loan

Getting pre-approved for a loan before you start looking at houses will save you time at multiple points during the process. Knowing your exact budget will allow you to narrow your search and eliminate homes that are too expensive before you have a chance to fall in love with them.

Additionally, having a pre-approval letter in hand will also allow you to move fast once you’re ready to make an offer on a home, and shows the seller you are a serious buyer.

Pre-approval is different from pre-qualification, which is an estimate of what loan amount you will most likely qualify for. A pre-approval, on the other hand, is much more concrete and will require completion of an application and require supporting documentation, including proof of income, employment, and assets.

It may seem like a hassle to start with, rather than the flashy fun of the home search, but it will set you on the right path to home-buying success.

6. Choose a REALTOR®

Real estate is a unique industry with its own vocabulary and changing regulations that can be hard to navigate. By selecting a REALTOR® to work with before you start looking at houses, you can begin your home search with an experienced industry professional to guide you and help protect your best interests through every step of the home buying process.

7. REALTOR® and Real Estate Agent Are Not the Same Thing

A real estate agent is a state licensed real estate professional who can assist you in the buying or selling of real estate. A REALTOR® is a licensed real estate agent who is also a member of the National Association of Realtors and is bound by their strict code of ethics.

REALTORS® also belong to boards on the state and local level, affording them greater access to market data and the multiple listing service (MLS), which is a local database of all available properties.

By opting to work with a REALTOR®, you are selecting an individual who is held to the highest industry standards and has the best access to information about potential homes and market trends.

8. Don’t Be Afraid to Interview Your REALTOR®

Your REALTOR® will be your guide through every step of the home buying process. Whether you find a REALTOR® through an online review, a referral from a friend, or look them up on homecity.com, it is important to select a person you feel comfortable working with as you will be spending a good deal of time communicating with them in the coming months.

Meet your potential REALTOR® face to face or via video conference to make sure it is a good fit for all parties before you make a final decision. Asking a few preliminary questions will help you determine if they have the experience and expertise you need and if your personalities are a good match.

Questions you could ask include:

* How many years have you been in real estate?

* Do you represent more buyers or sellers?

* What areas of town do you work in the most?

* What is your go-to communication method - email, phone, or text?

* Do you work alone or are you part of a team?

* Do you have any reviews I can see?

* What price range do you typically work in?

It’s perfectly acceptable for you to interview a few different REALTORS® before deciding which one to move forward with. Just make sure that you let each one know that you are talking to other REALTORS® as a professional courtesy.

Also, don’t work with multiple REALTORS® simultaneously as this will cause confusion and potential issues down the line. It is much better to pick your preferred agent before you begin looking at homes.

9. Sign a Buyer Representation Agreement

While it may seem like just another piece of paper you have to sign, a buyer representation agreement will afford you rights as a client that you would not otherwise have. If you haven’t signed a buyer representation agreement with your REALTOR®, you are considered a customer, not a client, and your REALTOR®’s legal obligation will be to the seller.

A buyer representation agreement establishes a contractual relationship with your REALTOR®. It will clearly outline all expectations and protect your rights as a client. There is no obligation to buy when signing an agreement, the terms are always negotiable before you sign, and you can terminate at any time with simple written notice. Signing a buyer representation agreement is a no risk way to ensure your best interests are being looked after.

10. Find Your New Home

The most fun part of the home buying process is undoubtedly the home search. Whether you are drooling over kitchens online or picking where your couch will go during a showing, this is when it really begins to sink in that you are buying a new home. With a little prep work, you and your REALTOR® can dial in to exactly what you are looking for and find the perfect house for you.

11. Discuss What You Want Before You Start Looking

It’s a good idea to sit down and write out a list of all your “must-haves” and “deal breakers” as a first step. If you are buying with a spouse or partner, make separate lists and compare notes to come up with a top two in each category.

The rest of your lists can go on a wish list for reference. Honing in on what you want before you even start looking at houses will help you to narrow your search and prevent wasted time looking at properties that won’t meet your needs.

Keep in mind though that you probably won’t get everything on your wish list. Your price range and the current inventory of available properties may mean that there are things you have to compromise on. You will still be able to find a home that you love, it just may not have the wrap around porch you were hoping for.

12. Utilize Your REALTOR® to Find Homes

While it can be tempting to hop on the internet at 10pm and start browsing through houses, keep in mind that the perfect home you are looking at may already be under contract or sold, as not all sites update regularly. There may also be potential issues with the home or area that you are not aware of.

The best way to look for homes is to sit down with your REALTOR® and discuss your “must-haves”, “deal-breakers” and wish list, as well as your price range and your lifestyle. They will then take that information and use the industry tools at their disposal to compile an accurate and up-to-date list of available properties that match your criteria.

If you see a home online that you love, you can absolutely ask your REALTOR® about it. They will be able to tell you if it is still on the market, and if there are any potential issues with the area, like a noisy street, higher crime or heavy traffic. Everyone likes to look at houses online, just be sure to primarily lean on your REALTOR®’s expertise.

13. Explore the Neighborhood

Once you’ve found a home that you love, explore the surrounding area to make sure it also fits your lifestyle and daily needs. Drive by the property in the evening and on a weekend to make sure the street isn’t prohibitively noisy when everyone is home.

If it’s possible, park nearby and walk the neighborhood with a friend or your dog to get a feel for the community. Strike up a conversation with people you meet and ask them what they think of living in the area to get candid information from unbiased sources.

You can also investigate drive times to important locations, such as work or your parents house. Locate amenities that are important to you, like the closest grocery store, park, library, gym, or coffee shop. If you have kids in school be sure to drive to the schools as well.

Checking out the area will give you an accurate picture of the lifestyle you will have living there. It is easy to fall in love with a house and make an emotional decision without taking the surroundings into account. The back yard may be amazing, but long commutes, bad neighbors or difficult access to the things you love could quickly sour your opinion of your adorable new house.

14. Make An Offer

Once you’ve found a home you love, it’s important to make an offer right away to avoid missing your opportunity, particularly in fast paced markets like Austin. It is a major decision, so take the time you need to be confident in your choice, but once you’ve made your choice let your REALTOR® know immediately so they can help you craft a winning offer.

Your offer will include your offered sales price, as well as any terms or concessions you’d like to ask for, the estimated closing date, and the amount of earnest money you will provide, among other details.

15. Consider the Current Market When Making An Offer

The current market conditions will dictate what your offer will need to look like. In a seller’s market, which is when there are more buyers than available homes for sale, your offer will need to be as attractive to the seller as you can make it.

If there are multiple offers being presented on each property, asking for too many concessions or trying to start too low could quickly put you out of the running and you will have to begin your home search again. If you are in a super hot market (in Texas or anywhere) buying a home with cash vs a loan could put your offer ahead of others. 

If it is a buyer’s market, meaning there are more homes for sale than available buyers, you will have more leeway to ask the seller to help pay closing costs or to come down on the price.

Your REALTOR® will be able to walk you through the current market conditions and help you to decide on an offer that you are comfortable making and that will be attractive to the seller. They will then write up the offer and submit it on your behalf to begin the negotiation process. 

16. Be Prepared for a Counter Offer

Once you submit an offer to the seller they have three options: they can accept the offer as is, reject the offer completely, or make a counter-offer. The counter-offer could increase the sales price, remove their contribution to closing costs or concessions you may have asked for, or even change the proposed closing date.

Once you receive the counter-offer, you have the same options. You can accept it and move forward with the contract, reject it and move on to another property, or present a counter-offer of your own. Real estate agents are skilled negotiators, so lean on your REALTOR’S® expertise to steer you through this stressful part of the process.

In a highly competitive seller’s market, it is also possible to get into a bidding situation against other buyers. If you find yourself buying in this type of market, it’s a good idea to have a final figure in mind so that you can quickly decide when it’s time to simply move on instead of continuing the negotiations. Talk to your agent as you are writing up the initial offer and decide ahead of time what your absolute, will-not-go-higher offer will be.

17. Sign the Contract

When an offer has been accepted, your REALTOR® will write up the contract with the agreed-upon terms and all parties will sign it. Make sure you read through everything with your agent before you sign. Once the contract has been signed, you will officially be “under contract” on your new home.

18. Don’t Forget About Earnest Money and Option Money

Once you go “under contract”, you will have two business days to provide the earnest money check to the title company to place in escrow, and three calendar days to provide a check to the seller for option money.

Earnest money, sometimes also called a good faith deposit, is an initial deposit to show that your offer is serious. It is typically 1%-5% of the offered price. Earnest money will be held by the title company until closing and will go towards closing costs. If you choose to terminate the contract under the agreed-upon terms, your earnest money will be returned to you. If you terminate for reasons that were not agreed upon, some or all of your earnest money may be paid to the seller.

In Texas, the contract phase is followed by the option period. During this period, which is typically 5-10 days, you as the buyer will be able to get the home thoroughly inspected and will be able to further negotiate or even terminate the contract based on that inspection. In return, you will pay the seller a non-refundable fee known as “option money”. In exchange for this fee, usually $100-$500, they will take the house off the market and allow you access for an inspection.

The amount of earnest and option money you will pay is negotiable and will be included in the offer and contract. Discuss both with your REALTOR® beforehand so you can be prepared to quickly pay both once the contract is signed.

19. Apply for Your Mortgage

As soon as you have an accepted offer, it’s important to begin the formal loan application process to avoid any delays with closing. Your lender will need to know the agreed-upon purchase price and, if you have not provided them already, will need documentation to complete the loan application.

Make sure you deliver any requested documents to the lender within 24-48 hours. Gathering them together beforehand is a great way to save you time and headache during this stressful period.

Requested documentation to gather ahead of time includes:

* W2s/1099s

* Tax statements

* Paystubs

* Bank Statements

* Account information for any funds you plan on using outside of a standard banking institution

* 2 forms of ID

20. Do Your Due Diligence During the Option Period

Now that the contract is signed and all monies have been paid, you will enter the option period. During the option period, you can terminate the contract for any reason and your earnest money will be returned to you.

It’s important to use this time effectively to complete your inspection and negotiate as needed or decide to terminate. As always, your REALTOR® will walk you through this process and offer guidance on what you should ask for. They will also perform all necessary negotiations on your behalf.

21. Get a Home Inspection

It may seem like a good way to save a little money to forgo the home inspection, but buyer beware. Opting out will place you at risk of unplanned costly repairs in the future. Buying a home is one of the most expensive purchases you will make in your lifetime, and it’s prudent to go into it armed with as much information as possible.

Even if the home you are buying looks to be well maintained and is relatively new, skipping a home inspection is not advised.

A home inspector will look at a home from the foundation to the roofing to ensure everything is up to code and to determine its current condition. Electrical and plumbing, HVAC components, safety features, windows and doors, insulation and more will be rigorously checked to make sure there are no unknowns.

Armed with the home inspection, you could request repairs, money for repairs, or even terminate the contract entirely based on what you find.

When choosing your home inspector, always look for a certified and experienced inspector who is knowledgeable and accommodating. You should feel comfortable asking them questions and they should be forthcoming with any answers.

22. Know Who Is Paying for the Survey

A survey will be required by your lender and title company in order to close the contract and complete the mortgage. A survey is a scale drawn diagram of the property, including the land and all structures and improvements on it, and includes details like easements and encroachments.

Sometimes sellers have a previously done survey that is acceptable to the mortgage and title company. If that is the case, the existing survey can be used and no further money will need to be paid.

If there is no existing survey, or the existing survey is not accepted by mortgage and title, a new one will have to be completed. In that case, the title company will order a survey from a licensed survey company they do business with and the cost will be included in closing costs for either you or the seller.

The party paying for the survey will be determined in the contract, so make sure you discuss with your REALTOR® whether you or the seller will be paying for it. The cost for a survey is usually $300 - $800.

23. Get An Appraisal

Once you’ve completed the inspection and all final negotiations to the contract, your lender will order an appraisal. This property valuation is performed by a licensed appraiser and will tell your lender what the property is worth.

If the home does not appraise for the purchase price, you may be asked to bring more money to the table or to have to terminate the contract if that is not possible, as a mortgage company will not lend you more than the home is worth. While the appraisal and final loan process is underway, it’s important to not make any changes that would jeopardize how much loan you are approved for.

24. Don’t Make Any Big Purchases

While it can be tempting to rush out and buy a couch for your new living room, making large purchases could change how much mortgage you qualify for and may end up costing you your new house. Once your mortgage application has been submitted, refrain from doing anything that could affect your credit score.

The main changes to avoid include:

* Buying or leasing a car

* Buying new furniture or major appliances

* Moving assets from one bank account to another

* Changing jobs

* Running a credit score on yourself

* Consolidating bills

If you have questions about a change or purchase you are thinking of making, call your lender and ask if it will be a problem. In this case, it is definitely better to be safe than sorry.

25. Close on Your House and Get Your Keys

The final step in the process is to attend the closing. During the closing, which typically happens at the title company, the mortgage will be finalized, all required documents will be signed, all monies will be paid and the title will be transferred from seller to buyer. Once the mortgage funds, the keys will be handed over and you will be the owner of a new home.

26. Get Homeowners Insurance and a Home Warranty

First of all, the two terms do not refer to the same thing. A home warranty, like a warranty for your car, is a renewable service contract that covers usual wear and tear on your home’s systems and appliances. Homeowners insurance is a policy that insures a home and all belongings in it against catastrophic destructive events, such as a fire, theft, or hail damage.

When shopping for a home warranty, be sure the company you choose is a member of the National Home Service Contract Association, as they adhere to a higher industry code of ethics. Companies that have been in business for several years are often a better option than a new company offering gimmicks.

The cost of a basic home warranty plan in Texas starts at around $400 per year and can increase based on the size of the home and any optional coverage you wish to add. Many times the first year of the home warranty will be covered at closing by the seller, but be sure to speak with your REALTOR® about who will be paying for it.

When looking for your homeowner's insurance, it is recommended to get quotes from three different companies to ensure you’re getting the best deal. It can be cost-effective to bundle your home and auto insurance, but be sure to compare coverage and deductibles as well as price before making a decision.

Homeowners' insurance is based on the cost to rebuild your home, so you’ll need to take factors such as building materials, unique or irreplaceable features, and the number of bathrooms into account. Many homeowner insurance policies do not cover flood damage, so if you live in a flood zone, you may need to purchase extra insurance.

27. Know Your Closing Costs Up Front

Three days before closing, your lender will complete the closing disclosure settlement statement, which will tell you how much money you will need to bring to closing. Whether you are paying your closing costs in cash or rolling them into your mortgage, it’s a good idea to have an estimate of what they will cost upfront.

Ask your mortgage lender if they have a closing cost estimator tool or if they can provide you a closing cost estimate so you can be properly prepared before closing.

Buying a home can feel a daunting process, but with a little research and prep work in the beginning, you can set yourself up for a successful transaction. Though it can be tempting to skip to the fun stuff in your excitement, resist the urge to jump immediately into looking at houses. If you follow the recommended steps, your confidence and preparedness will make the home search that much sweeter.

Be sure to check out our blogs on Dos and Don’ts for New Home Buyers, Things to Avoid When Purchasing a Home, and What to Ask Your REALTOR® When Buying a Home for even more great tips on the home buying process.