Simple 4-Year Plan To Buy a House

Written By Rory Arnold

Reviewed By Taylor Garvey

Buying a home can be a confusing process, and it takes time to prepare. If you want to become a homeowner in four years, creating a timeline and sticking to it can make the homebuying process more manageable.

Here’s a breakdown for how to buy a house in four years.

How To Buy a House in 4 Years

Timeline	Homebuying Step	How To Prepare
The first year	Understand the costs of buying a home	Buying a home requires upfront costs, which include a down payment and closing costs. There also are ongoing “hidden” costs of buying a home, such as homeowners insurance, private mortgage insurance, maintenance costs, and property taxes. While some loans require no down payment — such as those backed by Veterans Affairs and the U.S. Department of Agriculture — they’re only available for qualified borrowers. Conventional conforming loans — which are offered by private lenders and aren’t insured by a government agency — require a down payment that’s at least 3% of the home’s purchase price. According to the Federal Reserve Bank of St. Louis, the average sales price of a home in the second quarter of 2023 was $495,100, so a 3% down payment would be $14,853. Also, don’t underestimate the list of closing costs, which usually total 2% to 5% of the purchase price. That means your closing costs on a $495,100 home could be as much as $24,755.
	Set a savings goal, and figure out how much house you can afford	While 3% is the minimum down payment for conventional conforming loans, there are benefits to saving for a larger down payment over the next four years. For example, putting more money down increases the likelihood you’ll secure a lower interest rate. If you save for a 20% down payment on a conventional loan, you’ll avoid PMI. You can use a mortgage calculator to determine what your monthly payment could be with different down payment amounts. Once you’ve targeted a savings goal and know the costs of homeownership, you can review your finances to determine a realistic price range for you. To inform your search, research the housing market to get an idea of current average home prices and interest rates, keeping in mind that these will change over the next four years.
	Create a budget	Coming up with a budget can help you stick to your savings goals. It also can help you identify where you can cut unnecessary spending. List all your monthly costs, which may include utility bills, food, gas, discretionary expenses, and rent. Add up these costs and subtract them from your monthly income. The difference is how much you’ll have left over to put toward savings. To increase your savings, identify areas where you can cut back, open a high-yield savings account, and automate your contributions. Over four years, these savings can add up.
	Look up your credit score, set a goal, and begin building your credit	Here’s a breakdown of the credit score requirements for different popular loans: — Conforming conventional loan: 620. — Nonconforming conventional loan (jumbo loan): 680. — Federal Housing Administration loan: 500. — VA loan: No requirement; minimums set by lenders. — USDA loan: 640. Your credit score also will affect the interest rate you’re offered. In general, borrowers with higher credit scores receive lower rates. Borrowers with a credit score of 760 or higher typically secure the lowest interest rates. If you have a poor credit score, you can improve it in several ways, including: — Paying down your balances. — Paying bills on time. — Avoiding new debt. If you want to buy a house with no credit, there are loan options available to you.
2 years in	Check in on your progress toward your goals	Checking your four-year plan periodically can help you progress toward your goal. If you’ve been diligent about saving and cutting down on debt, you may even find yourself ahead of schedule. If you’re behind schedule, then you may need to adjust your timeline.
	Continue building on your savings and credit	Continue to set money aside to build up your down payment. This also might be a good time to dispute any errors on your credit report to increase your score.
	Outline your wants vs. needs vs. must-haves in a home	You might need to make some sacrifices when it comes to the features and amenities in your new home. Making a list of your wants vs. needs vs. must-haves in a home can help you identify which compromises you’d be willing to make.
3 years in	Partner with a real estate agent or Realtor	Your real estate agent or Realtor can be a key teammate as you navigate the homebuying process. You can lean on their knowledge and experience while you tour homes, make an offer, negotiate, and close on your new home. To find a real estate agent, you can start by asking friends and family for references. Once you’ve selected a few candidates, it’s a good idea to interview them. Here are some questions you should consider asking: — How much experience do you have helping buyers in this neighborhood? — Does my price range sound realistic for this market? — How many clients do you have?
	Research the market	Spend time researching the housing market. This will help you understand how many homes are available for sale, how much competition there is among buyers, and what the prevailing home prices and mortgage rates are. If it’s a buyer’s market — where the supply of homes exceeds the demand — then the buyer has an advantage and you may have more leverage negotiating the price of the home and other aspects of the deal. If demand exceeds supply, then it’s a seller’s market, and the seller has the upper hand. Your mortgage rate is affected by your finances, but it’s also influenced by market conditions, such as the federal funds rate. You can track weekly averages for interest rates using this tool from Freddie Mac.
	Research homes	Begin checking out listings with your agent so you can target homes to tour. Your agent can send you prospective homes that they think you might be interested in based on your list of wants vs. needs vs. must-haves, but you also can do your own research.
	Research loan options and target one	There are many loan types offered by different lenders, including: — Conforming loans. — Nonconforming loans, or jumbo loans. — FHA loans. — VA loans. — USDA loans. The most common options for your repayment term are 15 years or 30 years. Here’s a breakdown of interest rate types to choose from as well: — Fixed-rate mortgages have an interest rate that’s determined when you take out the loan and never changes, which offers predictability in your monthly payments. — Adjustable-rate mortgages have an interest rate that stays the same for an initial period, and then changes periodically.
	Start gathering the paperwork	To get approved for a mortgage, lenders will review certain financial documents to confirm that you can afford the loan, and evaluate the risk you pose as a borrower. You can expect to need the following documents: — W-2s or 1099s. — Pay stubs. — Bank statements. — Income tax returns. — Investment account statements. — Proof of any other sources of income. — Identification. — Social Security number. Additional documentation may be required based on lender discretion.
3 years and 6 months in	Get preapproved for a mortgage	The next step is to get mortgage preapproval from a lender. A preapproval letter is a document that’s given after the lender verifies your finances and estimates the amount it expects you could be approved for. While it’s not a guaranteed loan offer, it shows sellers that you’re serious about buying. Many sellers won’t even consider your offer unless you’re preapproved.
	Ask lenders questions to choose the right one	Here are some questions to ask lenders that can help you choose the right one: — What types of mortgages do you offer? — What is the interest rate on the loan? — What will my monthly payment be? — What will the closing costs be? — What are the credit and income requirements? — How long will it take to get approved? — Do you offer mortgage points?
	Tour open houses	Here comes the exciting part! Now it’s time to schedule home tours. Walking through a home will help you identify the positive or negative aspects of a home. Make sure to ask questions on the home tour to better understand the property.
The finish line	Make an offer on the home you want	If you’ve found a house that you want to buy, then you can make an offer with the help of your agent. When deciding how much to offer, consider how long the home has been on the market, the value of comparable homes in the area, and whether the home needs any renovations.
	Sign the purchase and sale agreement	Once your offer is accepted, you and the seller will sign the purchase and sale agreement. This is a contract that will include the details of your transaction, including: — The sale price. — Contingencies. — The closing date.
	Apply for a mortgage	The next step is to formally apply for a mortgage. Compare different loan estimates to confirm that you’re getting the best deal. During the underwriting process, the lender will carefully review your finances, check your credit, calculate your debt-to-income ratio, and verify your employment history to assess how much risk you pose as a borrower.
	Get a home appraisal and inspection	The home appraisal will produce a report that assesses the home and estimates what it could sell for on the open market. Lenders typically require an appraisal to confirm that the home’s value matches the loan amount, or the mortgage principal. The home inspection is when a third-party professional inspects the home’s structure and condition. The inspection protects your investment and lets you know if there’s any damage, defects, or hazards, so you don’t inherit any expensive repairs.
	Purchase insurance	Your lender also will require you to purchase a homeowners insurance policy, which protects you against loss from specific disasters or accidents. A typical policy covers the structure of your home and your personal belongings.
	Close on your new home	You’ll receive a closing disclosure from your lender at least three days before closing day. This is a five-page document that covers the important details about your loan — including your interest rate, monthly payment amount, and loan principal. On closing day, you’ll sign all the paperwork, make your down payment, and pay your closing costs. The title of the property will be transferred to your name, and you’ll become the official new owner of the home.