10 Critical Steps Every Home Buyer Should Know

Buying a home ranks among the most significant financial decisions you'll ever make, yet most people approach it with more questions than answers. Between credit scores, down payments, and closing costs, the path from browsing listings to holding keys can feel overwhelming.

This guide walks you through 10 critical steps-from checking your credit and setting a realistic budget to making competitive offers and coordinating your move-so you can approach the process with clarity and confidence.

Check your credit and readiness

Your credit score is one of the first things lenders look at when you apply for a mortgage. A higher score typically means a lower interest rate, which can save you tens of thousands of dollars over the life of your loan. Most lenders want to see a score of at least 620 for conventional loans, though some loan types accept lower scores.

Review your credit score and report

You can pull your credit report for free once a year from AnnualCreditReport.com, which gives you access to reports from all three major bureaus: TransUnion, Experian, and Equifax. Look for errors like incorrect late payments, accounts that aren't yours, or wrong balances. If you spot mistakes, contact the bureau directly to dispute them.

Your credit utilization ratio matters too. This measures how much credit you're using compared to your total available credit. Keeping this below 30% shows lenders you manage debt responsibly.

Calculate your debt-to-income ratio

Lenders use your debt-to-income ratio, or DTI, to figure out how much house you can afford. This compares your monthly debt payments to your gross monthly income. To calculate it, add up all your monthly debts-car loans, student loans, credit cards, and your future mortgage payment-then divide by your gross monthly income and multiply by 100.

Most lenders prefer a DTI of 43% or lower. If yours is higher, consider paying down existing debt before applying for a mortgage, since debt-to-income ratio is the top reason for mortgage application denials.

Decide if now is the right time

Buying a home is a big commitment beyond just finances. Ask yourself if you have stable employment, an emergency fund covering three to six months of expenses, and the flexibility to stay in one place for at least a few years. Life changes like a new job, a growing family, or an upcoming move can all affect whether now is the right moment.

Market conditions matter too. While you can't time the market perfectly, knowing local inventory levels and price trends helps you make a more informed decision.

Set a realistic budget and down payment

The amount a lender approves you for isn't always what you can comfortably afford. Lenders calculate your maximum loan based on income and debt, but they don't account for your lifestyle, savings goals, or other priorities.

Determine your maximum monthly payment

A common guideline is keeping total housing costs at or below 28% of your gross monthly income. This includes principal, interest, property taxes, homeowners insurance, and any HOA fees. For example, if you earn $6,000 per month before taxes, aim for a housing payment around $1,680.

Property taxes and insurance vary widely by location and home value. Private mortgage insurance, or PMI, adds to your monthly payment if you put down less than 20%. Budget for routine maintenance and repairs too, which typically run 1% to 2% of the home's value each year.

Estimate upfront costs beyond the down payment

Closing costs include appraisal fees, title insurance, loan origination fees, and prepaid items like homeowners insurance and property taxes. Expect to pay 2% to 5% of the purchase price. On a $300,000 home, that's $6,000 to $15,000 on top of your down payment.

Set aside funds for moving expenses, immediate repairs, and any furniture or appliances the home might need. Planning ahead keeps you from draining your emergency fund.

Explore down payment assistance programs

You don't always need 20% down. FHA loans allow down payments as low as 3.5%, while conventional loans can require as little as 3% for qualified buyers. VA loans and USDA loans offer zero-down options for eligible veterans and rural homebuyers.

Many states and local governments offer down payment assistance programs, especially for first-time buyers. There are currently 2,509 assistance programs available nationwide as of 2025.

Get preapproved for a mortgage

A preapproval letter shows sellers you're a serious buyer with the financial backing to close. In competitive markets, offers without preapproval often get passed over.

Gather income and asset documents

Lenders ask for two years of W-2s or tax returns, recent pay stubs, bank statements showing at least two months of activity, and documentation of other income sources. Self-employed buyers typically need additional paperwork, including profit-and-loss statements and business tax returns.

Organize documents early so you can move quickly when you find the right home. Digital copies stored in a secure folder make sharing information easier if you're comparing multiple lenders.

Choose lenders and submit applications

Don't settle for the first lender you talk to. Compare rates, fees, and loan terms from at least three sources-banks, credit unions, and online lenders. Shopping with multiple lenders can save you up to $1,200 annually on your mortgage. Credit unions often offer lower rates and more personalized service.

When you submit multiple mortgage applications within a 45-day window, credit bureaus count them as a single inquiry. Ask each lender for a Loan Estimate, a standardized form that breaks down interest rates, monthly payments, and closing costs so you can compare options directly.

Receive your preapproval letter

After a lender reviews your financial documents and runs a credit check, they'll issue a preapproval letter stating the maximum loan amount you qualify for. This letter is typically valid for 60 to 90 days, though you can request an updated version if your search takes longer.

A preapproval isn't a final loan commitment. The lender will still verify your finances and appraise the property before closing. Avoid making major purchases or opening new credit accounts during this period, as changes to your financial profile can affect your loan approval.

Compare loan options and rates

Not all mortgages work the same way. The right loan type depends on your financial situation, how long you plan to stay in the home, and how much risk you're comfortable taking on.

Conventional vs FHA vs VA loans

Conventional loans are the most common mortgage type and typically require a credit score of at least 620 and a down payment of 3% to 20%. If you put down less than 20%, you'll pay PMI until you reach 20% equity.

FHA loans are backed by the Federal Housing Administration and designed for buyers with lower credit scores or smaller down payments-as little as 3.5%. However, FHA loans require both upfront and ongoing mortgage insurance premiums.

VA loans are available to active-duty service members, veterans, and eligible surviving spouses. They offer zero-down financing, no PMI, and competitive interest rates.

Fixed vs adjustable rates

A fixed-rate mortgage locks in your interest rate for the entire loan term-typically 15 or 30 years-so your principal and interest payment stays the same. This stability makes budgeting easier and protects you from rising rates.

An adjustable-rate mortgage, or ARM, starts with a lower fixed rate for an initial period-usually three, five, seven, or 10 years-then adjusts annually based on market conditions. ARMs can save you money if you plan to sell or refinance before the rate adjusts, but they carry more risk if rates rise.

Points and rate buydowns

Mortgage points, also called discount points, let you pay an upfront fee to lower your interest rate. One point typically costs 1% of the loan amount and reduces your rate by about 0.25%. If you plan to stay in the home long enough to recoup the upfront cost through lower monthly payments, buying points can make sense.

Choose a trusted agent or digital buying partner

The home buying process is complex, and having the right support makes a real difference. Whether you work with a traditional real estate agent or explore digital alternatives, choose a partner who gets your situation.

Interview real estate agents

A skilled agent brings local market knowledge, negotiation experience, and access to off-market listings. Ask potential agents about their experience in your target neighborhoods, their communication style, and how they'll help you compete in a tight market.

Request references from recent buyers and pay attention to how responsive the agent is during initial conversations. You'll be working closely with this person for weeks or months, so trust matters.

Consider cash offer platforms like Opendoor

If you're selling a home while buying a new one, timing the transactions can be stressful. Cash offer platforms like Opendoor let you sell your current home quickly and use that certainty to shop as a non-contingent buyer-making your offer more attractive to sellers.

This approach eliminates showings, open houses, and the uncertainty of waiting for the right buyer. You can get a free, no-obligation cash offer and move forward on your timeline.

Understand representation agreements

When you work with a buyer's agent, you'll typically sign a representation agreement outlining the agent's duties and compensation. In most cases, the seller pays the buyer's agent commission, though recent industry changes mean this structure may vary.

Dual agency-where one agent represents both buyer and seller-can create conflicts of interest. Make sure you know who your agent represents and how they're being paid.

Define your home wish list and search area

Before you start touring homes, get clear on what you're looking for. A well-defined wish list helps you focus your search and avoid wasting time on properties that don't meet your core needs.

Separate must-haves from nice-to-haves

Start by listing your non-negotiables-features you won't compromise on, like number of bedrooms, proximity to work, or access to good schools. Then create a second list of nice-to-haves, like a large backyard, updated kitchen, or home office.

This exercise helps you prioritize when evaluating multiple properties. You might find that some nice-to-haves are worth stretching your budget, while others can wait.

Research neighborhoods and schools

Visit your target neighborhoods at different times of day and on weekends to get a feel for traffic patterns, noise levels, and community atmosphere. Check crime statistics, school ratings, and future development plans that could affect property values.

Talk to neighbors if you get the chance. They can offer insights about the area you won't find online. Consider commute times, access to amenities, and whether the neighborhood aligns with your lifestyle.

Tour homes virtually and in person

Professional photos and virtual tours are helpful screening tools, but they don't capture everything. Schedule in-person tours whenever possible to walk through the space and get a feel for the home's condition and layout.

Pay attention to signs of deferred maintenance-like water stains, cracked foundations, or outdated electrical systems-that could signal expensive repairs down the road. Take notes and photos during each tour to help you remember details when comparing properties later.

Make a competitive offer with confidence

When you find the right home, you'll often need to move quickly-especially in a competitive market. A well-structured offer balances protecting your interests with making your bid attractive to the seller.

Study recent comparable sales

Your agent can pull "comps"-recently sold homes in the area with similar size, age, and features-to help you determine a fair offer price. Look at how long homes are sitting on the market and whether they're selling above or below asking price.

In a hot market, you may need to offer at or above asking price to compete. In a slower market, you might have room to negotiate.

Decide on contingencies and earnest money

Contingencies are conditions that let you back out of the contract without losing your earnest money-typically 1% to 3% of the purchase price. Common contingencies include:

Financing approval: The lender officially approves your loan for the property. Home inspection: The inspection doesn't reveal major issues, or the seller agrees to make repairs. Appraisal: The home appraises at or above the purchase price.

While contingencies protect you, too many can make your offer less appealing. Work with your agent to strike the right balance.

Submit a strong timely offer

Speed matters when submitting an offer, especially if the seller is reviewing multiple bids. Your agent will handle the paperwork and communicate with the seller's agent to present your offer in the best light.

Be prepared to negotiate on price, closing date, or repairs if the seller counters your initial offer.

Schedule inspections and appraisals

Even if a home looks perfect, a professional inspection can uncover hidden issues that affect value and safety. This step protects you from expensive surprises after closing.

Hire certified inspectors

A general home inspection covers the structure, roof, plumbing, electrical systems, HVAC, and major appliances. Depending on the property, you may also want specialized inspections for pests, radon, mold, or septic systems.

Choose an inspector who's licensed and experienced in your area. Your agent can recommend reputable professionals, but you're free to hire anyone you trust.

Review reports and negotiate repairs

Once you receive the inspection report, review it carefully with your agent to identify major issues versus minor cosmetic concerns. You can ask the seller to make repairs, offer a credit at closing, or reduce the purchase price to account for needed work.

Sellers aren't obligated to agree to your requests, so prioritize health and safety issues over cosmetic updates. In some cases, it makes sense to walk away if the inspection reveals problems you're not prepared to handle.

Prepare for the lender appraisal

Your lender will order an appraisal to confirm the home's value supports the loan amount. If the appraisal comes in at or above the purchase price, you're clear to move forward. If it comes in low, you'll need to renegotiate with the seller, pay the difference in cash, or request a second appraisal.

Appraisal gaps are more common in competitive markets where buyers bid above asking price.

Finalize financing and closing costs

As you approach closing, your lender will finalize your loan and provide detailed cost estimates. This is your chance to review every line item and ask questions before signing.

Lock your interest rate

Mortgage rates fluctuate daily based on market conditions. A rate lock guarantees your interest rate for a specific period-usually 30 to 60 days-protecting you from increases while your loan is processed.

Some lenders charge a fee for rate locks, especially for longer periods. Ask your lender about timing and whether a float-down option is available if rates drop before closing.

Review the closing disclosure

Your lender provides a Closing Disclosure at least three business days before closing. This document details your final loan terms, monthly payment, and itemized closing costs.

Compare the Closing Disclosure to your original Loan Estimate to verify that fees haven't increased unexpectedly. If you spot discrepancies or charges you don't recognize, contact your lender right away.

Bring funds and sign documents

You'll need to bring a cashier's check or arrange a wire transfer for your down payment and closing costs. Personal checks typically aren't accepted for large amounts.

At closing, you'll sign a stack of documents-including the promissory note, deed of trust, and closing disclosure-transferring ownership and finalizing your loan. Once everything is signed and recorded, you'll receive the keys to your new home.

Plan your move and sell your current home

If you currently own a home, coordinating the sale and purchase can be tricky. Poor timing can leave you paying two mortgages or scrambling to find temporary housing.

Align closing and move-out dates

Work with your agent and lender to schedule closings as close together as possible. Some buyers negotiate a rent-back agreement with their buyer, allowing them to stay in their old home for a few days after closing while they move.

If you can't perfectly align the dates, consider temporary housing options or portable storage units to bridge the gap.

Decide between list-and-sell or cash offer

Traditional listings can take weeks or months to sell, creating uncertainty about when you'll have funds for your next purchase. Cash offer services provide a guaranteed sale date and price, giving you the flexibility to shop without a home sale contingency.

This certainty can make your offer more competitive and eliminate the stress of managing showings while living in your home. Get a free cash offer from Opendoor to explore your options.

Avoid double mortgages and double moves

Carrying two mortgages-even temporarily-can strain your budget and affect your debt-to-income ratio for the new loan. Some buyers use bridge loans to cover the gap, but bridge loans come with additional costs and risks.

Opendoor's trade-in program lets you use a cash offer on your current home to buy your next one without the hassle of double moves or overlapping payments. This streamlined approach gives you control over your timeline and peace of mind during the transition.

Move forward with a free Opendoor cash offer

Buying a home is one of the biggest decisions you'll make, and the right support makes all the difference. Whether you're navigating a first purchase or coordinating a simultaneous sale and buy, having certainty and flexibility transforms the experience.

Opendoor offers instant cash offers that let you sell on your timeline, skip the showings, and move forward with confidence. You can explore the market at your own pace, knowing exactly when your sale will close and how much you'll receive.

Get your free, no-obligation cash offer today and take the first step toward your next chapter.

FAQs about home buying tips

What is the 30 percent rule when buying a house?

The 30 percent rule suggests spending no more than 30% of your gross monthly income on housing costs, including mortgage, taxes, and insurance. This guideline helps ensure you can comfortably afford your monthly payments while maintaining financial flexibility for other expenses and savings goals.

What are the four Cs lenders use to approve mortgages?

Lenders evaluate Credit (your credit score and history), Capacity (your ability to repay), Capital (your down payment and assets), and Collateral (the home's value). These four factors determine your loan approval and terms, helping lenders assess the risk of lending to you.

How long does the home buying process typically take from start to finish?

The entire home buying process usually takes 30 to 45 days from accepted offer to closing, though finding the right home can take weeks or months. Pre-approval and house hunting happen before this timeline, so the total journey varies based on market conditions and your specific situation.