Important Steps in the Homebuying Process

Buying a home can seem complicated, but it becomes easier to understand if you learn the terminology and the key steps. Here, we break it down into six areas to explore as you prepare for your journey.

Step 1: Assess your readiness

Make sure your finances are ready for a home purchase.

Check your credit score and credit report

To improve your credit score, make sure you pay your bills on time and reduce your credit card debt, if possible.

Save for a down payment and other closing costs. Some ways to save include cutting unnecessary spending and saving extra income like tax refunds or work bonuses.

Understand how much you can afford

Get an estimated home price and monthly mortgage payment based on your income, monthly debt, down payment, and location. With this knowledge, you can confidently evaluate suitable homes at the right price.

Research homebuyer assistance programs

Explore your eligibility for homebuying aid, which can include homebuyer grants and programs offered to help cover your down payment or closing costs.

Step 2: Prepare

Get acquainted with mortgage options and calculate what you can afford

Research your mortgage options

How do you know which mortgage type is right for you? You can start by looking into the different types of mortgages available, such as fixed-rate or adjustable-rate mortgages, and 15-, 20-, or 30-year loans. Thirty years is the standard term rate, however, a shorter term can be beneficial if you want to reduce the amount of interest you pay over the life of the loan and can afford a higher monthly payment.

Get a personalized rate quote

With a personalized rate quote, you can learn how much you could borrow and what your estimated rate and monthly payment would be. This is a straightforward online process that uses your income, debt, and rate information and only takes a few minutes.

Step 3: Shop

Have fun touring homes – and make sure you're looking within your budget.

Find a real estate agent

A real estate agent will represent you, teach you about different neighborhoods and what to look for in a home, and even help you negotiate with the seller if you find a home you like.

Make your wish list

Write a list of the most important features you want in a home to help narrow your search.

Step 4: Buy

Know the details of submitting an offer on that first home.

Make an offer

  • Once you’ve found a house that meets your criteria and budget, it’s time to make an offer. Your real estate agent will send an offer on your behalf. If your offer is what the seller is looking for, it might be accepted. However, sellers also may make counter offers until you can land on agreeable terms.
  • If your offer is accepted, you may also want to make an earnest money deposit. This money, which is typically 1% to 2% of the purchase price, shows the seller you’re serious about purchasing the home. It’s a type of security deposit and helps protect the seller if the deal falls through. Later, when the home sale is finalized, the earnest money can be applied to the closing costs or down payment.
  • If you decide not to purchase the home for a permissible reason, you may be able to get this money back. However, if you decide not to purchase for a reason not covered in the contract, you may have to forfeit this earnest money.

Complete your application

Once you’ve found a property, you’ll need to complete your home loan application. During these final steps, your lender will review and verify all information for your loan, including your income, bank account assets, credit score, etc. If everything checks out, you’ll receive final approval of your mortgage application.

Step 5: Close on your loan

These steps help ensure the transaction can be finalized.

Consider a home inspection

A home inspection ensures the house is in a condition you are willing to accept before finalizing the purchase. While a home inspection is optional, a professional home inspector can help identify issues with the home you may have missed. The inspection typically takes place 7 to 10 days after signing the contract. Once the inspection is complete, the inspector will provide a report that details repairs you may want to negotiate with the seller.

Confirm if a home appraisal is required

The home appraisal is an examination of the property by a licensed appraiser to determine the fair market value of a property. The lender uses the appraisal to verify the property meets their underwriting criteria, and it should provide you and your lender insight into whether the agreed upon sales price is an accurate reflection of market value.

Secure homeowners insurance

Homeowners insurance rates vary by state and region, but most policies typically cover the following:

  • The home in the event of fire, wind, hail, frozen plumbing, vandalism, or theft
  • Additional attached or unattached structures on the property (depending on the policy), such as garages and sheds
  • Personal property, such as furniture, electronics, clothes, etc.
  • Additional living expenses if you need to leave your home temporarily while it’s being repaired under a claim
  • Medical payments if someone is injured on your property

You may also need to purchase flood insurance for your home, depending on the location. The National Flood Insurance Program has more information about flood insurance.

Your lender will require you to have homeowners insurance secured before closing. You typically have the option to pay your first year’s premium prior to closing or have it included in your monthly mortgage payments.

Review the closing disclosure

The Closing Disclosure document provides an opportunity to double-check your loan details, so be sure to review it carefully. Pay attention to things such as the loan terms and costs. The disclosure will also outline the buyer and seller costs, so make sure this matches your original purchase offer. If you have any questions, talk to your lender as soon as possible before closing day.

Closing day: Finalize and your closing paperwork

Sign the home purchase and borrowing documents in the presence of a lawyer and notary — and move into your new home!

After closing

Set yourself up for success!

Manage your mortgage account

Consider autopay. Autopay is a convenient service that helps ensure your mortgage is paid on time. This not only can help you avoid late fees and penalties, but it can also have a positive impact on your credit score because automatically paying your mortgage account can help you build an on-time payment history. 

Review your escrow account. If you have an escrow account associated with your loan, your lender reserves a portion of your mortgage payment to pay your taxes and insurance on your behalf. These expenses can change from year to year, and in turn, change your monthly mortgage payment. Taking time to review your escrow statements can help you adjust your monthly budget to accommodate any payment changes.

Make your lender your partner. Life can bring unexpected challenges. If you find yourself struggling to keep up with your mortgage payments, talk with your lender about possible options for getting things back on track. At Wells Fargo, we have trained specialists to help our customers navigate through financial hardships and provide the guidance so they don’t have to go through it alone.

Monitor key loan milestones

  • Track your equity. Your home’s market value often fluctuates, but with the help of various online tools, you can learn the estimated value of your home. This information can help determine how much equity you’ve built over time, and in turn, help you decide if tapping into your equity to achieve other financial goals is right for you. When our customers are ready to search for homes or simply curious about their home’s estimated value, we offer a one-stop real estate tool exclusively for Wells Fargo customers.
  • Know when you may be eligible to drop private mortgage insurance (PMI). For some mortgage loans that require PMI, you may be eligible to drop this fee if your home equity increases or when you’ve paid down your loan balance. Talk with your lender to learn the criteria required to remove PMI. Once you understand these requirements, you can periodically review your mortgage account to see how close you are to meeting them.
  • Understand how many years are left on your mortgage. This detail can help you evaluate when refinancing your mortgage is right for you based on your financial profile and goals. This information can help you determine if you are likely to recoup the costs incurred when you refinance your home. You may also want to set financial goals based on how long you want to stay in your home before you sell.

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