Buying a House

Owning your own home is often viewed as part and parcel of the American dream. If it's your dream, you can achieve it by following a few easy steps. Your first one is to decide if now is the right time for you to buy a home. Have you saved money for a down payment? Do you have steady employment? Is your credit history positive? If you answered yes to these questions, you may be ready to purchase a home.

If now IS the right time, begin by figuring out how much you can afford. Lenders generally want your monthly housing payments (including principal, interest, property taxes and home insurance premiums) to equal no more than 28% of your gross income. They also want your total debt (mortgage payments, car payments, credit card payments, etc.) to equal no more than 36% of your gross income. For example, if you make $50,000 a year or $4,166 a month, your lender will want your total housing payment to be $1,166 or less and your total debt including your housing payment to be $1,500 or less.

Your financial considerations also need to include money for a down payment. A down payment is the amount you must pay up front before a lender is willing to give you a mortgage to finance the rest of the cost of a home. Generally, lenders want to see a down payment of no less than 3% of the purchase price. The higher your down payment, the lower your monthly mortgage payments and closing costs will be. There may be special loan programs available to make homeownership more affordable. Check with your local Housing and Urban Development (HUD) office, as well as local city, county and state housing bureaus, for information about first-time buyer programs in your area.

Once you know how much you can afford, it's time to find that perfect home. Start by checking out potential neighborhoods. Learn about local schools, access to public transportation, proximity to employment, and more. To help narrow your search even further, begin to identify what you need in your new home. Consider the following and decide how important they are to be in your new home.

Number of bedrooms and baths
Garage
Yard
Basement or attic for storage
Style, age and condition of home
Average utility bills
Kitchen appliances
Air conditioning

Consider working with a Realtor to help you identify homes in your price range with the features you want. When you have found the home of your dreams, be sure to get a home inspection to insure that the home does not have major problems. If the seller accepts your offer, it's time to arrange financing.

It pays to shop around for a lender. In addition to comparing interest rates, you'll want to consider total costs. Closing costs are all the expenses associated with borrowing money from a lender, and they can be substantial. Compare the rates and costs for 15- or 30-year loans at fixed or variable interest rates before deciding on a lender. With a fixed-rate mortgage, you have the assurance that your mortgage payments will stay the same over the life of the loan. A variable-rate mortgage, which typically starts out at a lower monthly cost, may allow you to buy a home you otherwise could not afford. However, you may face higher rates - and payments - later in the life of the loan.

After you secure financing for the loan, you will conclude the home-buying process with closing. Closing is a process during which all the legal and financial obligations stated in your offer to purchase will be met. At closing, you will get the keys to your home and legally take possession.

After closing, you are set to move in to your new home. Plan ahead to ensure a smooth transition into your new dream home.

Buying a House

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