How to Become a Homeowner: Your 2024 Step-by-Step Guide

May 3, 2024 — 2 min read

Homeownership matters. And for first-time home buyers, the steps to buying a house can seem about as clear as mud. So, if you’ve been wondering how to become a homeowner for the first time or a homeowner all over again, read on.

In 2022, the homeownership rate in the United States reached approximately 65.5%. (For reference, the number of folks who owned a home was 45.6% in 1920.) The rate has increased over time due to a variety of factors, but many still feel that owning a home is a dream they’d like to fulfill.

Among other first-time homebuyer tips, it’s good to know the benefits of homeownership:

Wealth: Build equity as you pay down your mortgage, and allow that, combined with property value appreciation, to help make a profit if/when you sell.
Stability: Homeownership provides consistent, predictable monthly payments.
Credit Building: Help increase your FICO score with on-time mortgage payments.
Community Building: Staying in the same place, you’re part of a community.
Health: Homeowners have a higher self-rated health, perceived control over their lives, self-esteem, and happiness rates vs. renters.
Improvements: You can customize, renovate, and even paint your walls any color—to make your home exactly how you want.

RELATED: Renting vs. Owning

Entering the 2024 housing market as a first-time buyer requires careful planning, including choosing the right homeownership advisor. Follow our home buying checklist and confidently navigate the 2024 real estate market.

Read on for our 2024 Guide: How to Become a Homeowner.

How to Become a Homeowner—In 7 Steps

STEP 1: GET REALISTIC ABOUT FINANCES AND YOUR FUTURE

Determine Your Future Plans.
Are you planning on staying in one place for longer than three years? It could be a good time to buy instead of rent. But: Is now the best time to buy a house? Check your finances, determine your level of desired responsibility, and think about the future. If you like to move around, buying and selling homes will require additional costs for every transaction.

Calculate How Much House You Can Afford.
Knowing how big a monthly payment you can afford will help your search or show you whether buying a house is a feasible option. Use our online mortgage calculator to determine affordability before you start the whole process, or better yet, reach out to one of our mortgage professionals for a personal consultation.

RELATED: Signs You’re Ready to Buy A House

STEP 2: ORGANIZE YOUR FINANCES

Credit Score.
Your credit score is one big indicator of what loans and interest rates you’ll qualify for. According to Statista, 30% of surveyed respondents said they’re holding off on buying a house due to their credit score. It’s best to know your score before you apply so you can improve it if needed or have a clearer expectation of the rates you’ll be offered. Find your credit score through one of the three reporting agencies. Every year, you can get a detailed credit report (on AnnualCreditReport.com) to see what’s impacting your score:

Payment history (on-time or outstanding)
Amount owed
Credit history length
Types of credit
New credit inquiries

Income, Employment, and Budget.
Your employment status can impact your ability to secure different kinds of loans, too. Lenders appreciate applicants with steady, predictable income—and will often ask for a job history of up to two years. Have pay stubs handy, and know your gross pay and take-home pay. If possible, make a goal to increase your income to become a more reliable loan applicant—or alternatively, explore saving money by cutting any unnecessary expenses.

Debt.
Debt factors into your credit report, and it helps your lender determine what amount of mortgage debt you can feasibly pay each month—like a human version of the loan calculator. If your debt-to-income (DTI) ratio is 43% or lower, most mortgage options should be open to you. DTI is calculated by dividing your debts by your gross monthly income. Calculating DTI can be complicated, so reach out to one of our mortgage professionals for help.

Decide On A Down Payment Amount.
Set a goal for your down payment. Keep in mind that the cost of private mortgage insurance (PMI) will be included in your monthly payments if you’ve opted for a lower down payment option. (less than 20% in most cases)

Did you know? 34% of surveyed non-homeowners don’t currently own a home because they do not have enough money for a down payment. Consider looking into our down payment assistance programs, or consider a loan that doesn’t require a down payment, like a VA loan or a USDA loan.

STEP 3: SAVING UP

If homeownership matters to you, you’ll be much more determined to make it happen.

Down Payment.
That down payment can be tricky to save for. Between rent and groceries and living life—things get expensive. However, the down payment could make a difference by offering you a lower interest rate and monthly payment. It’s worth adjusting your budget to increase savings for your down payment. Your down payment “requirement” will vary by loan type and the amount you plan to borrow.

Note: If family members are contributing money for your down payment, ensure you provide the lender with a gift letter.

Estimate Closing Costs.
Closing costs are the price of creating a loan. You’ll need to pay about 3-6% of your loan amount in closing costs. It can be included in your mortgage or paid by the seller, depending on the agreements (seller concessions) put in place. Plan on it.

STEP 4: MORTGAGE LOANS, LENDERS & PRE-APPROVAL

Types of Mortgage Loans.

There are multiple kinds of mortgage loans offered. Depending on your goals and life scenario, choose the one that works best for you with a homeownership advisor:

Conventional Loan - This non-government-backed loan offers stable monthly payments for borrowers with solid credit profiles. They can be offered with a fixed or adjustable rate.
VA - Specifically for military veterans, active-duty, or surviving spouses, this loan has a no-down payment option, and may have lower interest rates than conventional loans. PMI is also not a requirement.
FHA - This loan can make first-time home buying affordable, with a low down payment and monthly payment options—ideal for those still building up their credit, or who don’t have sufficient funds for a large down payment—as little as 3.5% of the purchase price is required as a down payment.
USDA - If you’re hoping to live in a rural area, this government-backed loan can help. Eligible applicants can build, rehab, improve, or relocate a dwelling as a primary residence in eligible rural areas with this loan. Plus, there’s a no down payment option.
Jumbo - If your first home exceeds the loan limit set by the Federal Housing Agency, the Jumbo loan can help you secure a loan of up to $3 million—but a 20% down payment is required.
Non-QM - The opposite of a Qualified Mortgage (according to the Consumer Financial Protection Bureau), which does not fall within the parameters of a typical qualified mortgage in terms, fees, qualifying verification, payment structure, or DTI.

RELATED: Mortgage FAQs

Mortgage Lenders.
The mortgage process is complex, but your loan officer can make it easier explaining your financing options and staying in touch with you throughout the process. Check to see if PacRes Mortgage has loan officers in your area—they know exactly how to become a homeowner.

Seek Pre-Approval.
If you’re happy with your loan officer, pursue pre-approval. Ask about credit, income, and down payment requirements for the loan you’re interested in, and look into down payment assistance programs if needed. Your lender will look closely at your credit, assets, and income and create a pre-approval letter stating how much you may take out! This letter can be the ticket to a smoother home offer process when you find the home you want.

STEP 5: RESEARCH HOUSING & HIRE A REALTOR

Real Estate Professionals.
With a letter in hand, find a real estate agent. Ask friends and family for a recommendation for realtors in your desired area, and start looking at listings in your price range. Attend open houses and get a feel for what to look for when you walk through a home.

How to Choose A Home.
Take into account location, schools, amenities, and resale value when you begin your home search. Understand the going rates of homes in the same area (“comps” = comparable homes in size and location). Look at the price range of what you can afford, investigate real estate taxes and local property trends, and keep square footage and walkability in mind, too. Share your priorities with your Realtor, so they can present you with homes that can fulfill your hopes and dreams of first-time homeownership.

RELATED: How Much House Can I Afford?

STEP 6: MAKE AN OFFER

No home-buying checklist would be complete without making an offer.

Offers and Negotiations.
Your real estate agent will have a good idea of what to offer, and they can help you avoid overpaying for your property. Here’s how it goes:

Submit an offer letter—tell the seller how much you are willing to pay.
Include an earnest money deposit (1-3% of the home cost) to show you’re serious about buying.
The seller can accept, reject, or send back a counteroffer.

If you receive a counteroffer, you may enter into negotiations (accepting, rejecting, or countering their counteroffer) with your real estate agent’s help. If you can’t land on an agreement, you can walk away.

Inspection and Appraisal.
Have your home inspected for structural or health hazards. If anything comes back from the inspection, ask the seller to address the issues before you close on the house.

A home appraisal is required before you purchase a home with a home loan. If the home’s appraised value is lower than your offer, you may need to reconfigure your offer or down payment.

RELATED: Home Loan Timeline

STEP 7: CLOSE ON YOUR FIRST HOME!

Final Walk Through.
The last of the steps to buying a house—require actual physical steps. The final walk-through! This is the time to check for any promised repairs, look for pests, and test out appliances, electric, and the HVAC system.

Closing Disclosure and Closing Meeting.
The final closing costs are included in the closing disclosure, along with all of your loan details. Check these details against your loan estimate to make sure all is well. Then, attend the closing meeting, bringing along your ID, the closing disclosure, and the proof of funds for the payment. You’ll be asked to sign the settlement statement, the mortgage note, and the deed of trust. Look carefully through all the documents and soak in the glory of being a first-time or new again, homeowner!

Explore first-time home buyer loan options that can work for you. Get in touch with one of our mortgage lenders today to find out how to become a homeowner!

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