Steps to Buying a Home for the First Time

Know how much house you can afford before making an offer.

Buying your first home can be the thrill of a lifetime, particularly when you make a wise choice. Use common sense, but also incorporate tried and true techniques for finding and purchasing a home at the right price and in the best location for you and your family. Find out if you are prepared for the financial responsibilities of home ownership. Learn how to qualify for financing, determine your needs and make a realistic offer.

Instructions

1. Check your credit score for accuracy and correct any errors. Visit annualcreditreport.com for free reports from each of the three major credit bureaus. If necessary, postpone your home purchase until you can raise a poor credit score.

2. Figure out how much you can afford in monthly housing costs. Calculate mortgage payments, mortgage insurance if required, homeowners insurance, real estate taxes and a monthly allotment for repairs and upkeep.

3. Confer with a few lenders and ask what criteria they use to qualify you for a mortgage. Your debt-to-income ratio compares your monthly debt (housing and non-housing) with your monthly income. The Federal Housing Administration (FHA) states that your monthly non-housing expenses, such as car payments, alimony and student loans, should not exceed 29 percent of your gross monthly income. Total debt, including housing costs, should be no more than 41 percent of your income.

4. Create a "must have" list, which includes your minimum requirements in a home, and a "wish list" of preferable, but non-essential features. Prioritize features such as proximity to schools, square footage, commuting distance and accessible transportation. Determine how important cultural activities are, whether you want to be near family and whether you want a city, suburban or rural location.

5. Calculate the fair market value of homes that meet your requirements. Ask a real estate agent for information on previous sale prices and tax rates for homes in neighborhoods that interest you. Once you find a home you want to purchase, obtain a tax receipt from the seller or check with the local assessor's office. Property tax rates often change over time, so the information will be for the current tax year.

6. Make an offer. Consider how long the property has been on the market, its condition and any information you have about the seller's motivation. Include in the contract the property's legal description and the offer price. State the amount of your down payment and give financing details. Include when you want to close on the house and the length of time your offer is valid.

7. Invest in a thorough home inspection before you take possession of your first home. Use an inspector of your choice, not necessarily one who comes recommended by a real estate agent. Inspectors do not give appraisals of a property; they assess the condition of the home's structural features and mechanicals, and advise you about potential repairs you may have to make.

Tips & Warnings

• Some transactions are simple and smooth, but negotiation is typical in real estate deals. Be prepared for a counteroffer from the seller. If both buyer and seller are motivated, they will generally come to agreement.

• Earnest money or a "good faith" deposit of one to five percent of your offer price usually accompanies your offer. Once your offer is accepted, the deposit becomes part of the down payment.

• Even if your individual state does not require an attorney to close your real estate deal, a lawyer can help can review complex documents and assist you at the closing.

• Before making a purchase, check whether your potential new home is on a flood plain or other disaster prone area. Be certain the structure meets current building codes.

References

• U.S. Department of Housing and Urban Development: Buy a Home
• U.S. Department of Housing and Urban Development: 100 Questions & Answers About Buying a New Home