Closing costs. Expect closing costs to be from 1 to 8 percent of the purchase price. This covers the loan fee, also called “points,” charged by the lender plus other loan origination costs.

Miscellaneous costs. This is money you will pay up front to cover things like the application fee for the loan, the appraisal of the property, transfer fees, a professional home inspection and so forth. Your miscellaneous fees will be in the range of $250 to $800.

All together, on a $225,000 purchase price, you should plan on $40,000 to $65,000 up front, depending on the down payment, the terms and conditions of your loan and other related costs.

Qualifying for a mortgage. Generally, you need four things to qualify for a mortgage these days:

  • Money for a down payment.
  • Household annual income that is 2 to 3 times your monthly mortgage payment.
  • Two years of solid employment with the same job or in the same field.
  • A good credit score (or credit score average of the joint buyers).

Steps to buy a house

1. Get your credit reports. Go to to get free copies of your credit reports from each of the big three credit bureaus. You will need a good score of at least 740, depending on the lender (if joint buyers, average your two scores). If you need to clean up your report to raise your score by disputing items or changing your personal information, now is the time to do that.

2. Go to your bank or credit union and speak to a loan officer. Say that you want to buy a house and want to fill out an application for a mortgage. This will  result in a “pre-qual” letter that says the amount you can qualify to borrow.

3. Find a real estate agent. Get referrals from friends. The seller pays the real estate commission upon the final sale, so you won’t have to come up with money to pay your agent.

4. Discuss with your agent. Bring out your pre-qual letter. Talk about the area you would like to live and your list of “must haves.” Your agent will give you a list of properties that may fit your criteria.

5. Disclosure. Once you find a home that seems interesting and meets your needs, ask for the seller’s Disclosure Form. This lists everything about the property that the seller is aware.

6. Make an offer. If all is well with the Disclosure and you want to make an offer, ask your agent to suggest how much to offer, without going so low you lose out altogether.

7. Submit the offer. The agent will complete the property paperwork to put your offer into writing. The offer includes the price you are willing to pay together with the time frame, and what items if any that you want to be included in the sales price of the home.

8. Inspection. Once your offer is accepted (it may require a few counteroffers back and forth), arrange to have the house inspected by a professional. This may cost you $350 or more, but it will be worth every penny provided you get an experienced inspector.

9. Appraisal. Arrange with your agent to have the house appraised. Your lender will be insistent that the home have a market value consistent with the amount of your loan.

10. Get insurance. Your lender will require that you have proper homeowners insurance for fire and other disasters in place upon closing.

11. Closing. Depending on the state laws where the property is located, you will go to an escrow office, a title insurance office or an attorney’s office to sign all of the documents and take care of any other paperwork. You’ll owe some money, such as the down payment, and closing costs unless you got those rolled into the mortgage. You’ve either already arranged with your bank to wire the funds to the closing company, or you will bring a bank check with you to closing. You’ll receive access to the property according to the details and terms of your contract with the seller.

Congratulations, you are now a homeowner!

"Debt-Proof Living" was founded in 1992 by Mary Hunt.  What began as a newsletter to encourage and empower people to break free from the bondage of consumer debt has grown into a huge community of ordinary people who have achieved remarkable success in their quest to effectively manage their money and stay out of debt.  Today, "The Cheapskate Monthly" is read by close to 100,000 Cheapskates.  Click here to subscribe.

Publication date: September 5, 2012