Buying a home is an integral part of the American dream. There’s something special — almost sacred — about the idea of owning your own property where you can raise kids and grow old with your spouse before passing on that property to your descendants.
The trouble is, buying a house is fairly complicated, particularly in the modern market. Let’s break down how to buy a house in 2023 step-by-step.
Step 1: Do tons of research and figure out your financials
As a first-time homebuyer in 2023, your first priority should be to do a lot of research. Buying a home may be the most expensive purchase you’ll ever make in your life, so it will be in your best interest (both personally and financially) to pick the perfect home and area and to consider your financials carefully before pulling the proverbial trigger.
Specifically, you should determine:
- What kind of home do you want in terms of its square footage, features, inclusions, etc.
- Where do you want to buy a home. Generally, homes in suburban areas or metropolitan areas are more expensive. Prices can also increase given factors like proximity to good schools, whether or not the home is in a good neighborhood, etc.
Figure out the kind of home you want to buy and where you want to purchase a property before going any further. Don’t start home shopping without establishing your non-negotiables.
Related: 5 Tips for First-Time Home Buyers
When is a good time to buy a home?
The best time to buy a home is during a “buyer’s market.” Put simply, this means that there is more favorable market pressure toward homebuyers compared to sellers. Generally, this means there is a surplus of available homes, meaning homebuyers have more choices. Since there is high supply and high demand, sellers have to meet buyers more in the middle and negotiate more to close deals.
All of these factors combined mean that home prices should be lower than average (or at least lower than they have been in recent months).
In contrast, a seller’s market means that home prices are higher given a high demand and low supply. You may have fewer options for available houses, and you’ll have to pay more because sellers have more bargaining power.
Try to time your home purchase so it’s during a buyer’s market. If you aren’t sure when that is, ask a realtor or real estate agent. They may be able to advise you on whether to purchase a home now or wait down the line.
So, will 2023 be a good time to buy a home? To get a clear answer, you have to look at the current data, trends and predictions for the coming year.
Recently, home prices across the U.S. have increased to astronomical levels. Data from Zillow, the leading online marketplace for real estate by user volume, shows that average U.S. home prices have risen by 29% since the beginning of the Covid-19 pandemic in 2020.
In 2022 alone, mortgage rates skyrocketed from 3.22% in January to 7.08% by the end of October. While it’s impossible to know for sure how mortgage rates will move next year, many are making predictions. On the low-end Fannie Mae predicts an average range of 6.2% and 6.6%, while others, such as the Economy Forecast Agency (EFA), predict rates to hit 7% in the first quarter of 2023 and top out above 11% by the fourth quarter. However, increasing home inventory and fewer recent home purchases in major markets could indicate an incoming market correction.
In other words, you might consider waiting for a few months or until the middle part of 2023 before buying a home to see if prices decrease.
How much money do you need to buy a house in 2023?
Take a hard look at your budget and figure out how much you can spend on a property. To get a mortgage, you need at least 3% of a home’s asking price for a down payment. Think of this as a lump sum good faith payment to show a home seller that you are serious about paying off your mortgage over time.
If you’re a veteran, you may be able to access special mortgage loans that don’t require a down payment. These loans are the exception rather than the rule. In addition, it’s wise to make as much of a down payment as possible toward the home’s value because it will lower your interest rate and how much you have to pay each month on your mortgage.
Your monthly mortgage payment is largely tied to your initial mortgage agreement (at least for conventional loans). If you want your monthly payments and mortgage rates for homeownership to be low, put down as much cash as you can toward the purchase price, even if you use credit cards. However, it’s important to do a cost-benefit analysis to see if you’re gaining (or losing) by paying with a credit card. There are certainly risks, but there can be benefits as well.
This is also true for property taxes, PMI or private mortgage insurance, and other costs.
Don’t forget to consider closing costs, either. Closing costs usually equal 3% to 6% of a property’s total, and they cover various fees to close a real estate deal, like attorney fees, title insurance costs, etc.
For example, say that you want to purchase a home worth $350,000. In most cases, you’ll need a down payment of at least 3% of $350,000, which is $10,500. After the down payment, you’ll have to account for closing costs. To split the probably costs down the middle, plan for 4.5%. 4.5% of $350,000 is $15,750. In total, this means you’ll need around $26,250 to purchase that $350,000 house.
You can try negotiating closing costs and securing a loan for a smaller down payment. However, it may be wiser to save more than you need so that you can comfortably outbid other interested parties and purchase the home quickly.
Step 2: Talk to a real estate agent
The best way to buy a house in 2023 and beyond is to contact a knowledgeable real estate agent. Real estate agents are homebuying experts who know the local market and can take you to houses that meet your needs in your target area.
Say that you want to find a home with three bedrooms and two bathrooms, and a big yard for your dog. Rather than looking through online listings and driving around yourself in search of a stellar property, you can speak to a real estate agent and explain this, plus tell them all your other necessities or desires.
The real estate agent will then look on the market and multiple listing services (MLS) for your area to find appropriate homes. They’ll draw up a list, contact the sellers and invite you to tour those homes so you can pick the best one.
In short, real estate agents make finding the perfect home much easier and faster.
Do you always need a real estate agent?
No, and skipping a real estate agent could save you some money in terms of closing costs (real estate agents usually take a commission, which is a percentage of the home’s asking price). However, cutting the middle man means you’ll have to do much more research and find appropriate homes for your needs.
Generally, it’s only advisable to skip hiring a real estate agent if you already have a property in mind and know the homeowners personally.
Step 3: Contact lenders for preapproval for your mortgage
Mortgage pre-approval is an important part of the home-buying process that you shouldn’t skip in 2023. If you are preapproved for a mortgage, your lender — such as a bank or credit union — says they’ll most likely underwrite a loan for you based on your credit history, financial profile or history with their branch.
Getting preapproval also accelerates the mortgage lending process. If you find a home you love and need a loan quickly to purchase it before another prospective homebuyer, being preapproved will let you get your funding faster to secure the purchase.
Note, however, that preapproval only counts toward mortgages up to a certain amount. A bank might preapprove you for a loan for $400,000, but not $500,000.
Regardless, a preapproval letter shows you have earnest money to put toward a property and will help you in your house hunting in any real estate market.
What if you can’t get preapproval?
You may not be able to qualify for home loan preapproval based on factors like low credit score, no financial history with a given institution, etc.
If that’s the case, don’t lose hope. You can always boost your credit by waiting a few months and making your utility payments on time. You can also contact other lending institutions for preapproval.
If you don’t have much of a credit history but have other beneficial attributes, like veteran status, you can try to qualify for federal loans from the U.S. Federal Housing Administration or FHA. FHA loans and VA loans are good means for borrowers who have low debt-to-income ratios but less than stellar results in their credit reports.
Step 4: Begin looking for and touring homes
At this stage, you should start looking for and touring homes that are on the market, usually with the help of your real estate agent.
Remember that you don’t have to accept the homes your real estate agent has prepared or outlined for you. If none of the homes fit your needs, ask them to find another property. Real estate agents won’t do this forever, but many are genuinely interested in getting you the best deal and finding the perfect property for you and your family.
As you look at homes in 2023, listen to your real estate agent’s advice. They might tell you whether a certain feature or amenity is difficult to find and may offer advice regarding when you should purchase.
If, for instance, your real estate agent says you should make an offer on a given house quickly because it is highly competitive, listen to them. Otherwise, you might miss out on an attractive property because you were too hesitant.
Step 5: Choose a house and make an offer
Your next step is to decide on the house you want to purchase and make a competitive offer to the seller. Of course, what constitutes a competitive offer in 2023 can vary heavily from place to place and market to market.
What’s a good offer?
Generally, you should try to make a competitive offer based on the prices of surrounding homes or the listing price stated by the seller. But there are exceptions to this unspoken rule.
In many cases, you can make a slightly lower or cheaper offer for a house if you offer to pay most or much of the cost in cash. This is advantageous for the seller because they get access to the money immediately. Paying in cash isn’t an option for many Americans, however.
Speak to your real estate agent about what they think a good offer would be. They may be able to offer insight into the market competition, whether other buyers might be able to offer more money than you, etc.
U.S. News & World Report predicts existing home prices will decrease by about 5% nationally and up to 10% or more in high-priced areas; however, not everyone expects prices to fall everywhere. Lawrence Yun, the senior vice president of research at the National Association of Realtors, believes “there’s a chance that half of the country may witness price increases, while the other half will see price drops.”
If other buyers are interested in the same house, you may have no choice but to “highball” your offer to sway the seller to your side.
Step 6: Negotiate with the seller
Purchasing any house in 2023 requires some haggling and negotiating. Don’t be afraid of this, as it’s a necessary part of the process! Most negotiations revolve around who will pay for most of the closing costs.
As noted earlier, closing costs include various fees, insurance payments, and commission fees for involved realtors. Generally, closing costs are paid for by the party that benefits most from them – for instance, you’ll pay for your real estate agent’s commission, while the home seller will pay for the inspection (see more below).
You can negotiate with the home seller to cover some or all of your closing costs, however, if you have other benefits to bring to the table, such as buying the house with cash, being able to close the deal quickly, and so on.
Step 7: Schedule an inspection and appraisal
No matter how much money you offer, it’s a good idea to schedule a home inspection and home appraisal at the earliest opportunity. In 2023, ensure you schedule the inspection first.
A home inspection involves a licensed inspector coming out to the property and making sure that it is in good condition, that its foundations are secure, and that there aren’t any major problems that the home seller failed to disclose to you beforehand (and that might cause you to rethink your offer or offer less money).
Once an inspector has finished their work, they will create an inspection report for you to review. Make sure the inspection doesn’t reveal any major issues before moving on.
Next, schedule an appraisal. This process is also carried out by a licensed professional. The appraiser essentially checks the prices and values of similar homes in the area, called “comps,” to make sure that the seller has listed their home for a competitive, fair price.
If the appraisal report says the home should be worth much less than it is listed for, go back to the bargaining table and try to get the seller to lower the price. The seller may try to push back against this.
If the seller isn’t willing to sell their property for a reasonable, fair price, walk away from the bargaining table and look for a different property. Even in a seller’s market, there’s almost certainly another house that will be perfect for you and your family that you don’t have to overpay for.
Are these steps really necessary?
Yes. You should never buy a home if the seller wants you to skip the inspection and appraisal steps. It could be a sign that they are trying to trick you into purchasing a bad property or a home with a lot of things wrong with it that will require you to sink even more money into it in the future.
On top of that, most mortgage lenders require you to complete an inspection and appraisal and include that paperwork with your loan application. No mortgage lender wants to finance the purchasing of a home that has a lot of problems, which may make it difficult for the mortgagor to pay back their loan.
Step 8: Apply for a loan
If everything looks good so far, it’s time to apply for a loan from a bank, credit union, or other financial institution. Applying for your loan should be quick and simple if you have already gotten preapproval. Still, be sure to complete the paperwork carefully and comprehensively so you don’t miss anything.
If all goes well, you’ll get your loan approved in a matter of days, allowing you to finalize the offer with a home seller and move to the final steps of the process.
Once more, if you don’t qualify for any mortgage loans, try to improve your credit in the meantime or seek out alternative means of financing.
Step 9: Contact other necessary professionals
At this stage, you need to contact other key professionals in the real estate industry. In prior years and in 2023, the process involves a few major parties.
Real estate attorney
You’ll want a real estate attorney to look over the closing documents and ensure there aren’t any loopholes for any party to exploit. Real estate attorneys can work with flat fees or commissions, so investigate how much you’ll have to pay for this particular closing cost.
Title insurance company
You’ll also need to contact a title insurance company. The title insurance company ensures your purchase (specifically, the title for the property) so that you’re protected if you discover or are made aware of a problem with the title later.
For example, if you purchase a property from an apparent owner, only to discover that they didn’t have the true title to the property when you made a purchase, your title insurance will protect you from financial fallout.
Homeowners insurance company
Don’t forget to contact a homeowners insurance company as well. Homeowners insurance is usually necessary if you want to be financially covered from losses or damages to your home, especially from disasters like fires or floods.
If you plan to renovate or change the property in any way before moving in, now’s the time to contact your preferred architect or contractor.
Step 10: Check the property one last time
You’re almost done. Now it’s time to do a last walk-through and check out the property before finalizing the purchase.
Don’t skip this step in 2023! Always check your property one last time before buying it just to make sure that the seller has not tried to hoodwink you in some way. Make sure that all the appliances and electrical outlets work, and ensure that there aren’t any issues with the yard, doors or windows.
If you notice something wrong with your dream home during the final walkthrough, ask the seller to fix it before the closing date.
Step 11: Close the deal
In contrast to the rest of this process, closing the deal when purchasing a house is pretty straightforward. Your real estate attorney will bring the paperwork to the final meeting with the home seller, and you and the seller can sign the documents that note the transfer of ownership.
Your attorney will also usually be happy to take these documents down to your local county clerk’s office so they can be filed properly. They may or may not charge an extra fee in addition to their commission for this labor, however.
Now you should receive the keys to your new home and be the official owner!
What about financing in 2023? Because there are large sums of money involved in buying a house, that money is held in a third-party escrow account, usually selected by your mortgage lender. As soon as the deal goes through, the money is transferred from the escrow account into the home seller’s bank account or other intended destination.
Related: 5 Tips for Millennial Home Buyers
Step 12: Move in
You shook hands with the home seller, signed all the paperwork and finalized the transaction. Once you get your keys from your real estate agent or the home seller, congratulations – you’re ready to move into your new house!
If you’re interested in buying a house in 2023, you have a lot to consider. Buying a house might seem like a lot of work, and it requires plenty of preparation beforehand. But in the end, you can buy a house so long as you have the right financing and a plan in mind. Follow the steps above, and your home purchase in 2023 will go smoothly.