First-time homebuyer guide: how to buy a house, step by step

Step 1: How much house can I afford?

A lender will tell you the most you can borrow. Only you can decide what you're comfortable paying each month. Those are two different numbers, and I want you to know both.

Your monthly house payment is more than the loan itself. Lenders look at the full payment, often called PITI or PITIA:

• Principal (paying down the loan) and Interest
• Property Taxes
• Homeowners Insurance, plus flood insurance if required
• Association dues (HOA or condo fees), if any
• Mortgage insurance, if your loan requires it

Lenders compare your total monthly debts, including the new house payment, with your monthly income before taxes. That's your debt-to-income ratio (DTI): how much of your income goes to debt payments. Each loan program has its own limits. But your own budget should also leave room for savings, repairs and the life you actually live.

Cash you'll need besides the down payment

• Earnest money (a good-faith deposit) when your offer is accepted
• Home inspection and sometimes other inspections (termite, septic, survey)
• Closing costs and prepaids (bills paid ahead), like the first year of homeowners insurance and the starting deposit into your escrow account
• Reserves, meaning money left in the bank after closing. Some loans require it, and every homeowner needs it.

Step 2: How do I get my credit ready to buy a house?

Your credit history affects which loans you qualify for and how they're priced. If you can, start several months before you plan to buy.

• Get your free credit reports at AnnualCreditReport.com, the official site for free reports from the three nationwide bureaus. Dispute any errors.
• Pay every bill on time. Recent late payments hurt a lot.
• Keep credit card balances low compared to their limits.
• Hold off on opening new accounts unless you truly need them.
• If you have collections or past credit problems, tell me early. Many can be worked with. Surprises late in the process are much harder.

Step 3: Get preapproved, not just prequalified

The CFPB (Consumer Financial Protection Bureau) notes that lenders use "prequalification" and "preapproval" differently. Neither one promises you a loan. Here's how I use them:

What documents do I need for a mortgage preapproval?

• Photo ID
• Recent pay stubs and the last two years of W-2s
• Tax returns, especially if you're self-employed, earn commission or own rental property
• Two recent months of bank and investment statements, all pages
• Explanations and paperwork for any large, unusual deposits
• Gift letter and donor information if family is helping with your down payment

This is also when we pick a loan type: conventional, FHA, VA or USDA. If you're torn between the first two, my FHA vs. conventional guide walks through the real trade-offs.

Is there down payment assistance in my state?

Yes. State housing finance agencies in all three states where I'm licensed run homebuyer programs that can include down payment assistance. They're offered through participating lenders and have their own rules. These often include income limits, purchase price limits and a homebuyer education class. Program terms change, so always check the official site for current details:

• Georgia: the Georgia Dream Homeownership Program, from the Georgia Department of Community Affairs (DCA). DCA's site describes Georgia Dream for first-time buyers, plus related options such as Peach Plus. Price caps and income limits apply and vary by area.
• Alabama: the Alabama Housing Finance Authority (AHFA) offers programs including Step Up and First Step. AHFA works through a network of participating lenders and doesn't lend to homebuyers directly.
• Florida: Florida Housing Finance Corporation offers a first mortgage program for first-time buyers, plus down payment assistance options such as Florida Assist and the Florida Hometown Heroes program. Florida Housing says its assistance is available only with its first mortgage and that approved homebuyer education is required.

Assistance can come as a second mortgage with its own repayment or forgiveness terms. Read those terms as carefully as the first mortgage. I'm happy to walk you through how a program would fit your purchase, subject to the program's availability and eligibility rules.

Step 4: Shop, make an offer and put down earnest money

With a preapproval in hand, you and your real estate agent can shop with confidence. Before you write an offer, send me the address. I'd rather check property taxes, HOA dues, flood zone and insurance costs before you're under contract than after.

When your offer is accepted, you'll usually put down earnest money. It's a good-faith deposit that shows the seller you're serious. A neutral party named in the contract holds it. It's usually credited toward your down payment or closing costs at closing.

Your contract spells out when you could lose it. So make sure you understand your contingencies (conditions that let you back out) and deadlines. Examples are the due diligence or inspection period and any financing and appraisal contingencies.

Step 5: Apply and review your Loan Estimate

Once you have a property address and formally apply, the lender must send a Loan Estimate within three business days of getting your application. It's a standard form, so you can compare lenders line by line.

Look closely at:

• The loan amount, interest rate and whether the rate can change
• Whether there's a prepayment penalty (a fee for paying off early) or balloon payment (a large lump sum due later)
• Estimated closing costs and cash to close
• Whether your rate is locked, and until when

Step 6: What's the difference between a home inspection and an appraisal?

These two get mixed up all the time:

Under Regulation B, for a first-lien loan on a home, the lender must give you a copy of the appraisal promptly when it's done or three business days before closing, whichever is earlier. You can waive that timing and get it at closing instead. But I'd rather you see it early.

Step 7: Underwriting and conditions

The underwriter (the person who makes the loan decision) checks your file against the loan program's rules. They issue an approval, usually with conditions. Conditions are just items that still need paperwork, like an updated pay stub, an explanation for a deposit or proof of homeowners insurance.

The fastest closings I see come from buyers who answer these requests quickly and completely. Send the whole statement, every page, even the blank ones.

What should you not do before closing on a house?

Your loan is approved based on a snapshot of your finances. Changing that picture can delay or derail closing.

• Don't open new credit cards or finance furniture, appliances or a car.
• Don't change jobs or switch to commission or self-employment without talking to me first.
• Don't make large cash deposits or move money between accounts without a paper trail.
• Don't co-sign for anyone.
• Don't miss payments on existing accounts.
• Don't wire money based on emailed instructions without calling a verified phone number first. Wire fraud targeting homebuyers is real.

Step 8: Your Closing Disclosure

You must get your Closing Disclosure at least three business days before closing. It shows your final loan terms and costs. Compare it with your Loan Estimate and ask about anything that changed.

Some changes after you get it require a corrected form and a new three-business-day wait. These include the APR (the yearly cost of the loan, including fees) becoming inaccurate beyond allowed limits, a change in loan product, or an added prepayment penalty. Other changes can be fixed without restarting the clock.

Step 9: Closing day in Georgia, and getting your keys

In Georgia, residential real estate closings are conducted by a closing attorney. The closing attorney's firm handles the title work and the entire closing: preparing documents, collecting and paying out funds, and recording the deed and security deed. Alabama and Florida closings may be handled by an attorney or a title or settlement company.

1. Final walk-through. Check the home's condition and any agreed repairs.
2. Bring ID and verified funds. Follow the closing attorney's or settlement agent's instructions for wiring cash to close. Confirm those instructions by phone.
3. Sign. You'll sign the note (your promise to repay), the security instrument and other documents. Ask questions. That's what the table is for.
4. Funding and recording. Once the loan funds and documents are handled, you get your keys based on your contract's possession terms.

Common questions about this topic

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