Top 10 Tips For Buying Your First Home In 2011

If your New Year's resolution is to make the shift from renter to homeowner, you should begin preparations on January 1 for an exciting emotional and financial adventure. Before you start the home-buying process, make sure you are ready to buy a home where you will live for three to five years or longer, since it can take that long to build equity in a home and recoup your investment costs. Think about your dream home and your dream neighborhood, but recognize that you may need to sift through these dreams to find a community and a home that you can comfortably afford. (For more, see Are You Ready To Buy A House?)

Anyone who has watched the news in the past few years should be aware that home prices have fallen in most real estate markets, and that interest rates are at historically low levels - both factors that make buying your first home more affordable.

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Here are some tips to get you started on the step-by-step process of buying a home:

1. Check Your Credit Score
   Lenders base your mortgage qualification on a variety of factors, including your income and assets, your debt-to-income ratio, your pattern of savings and your job stability. But the most important factor in today's tightened credit world is your credit score. Lenders tie the interest rate you must pay to your credit score, so that borrowers with a score of 720 and sometimes 740 and above are the only ones who will pay the lowest mortgage rates. Borrowers with a credit score below 620 may not qualify at all for a mortgage until they can improve their score.
   
   
2. Set Your Housing Budget
   A lender will tell you how much you can borrow, but each potential homeowner should create a simple budget for themselves with income and spending to determine how much they are willing to spend on housing payments. Financial experts recommend that homeowners spend a maximum of about 30% of their gross monthly income on principal, interest, homeowners insurance and taxes. Don't forget to budget about 1% of the home price for condo or homeowner association fees and maintenance costs. (To learn more, check out Bank Vs. Budget: How Much House Can You Afford?)
   
   
3. Start Saving And Stop Spending
   Once you have an estimate of your mortgage payment, start saving the difference between that payment and your current rent every month. In addition to building your savings, this allows you to get comfortable with a higher housing payment.
   
   
4. Meet With A Lender
   Get pre-qualified for a mortgage loan before you look at homes so you can avoid falling in love with a home you cannot afford. You may be surprised to discover you can afford something pricier than you thought since interest rates are so low. Make sure you ask your lender about your variety of loan options and get an idea of how much cash you will need for a down payment and closing costs.

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