The short version: buying a home goes in four phases: prepare to shop, explore your loan choices and get preapproved, choose a loan offer after you find a home, and get ready to close. Budget for the down payment and closing costs (typically 2% to 5% of the price), get loan offers from more than one lender, and compare them on the numbers the lender controls. The steps below say what to do, what it costs and which of our free tools helps at each point.
The four phases of buying a home
The Consumer Financial Protection Bureau (CFPB) describes buying a home in four phases, two before you make an offer and two after. We follow the same order, because each phase answers a different question.
| Phase | The question it answers | What you do |
|---|---|---|
| 1. Prepare to shop | How much can I afford, and what will it cost? | Check credit, set a budget, save the cash |
| 2. Explore loan choices | Which loan types fit me? | Learn the options, get a preapproval letter, shop for a home |
| 3. Choose a loan offer | Which lender's offer is best? | Request Loan Estimates from several lenders, compare, negotiate |
| 4. Get ready to close | What must be done before I sign? | Provide documents, inspect, insure, review the Closing Disclosure, close |
Phase 1: prepare to shop
- Check your credit reports. Get your free reports from AnnualCreditReport.com and dispute anything wrong. A higher score generally means a lower rate, and fixing errors can take weeks.
- Know what a lender will see. Lenders compare your debts with your income. Check yours with the debt-to-income calculator.
- Decide what you want to spend. The CFPB stresses that only you can decide how much to spend, whatever a lender approves you for. Start from a comfortable monthly payment with the house price from monthly payment calculator, or from your income with the house affordability calculator.
- Check that buying beats renting for you. It depends on how long you will stay. Try the rent vs buy calculator.
- Talk to a housing counselor. HUD-approved counselors give free or low-cost advice on budgeting, credit and buying. Find one on the CFPB's find a housing counselor page, or call 1-800-569-4287. Some low-down-payment loans and assistance programs also require a homebuyer education course for first-time buyers. Buying in California? Our California first-time buyer programs guide covers CalHFA's MyHome and Dream For All, with county income limits. In Texas, see our Texas first-time buyer programs guide for TDHCA's loans, tax credit and limits for all 254 counties. For any other state, and to see what a grant or second loan really costs, use our down payment assistance guide, which lists every state's housing agency.
How much cash you need
Buyers often plan for the down payment and forget the rest. At closing you pay the down payment plus closing costs. The CFPB says closing costs typically run 2% to 5% of the price. Each cell below shows the cash needed at closing as a range: the down payment plus closing costs at 2% and at 5%. It does not include moving costs, repairs or a cash cushion after you move in.
| Home price | 3.5% down | 10% down | 20% down |
|---|---|---|---|
| $250,000 | $13,750 to $21,250 | $30,000 to $37,500 | $55,000 to $62,500 |
| $350,000 | $19,250 to $29,750 | $42,000 to $52,500 | $77,000 to $87,500 |
| $450,000 | $24,750 to $38,250 | $54,000 to $67,500 | $99,000 to $112,500 |
| $600,000 | $33,000 to $51,000 | $72,000 to $90,000 | $132,000 to $150,000 |
The 3.5% column matches the smallest down payment on an FHA loan. Your own closing costs depend on the loan, the lender, your state and the property. Estimate them line by line, laid out like your Loan Estimate, with the closing cost calculator. Some states add their own transfer and recording taxes, which our closing costs by state guides explain.
Worked example: a $350,000 home with 5% down
With $17,500 down, the loan is $332,500. At 6.5% for 30 years (an example rate, not a quote), with property tax of 1.1% of the price, $1,800 a year in insurance and 0.5% mortgage insurance while your equity is under 20%, the monthly payment builds up like this:
| Principal and interest | $2,101.63 |
| Property tax | $320.83 |
| Homeowner's insurance | $150.00 |
| Mortgage insurance | $138.54 |
| Total monthly payment | $2,711.00 |
The cash needed at closing is the $17,500 down payment plus closing costs: about $24,500 to $35,000 in total. One traditional rule of thumb keeps housing costs near 28% of gross income. Your payment of $2,711 a month would then call for an income of about $116,186 a year. It is a guideline, not a rule, and lenders look at all your debts. See the mortgage calculator for your own numbers.
Keep money in reserve after closing. Repairs and maintenance are real costs of owning, and a common rule of thumb budgets around 1% of the home's value a year.
Phase 2: loan types, programs and preapproval
Once you know your budget, learn the main loan types. The details change, so confirm current terms with a lender.
| Loan | Smallest down payment | Worth knowing |
|---|---|---|
| Conventional | As low as 3% on some programs, such as Fannie Mae's HomeReady | HomeReady requires income at or below 80% of the area median, and a homeownership education course for first-time buyers. You can cancel its mortgage insurance once your equity reaches 20%. |
| FHA | As low as 3.5% | Insured by the Federal Housing Administration and made by private lenders. It allows lower credit scores than most conventional loans. Mortgage insurance is required on all FHA loans, and the maximum loan varies by county. |
| VA | Often none | For eligible service members, veterans and surviving spouses, with a Certificate of Eligibility. VA-backed loans can be used without a down payment, and your lender sets its own credit and income standards. |
| USDA | Often none | For eligible homes in eligible rural areas, for low and moderate income households. The guaranteed program offers 100% financing. |
The CFPB notes that for borrowers with good credit and a medium down payment (10% to 15%) FHA loans tend to be more expensive than conventional loans, while for borrowers with lower credit scores or a smaller down payment FHA is often the cheapest option. There are no hard and fast rules, so ask lenders for quotes on both and compare the total cost. Many state and local housing agencies also run down payment or closing cost programs, so ask a housing counselor or lender what is available where you live.
Get a preapproval letter
A preapproval letter says a lender is tentatively willing to lend you up to a certain amount. It is based on assumptions and is not a guaranteed loan offer, but sellers frequently require one. Lenders typically check your credit first, and the letter can expire, usually in 30 to 60 days. Two things the CFPB stresses:
- Getting a preapproval does not commit you to that lender. Its letters do not tell you which lender offers the best deal, so wait to choose a lender until you have Loan Estimates.
- Lenders differ in what they verify. Ask what your preapproval is based on, and whether anything could lead to your loan being denied later.
Take the questions to ask a mortgage lender to every call, and gather paperwork with the mortgage documents checklist. For how prequalification differs from preapproval, how long a letter lasts and what it does to your credit, read mortgage pre-approval vs prequalification. Self-employed? Lenders ask for more documents, so read the self-employed mortgage requirements before you apply.
Phase 3: compare loan offers
After you choose a home, request Loan Estimates from several lenders. The CFPB says homebuyers can potentially save $600 to $1,200 per year by getting offers from multiple lenders. Multiple mortgage credit checks within a 45-day window count as a single inquiry on your credit report, and each lender must send a Loan Estimate within three business days of getting your application details. Ask each lender for the same kind of loan so the offers line up.
- Compare the interest rate, the points, the origination charges in Section A, the services in Section B and any lender credits. Our guide to reading a Loan Estimate explains each section.
- Turn the offers into one answer with the loan offer comparison calculator. It shows which offer is cheapest for the number of years you will keep the loan.
- Ask the lender you prefer to match a better offer. The CFPB says your best bargaining chip is usually having Loan Estimates from other lenders.
Phase 4: get ready to close
- Submit documents and answer lender requests quickly. Slow paperwork is a common cause of delay.
- Schedule a home inspection. It can reveal expensive problems before they become yours.
- Shop for homeowner's insurance, and for title insurance and other closing services. Some services can be shopped for, and the Loan Estimate tells you which.
- Watch for a revised Loan Estimate. If something changes, such as the loan type or the appraisal, costs can change and the lender may issue a new one.
- Review your Closing Disclosure. Lenders must give it to you three business days before your scheduled closing. Compare it line by line with your last Loan Estimate. Use our closing date tool to count the days (Saturdays count, Sundays and holidays do not).
- Close. Never sign a form with blank spaces. Once you sign, you are responsible for the loan.
Be alert for closing scams. The CFPB warns that scammers target homebuyers in the days before closing. If you get an email or call that changes where to send closing money, confirm it by phoning a number you already know and trust.
Mistakes to avoid
- Talking to only one lender. Offers vary, and the CFPB's estimate of $600 to $1,200 a year in potential savings comes from shopping around.
- Budgeting only for the mortgage payment. Tax, insurance, mortgage insurance, HOA dues and maintenance are part of the cost.
- Forgetting closing costs. They are typically 2% to 5% of the price, on top of the down payment.
- Using every dollar. Keep a reserve for repairs and surprises.
- Opening new credit or missing a payment before closing. The CFPB lists a new loan or a missed payment that changes your credit as a change in circumstances that lets the lender change your costs.
- Skipping the inspection. It is one of your best chances to find a costly problem.
- Assuming the preapproval amount is your budget. Only you can decide how much to spend.
- Trusting wiring instructions in an email. Confirm by phone with a number you already know.
Free tools for each step
| Step | Tool |
|---|---|
| Check your debts against income | Debt-to-income calculator |
| Find a comfortable price | House price from monthly payment and house affordability |
| Decide whether to buy at all | Rent vs buy calculator |
| See the full monthly payment | Mortgage calculator and how payments work |
| Plan your cash to close | Closing cost calculator |
| Choose a loan length | 15 vs 30 year calculator |
| Compare lender offers | Loan offer comparison and reading a Loan Estimate |
| Stay organized | Homebuyer checklist and documents checklist |
| Later, if rates fall | Refinance break-even calculator |
Sources
This guide follows the Consumer Financial Protection Bureau's Buying a house tools, including Get a preapproval letter, Request and review multiple Loan Estimates, Closing on your new home and FHA loans. Program details come from Fannie Mae's HomeReady page, the VA's purchase loan page and USDA's guaranteed loan program. Programs, limits and rates change, so confirm them with a lender. The rates and prices in our examples are illustrations, not quotes. Last reviewed September 2026. This is general information, not financial or legal advice.