Steps to buying a first home

Have you been itching to settle down into your own home? Do you find yourself lingering in front of houses with For Sale signs, wondering if you can afford to buy them? Are you perusing the classified ads to see what's out there? If this is the year you want to buy your first home, you should start planning now.

Examine your finances
The first step toward buying a home is understanding your financial picture. Figure out your monthly income and budget, including regular and incidental expenses. If you expect any changes that will affect your income over the next year, such as a raise or a new car, make a note of that as well. This will give you an accurate picture of your finances to help determine how fast you can save for a down payment.

Start a savings plan
Try to give yourself a timeline, such as a year, and a target amount to save. Once you have a budget, see if you can trim your spending. You can start by dining out less or taking public transit. You can also save extra money that comes in, such as bonus checks or tax refunds. And it's a good idea to keep your savings in a separate account to avoid the temptation to spend it.

Consider the up-front costs
The up-front costs associated with buying a home can add up. Most lenders require a minimum of five to 20 percent of the home's purchase price as a down payment. On top of that, you will have closing costs to consider, which can be anywhere from two to six percent of your mortgage amount, as well as the cost of a home inspection, which can cost from a few hundred to a thousand dollars. You will want to make sure you save enough money to cover all of these costs.

Check out down-payment assistance
Don't panic if you can't save 20 percent for a down payment. There are ways to buy a house with a smaller down payment. Look for lenders that offer low-down-payment products from Fannie Mae and Freddie Mac. Another option is to get help from nonprofit-supported down-payment assistance programs.

Calculate how much you can afford
Before you begin looking at houses, you will need to know your price range. Keep in mind, along with a monthly mortgage payment you'll have to pay for utilities, property taxes and homeowner's insurance. By calculating how much house you can afford, you will have a better idea of where to begin. For example, if you can afford a maximum monthly payment of $1,000, you will be looking at a total mortgage of $166,792 (assuming a 30-year fixed rate at six percent). Knowing this limit will help you be realistic, and keep you from getting too attached to a home listed at $250,000.

Find a REALTOR^?/sup>
Start by finding a REALTOR<sup>?/sup> that you trust. Your REALTOR?/sup> will be able to provide you with listings of available homes in the neighborhood you are interested in, along with information on the recent selling price of comparable homes.

Get pre-approved for a mortgage
It's a good idea to get pre-approved for a mortgage, before you make an offer on a home. A lender will pre-approve you based on your income, debts and credit. By getting pre-approved, you will know in advance how much you will be able to borrow so you won't have to make your offer dependent upon securing financing. To find out how much you qualify for, and to get quotes from up to four lenders.</sup>