Step 1: Assess your finances:

Credit:

Start by checking your credit report and score, examining your budget and assessing your ability to make a down payment and pay closing costs.

Debt-to-income ratio (DTI):

Look at how much in regular outgoing expenses you have relative to your incoming funds.

The ideal spend for housing costs — including the mortgage payment, property taxes, homeowners insurance and homeowners association dues — is 28 percent of your gross monthly income. For all of your monthly debt payments, including housing costs, the ideal spend is 36 percent.

According to bankrate.com, Many mortgage lenders look for a maximum 43 percent DTI ratio, but some go higher — up to 50 percent. The higher your DTI ratio, however, the more likely you are to pay a higher mortgage rate because you’re considered a riskier borrower. A higher DTI ratio can also strain your finances more when managing your mortgage payments.

Down Payment:

Down payments on a home typically range anywhere from 3.5%-20% down, depending on the type of loan and financing options available.

Closing Costs:

Closing costs can range from 2 to 5 percent of the home’s purchase price. Depending on lender fees, you could pay a significant sum on closing day, so you’ll need to have these funds set aside.

There’s also the earnest money deposit, which is a smaller deposit submitted with your initial offer to buy a home. This cost varies but is usually 1 percent of the home’s purchase price.

Step 2: Research types of mortgages

Fixed vs. Adjustable rate:

Fixed-rate loans tend to have slightly higher rates, but the rate — and your monthly payment — never changes. An Adjustable Rate Mortgage (ARM) typically starts with a lower rate for a set time (such as five or seven years) and then adjusts up or down at a predetermined interval (such as once a year). If the rate goes up, your monthly payment will increase.

Loan Terms 15 Year vs. 30 Year Loans

Shorter-term loans have lower rates but larger monthly payments. This means less flexibility in your budget each month in exchange for lower borrowing costs. It’s up to you whether a lower monthly cost or overall savings is more important. Most first-time homebuyers get a 30-year, fixed-rate mortgage.

Step 3: Get quotes from at least three mortgage lenders

You don’t need to apply for a loan to get an offer. You can often get a free quote through the lender’s website if you provide basic information, like your desired loan amount, down payment and credit score range. In general, you’ll want to pay the lowest interest rate. But do weigh all the fees that come with a loan — sometimes, a loan with a lower rate has a higher annual percentage rate (APR) because of fees.

Step 4: Obtain preapproval from your lender

Getting preapproved is necessary before starting your home search because sellers generally won’t consider your offer unless they know you have the financing lined up.

When you request a preapproval, be prepared for your mortgage lender to dig into all aspects of your financial life. Gather your pay stubs and bank statements from at least the past two months, your W-2 forms and federal tax returns from the past two years and any other information on other assets and debt you have.

Step 5: Find the right real estate agent

After you have received your pre-approval letter, it’s time to being looking for a realtor. You’ll want a real estate agent that knows the local market and area well, and can provide insights about school districts, utility providers, among other things.

In today’s market, it isn’t uncommon to have competing offers. You’ll want to make sure that your agent has excellent communication and is able to move quickly on homes that you are interested in.

Step 6: Shop for your home

Perhaps the best part of home buying is the exiting step of shopping for your new home. Be open with your agent about your budget and must have requirements, so you are not looking at homes that don’t meet your needs.

Be sure to tour the neighborhoods, ask your agent for opinions and advice. Your agent should be able to communicate observations such as, homes located on a corner lot can be subject to more traffic noise because of be located off of an intersection.

Step 7: Make your offer

Your agent will help write an offer letter that should include an offer price, a deadline for the seller to respond (usually within 24 to 48 hours) and any contingencies such as appraisal and home inspections you want to request.

Some buyers choose to waive contingencies to get an offer accepted. You will want to avoid doing this if possible. You don’t want to buy a home and later find out it has issues beyond your budget.

Step 8: Apply for your mortgage

Didn’t I already get pre-approved, why am I applying for a mortgage again? Your pre-approval is not an actual approval for a loan.

After your offer is accepted by the seller, you will then need to begin meticulous steps in securing your mortgage. Be prepared to present the following items:

• Copy of your photo ID
• Copy of your Social Security Card
• Last 2 years of W-2 forms and tax return documents
• Last 30 days of paystubs
• (If self employed) Last 12-24 months of profit and loss statements
• Last 2 months of bank statements (both checking and savings) – all pages
• Names and phone numbers of your landlord to verify rental payments
• College transcripts
• (If your down payment is a gift) a gift letter from the giver

If you need help with closing costs, you could look to your state’s housing finance agency. Local housing organizations also offer down payment and closing cost assistance programs.

Step 9: Hire a home inspector

An inspector will check the home’s foundation, roof, HVAC, plumbing and electrical systems. The inspection can take about two or three hours and range from $300 to $1,000, depending on the home’s size and the extent of the inspection. You and your agent should be present during the inspection so you can ask for clarification on any issues.

If the inspection report uncovers major problems, you could try to ask the seller to fix them, but the seller might not be willing to if there are other offers that won’t require them to pay for repairs. If you have an inspection contingency in your purchase agreement and the seller is unwilling to address the issues, you might choose to walk away instead.