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About the home buying process

Financial savings and life considerations may contribute to your to-dos for home buying.

Couple Carrying Sofa Into New Home

Owning a home is part of the American dream, but only about 65% of U.S. residents have achieved this goal. No matter where you are on your home buying journey — years away or ready to sign on the dotted line — there are financial and life circumstances that should figure into the equation. As you talk to family members and friends about how to buy a house and their own successes and stumbling blocks, keep these key points in mind.

Think long-term

The more you can plan and save in advance, the more options you’ll have for what you are able to buy. If you can, create a line item in your monthly budget dedicated to saving for a down payment, and prioritize debt repayment so you have fewer financial obligations once you decide to buy a home.

How much will your down and monthly payments be?

As you add to the down payment savings you’ve started, keep this number in mind: 20%. That’s the total down payment toward your purchase price that enables you to get a mortgage without the monthly expense of private mortgage insurance.

As you determine how much to save for a down payment, consider what price point you can afford for your house. Mortgage lenders may use the 28/36 rule. This rule states that 28% of your gross monthly income should be the maximum spent on total housing expenses and that not more than 36% should be spent on total debt (housing, car loans, etc.). Another more conservative rule says that your housing payment (including insurance and taxes) should not be more than 25% of your take-home income.

And don’t forget that owning a home includes other costs, such as homeowners insurance, property taxes, maintenance, repair and upgrades you might make to a home.

Do your research

About five million home sales happen each year in the United States according to the National Association of Realtors. To find the perfect home for you, consider what’s most important for your lifestyle, then prioritize your list of requirements. For example, you might want a certain number of bedrooms, desire a shorter commute or need space for a dog.

It can be helpful during this research phase to get preapproved for a mortgage and to find a real estate agent. You also may want to attend a few open houses to get an idea of what you like and don’t like.

Are you selling and buying a home at the same time?

When you are selling your home and buying another, there are some things to consider.

  • You may put in an offer on a new home and include contingencies on that offer. For example, a contingency might be that you must sell your existing home within a certain time frame.
  • Using the financial guidelines you used for the purchase of your first home, be sure to buy what you can afford and what will work with your life and financial goals. For example, are you planning on having children or making other larger purchases? Those are costs that will increase your monthly outlay of cash in the future.

Are you preapproved for a mortgage?

Preapproval includes running a credit check, considering the amount of the down payment and owed current debt. The outcome of this information will determine whether or not the buyer is preapproved.

Getting preapproved might not be a bad idea – it could help the buying process move along much faster. Being preapproved shows sellers that you are a serious buyer and could give you an advantage over other buyers. Most preapproval letters are valid for 60 to 90 days.

Find a real estate agent

Real estate agents bring knowledge and skills to the home buying process. They can help provide:

  • Information about the neighborhood that might not be easily available to the public;
  • Steps to the home buying process; and
  • Negotiating skills when it’s time to make an offer.

And the agent shouldn’t cost you, the buyer, a thing unless you engage an exclusive buyer’s agent. Agents are usually compensated from the commission that is paid by the seller.

The information in this article was obtained from various sources not associated with State Farm® (including State Farm Mutual Automobile Insurance Company and its subsidiaries and affiliates). While we believe it to be reliable and accurate, we do not warrant the accuracy or reliability of the information. State Farm is not responsible for, and does not endorse or approve, either implicitly or explicitly, the content of any third party sites that might be hyperlinked from this page. The information is not intended to replace manuals, instructions or information provided by a manufacturer or the advice of a qualified professional, or to affect coverage under any applicable insurance policy. These suggestions are not a complete list of every loss control measure. State Farm makes no guarantees of results from use of this information.




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