Step 4: Figure Out How You'll Pay for the House

The price of a house relative to the average U.S. income is higher than at any time in recent memory. So unless you are a statistical outlier, you'll probably have to save, scrounge, and borrow in order to afford your house purchase.

There are two parts of the purchase that you'll need to prepare for: your down payment and your mortgage. It's worth trying to pull together a relatively high down payment (20% or more of the purchase price), because that will let you afford more house and avoid paying private mortgage insurance (PMI). For ideas on where to draw your down payment money from, see Finding Your Down Payment.

Mortgages now come in all flavors and varieties, not just the fixed rate and adjustable rate ones from the past. The better your credit rating, the more favorable a mortgage you'll be able to obtain. (For more on this topic, see Qualifying for a Mortgage.) It's best to get preapproved for a loan before you start bidding on houses.

The key to choosing an amount and type of mortgage is to not get in over your head. Start by creating a realistic budget of your monthly income and expenses. Then research what type of loan will allow you to make the payments easily and responsibly. Again, a mortgage broker can help you wade through the possibilities. Or, for help with your own research, see Shopping for a Mortgage Online.

Step 5: Bidding on the House You Want

Here's where you lay your cards on the table, and present the seller with a written offer to buy the house. (Most states have standard contract forms that you or your realtor can use for this purpose.) The standard offer form will usually require you to state your proposed purchase price, where you expect to obtain financing, what conditions or "contingencies" you're attaching to the offer, how quickly you're willing to close the deal, and more.

Realize, however, that some important aspects of making the offer may depend on where the house is located and how hot the market is there. For example, in super-hot markets, such as California during the early 2000s, the list price was considered a mere baseline, and bidders were expected to offer tens of thousands of dollars more. Likewise, many sellers were not accepting offers with contingencies -- which are otherwise very common -- since they had their pick of offers to choose from.

A seller may accept your offer as written, but is more likely to present you with a counteroffer suggesting changes to some of the terms. Of course, the seller can also reject your offer. Even if you present a full price offer, the seller is under no obligation to accept it.

For more on how to craft a tempting offer and handle counteroffers, see Making an Offer on a House.