Buying a House: Costs, Steps and Timeline

What it costs beyond the deposit

Closing costs of 2-5% of the price cover loan origination, appraisal, credit reports, title search and insurance, recording fees, and prepaid property tax and homeowners insurance held in escrow.

Then there is the part nobody budgets: moving, immediate repairs, appliances, window coverings and the ongoing maintenance reserve. A widely used rule sets aside 1% of the home's value each year for maintenance, and older homes need more.

The process, in order

Preapproval comes first, because it sets your true price ceiling and makes offers credible. Then searching, an offer with contingencies, and an accepted contract that starts the clock.

• Earnest money deposit, held in escrow and credited at closing.
• Home inspection, and negotiation of repairs or credits from what it finds.
• Lender appraisal — a valuation below the contract price forces a renegotiation or extra cash.
• Underwriting, during which you must not open new credit or change jobs.
• Final walkthrough, then closing and the transfer of title.

Affordability, done properly

Lenders qualify you on debt-to-income ratio, typically allowing total monthly debt up to about 43% of gross income, and sometimes more. That is a limit, not a target — the amount you are approved for is regularly more than the amount you should spend.

Work from take-home pay instead. Keep the full housing payment — principal, interest, taxes, insurance and any HOA fee — near 25-28% of net income, and check the figure against your actual savings rate rather than an aspirational one.

Where buyers lose money

Skipping the inspection to win a competitive offer is the most expensive shortcut available, and waiving an appraisal contingency can require tens of thousands in unplanned cash. Both are common in hot markets and both transfer real risk to you.

The subtler loss is buying with too short a horizon. Transaction costs on purchase and sale together often exceed 8% of the price, which takes several years of appreciation and principal repayment to recover. If a move within three years is plausible, renting is usually the cheaper decision.