You will not know what you can actually afford until you contact a lender, decide what type of loan you want, and then choose a home. But as a general rule, you can borrow enough to bring your monthly Principal, Interest, Taxes and Insurance (P.I.T.I.) plus association dues, and any other fixed costs up to 25%-35% of your monthly income. This is your Housing Ratio. The amount repaid includes the principal, interest, taxes, and insurance required for the loan. Alternatively, if your repayment plus all other monthly expenditures are 45% of your monthly income (or less), then you can probably afford the terms of the loan. This is your Total Debt Ratio. Remember that this is only a guide in helping you choose what homes you can view without the disappointment of realizing it is out of your price range.

In a word: Yes! Especially if you are buying a home – then you need a buyer’s agent. Both the seller's and buyer's agents are paid out of the transaction proceeds that are part of the marketing price of the home. If you don't use an agent, you are paying for services you aren't getting. Even if you buy a home available through foreclosure or a for-sale-by-owner (FSBO), you can still use the services of an agent. Agents will negotiate with you on their fees and the amount of service you will receive for those fees, and you can arrange for them to be paid out of the transaction, not out of your pocket. Narrow the field: if you are interested in a certain neighborhood, find out who the experts are in that area of town. They are better informed and more attuned to the people and events there, and are better positioned to network with other agents in the same area. If you are relocating to a new city, ask agents in your own town to refer you to agents in your new area. They will be happy to do so, because if you buy a home from their referral, they receive a referral fee, so they are motivated to be certain you find the right agent for buying a new home. If you find an agent you like, you may consider signing a buyer's representation agreement. This agreement means that one agent represents you as a buyer. The agreement empowers the agent to not only search the latest MLS list, but to seek alternative means of finding you a home, including foreclosure searches and homes for sale by owner. With a signed agreement, the agent becomes a fiduciary and must act, by law, in your best interests.

The so-called "closing" is the final transfer of the house to the buyer. It occurs after both the seller and the buyer have met all the terms of the contract and the deed has been recorded. Closing also refers to the time when the transfer will occur, such as "the closing on my house will happen on January 27 at 10:00 am." The event referred to as the closing frequently takes place at the office of the professional who handles the transaction, such as a title officer or real estate lawyer.

The two don't really compare at all. The one advantage of renting is being generally free of most maintenance responsibilities. But by renting, you lose the chance to build equity, take advantage of tax benefits, and protect yourself against rent increases. Also, you may not be free to decorate without permission and may be at the mercy of the landlord for housing. Owning a home has many benefits. When you make a mortgage payment, you are building equity. And that's an investment. Owning a home also qualifies you for tax breaks that assist you in dealing with your new financial responsibilities- like insurance, real estate taxes, and upkeep – which can be substantial. But given the freedom, stability, and security of owning your own home, they are worth it. Source hud.org

The lender considers your debt-to-income ratio, which is a comparison of your gross (pre-tax) income to housing and non-housing expenses. Non-housing expenses include such long-term debts as car or student loan payments, alimony, or child support. According to the FHA, monthly mortgage payments should be no more than 29% of gross income, while the mortgage payment, combined with non-housing expenses, should total no more than 41% of income. The lender also considers cash available for down payment and closing costs, credit history, etc. when determining your maximum loan amount. Source hud.org

Compile a list of several agents and talk to each before choosing one. Look for an agent who listens well and understands your needs, and whose judgment you trust. The ideal agent knows the local area well and has resources and contacts to help you in your search. Overall, you want to choose an agent that makes you feel comfortable and can provide all the knowledge and services you need. Source hud.org

Your home should fit the way you live, with space and features that appeal to the whole family. Before you begin looking at homes, make a list of your priorities – things like location and size. Should the house be close to certain schools? Your job? To public transportation? How large should the house be? Do you prefer a corner lot? Establish your minimum requirements and a “wish list.” Minimum requirements are things that a house must have for you to consider it, while a “wish list” covers things that you’d like to have, but aren’t essential.

Your agent can give you a ballpark figure by showing you comparable listings, or they may have access to comparable sales maintained on a database.

The total amount of the previous year's property taxes is usually included in the listing information. If not, ask the seller for a tax receipt. Also contact the local assessor's office and ask what the taxes would be on the purchase price. Tax rates can change annually, so these figures may be approximate.

Your mortgage interest and real estate taxes are deductible. A qualified real estate professional can give you more details on tax benefits and liabilities.

There’s no definitive answer to this question. You should look at each home for its individual characteristics. Generally, older homes may be in more established neighborhoods, offer more ambiance, and have lower property tax rates. People who buy older homes, however, shouldn't mind maintaining their home and making some repairs. Newer homes tend to use more modern architecture and systems, are usually easier to maintain, and may be more energy-efficient. People who buy new homes often don't want to worry initially about upkeep and repairs.

In addition to comparing the home to your minimum requirement and wish lists, consider the following: Is there enough room for both the present and the future? Are there enough bedrooms and bathrooms? Is the house structurally sound? Do the mechanical systems and appliances work? Is the yard big enough? Do you like the floor plan? Will your furniture fit in the space? Is there enough storage space? (Bring a tape measure to better answer these questions.) Does anything need to be repaired or replaced? Will the seller repair or replace the items? Imagine the house in good weather and bad, and in each season. Will you be happy with it year-round? Take your time and think carefully about each house you see. Ask your real estate agent to point out the pros and cons of each home from a professional standpoint. Source hud.org

An inspector checks the safety of your potential new home. Home Inspectors focus especially on the structure, construction, and mechanical systems of the house and will make you aware of only repairs, which are needed. The Inspector does not evaluate whether or not you're getting good value for your money. Generally, an inspector checks (and gives prices for repairs on): the electrical system, plumbing and waste disposal, the water heater, insulation and Ventilation, the HVAC system, water source and quality, the potential presence of pests, the foundation, doors, windows, ceilings, walls, floors, and roof. Be sure to hire a home inspector that is qualified and experienced. It's a good idea to have an inspection before you sign a written offer since, once the deal is closed, you've bought the house “as is.” Or, you may want to include an inspection clause in the offer when negotiating for a home. An inspection clause gives you an “out” on buying the house if serious problems are found, or gives you the ability to renegotiate the purchase price if repairs are needed. An inspection clause can also specify that the seller must fix the problem(s) before you purchase the house. Source hud.org

Laws vary by state. Some states require a lawyer to assist in several aspects of the home buying process while other states do not, as long as a qualified real estate professional is involved. Even if your state doesn't require one, you may want to hire a lawyer to help with the complex paperwork and legal contracts. A lawyer can review contracts, make you aware of special considerations, and assist you with the closing process. Your real estate agent may be able to recommend a lawyer. If not, shop around. Find out what services are provided for what fee, and whether the attorney is experienced at representing home buyers. hud.org

Yes. A paid homeowner's insurance policy (or a paid receipt for one) is required at closing, so arrangements will have to be made prior to that day. Plus, involving the insurance agent early in the home buying process can save you money. Insurance agents are a great resource for information on home safety and they can give tips on how to keep insurance premiums low. Source hud.org

Your real estate agent or attorney will assist you in making an offer, which will include the following information: Complete legal description of the property. Amount of earnest money
Down payment and financing details
Proposed move-in date
Price you are offering
Proposed closing date
Length of time the offer is valid
Details of the deal
Remember that a sale commitment depends on negotiating a satisfactory contract with the seller, not just making an offer. Source hud.org

If you have a buyer's agent or an attorney, work with only them. They will work for your best interest. If you are dealing with any other kind of agent, make a point of asking them to keep your discussions and information confidential. It is better to deal exclusively with your representative(s) in any case. Calculating your offer should involve several factors: what homes sell for in the area, the home's condition, how long it's been on the market, financing terms, and the seller's situation. By the time you're ready to make an offer, you should have a good idea of what the home is worth and what you can afford. Be prepared for give-and-take negotiation, which is very common when buying a home. You and the seller may often go back and forth until you can agree on a price. Source hud.org

Earnest money is money put down to demonstrate your seriousness about buying a home. It must be substantial enough to demonstrate good faith and is usually between 1% to 5% of the purchase price (though the amount can vary with local customs and conditions). If your offer is accepted, the earnest money becomes part of your down payment or closing costs. If the offer is rejected, your money is returned to you. If you back out of a deal you may forfeit the entire amount. Source hud.org

Home warranties offer you protection for a specific period of time (e.g., one year) against potentially costly problems, like unexpected repairs on appliances or home systems, which are not covered by homeowner's insurance. Warranties are becoming more popular because they offer protection during the time immediately following the purchase of a home, a time when many people find themselves cash-strapped. Source hud.org

Generally speaking, a mortgage is a loan obtained to purchase real estate. The "mortgage" itself is a lien (a legal claim) on the home or property that secures the promise to pay the debt. All mortgages have two features in common: principal and interest. Source hud.org

The loan to value ratio (LTV) is the amount of money you borrow compared with the price or appraised value of the home you are purchasing. Each loan has a specific LTV limit. For example: With a 95% LTV loan on a home priced at $50,000, you could borrow up to $47,500 (95% of $50,000) and would have to pay $2,500 as a down payment. The LTV ratio reflects the amount of equity borrowers have in their homes. The higher the LTV the less cash homebuyers are required to pay out of their own funds. So, to protect lenders against potential loss in case of default, higher LTV loans (80% or more) usually require a mortgage insurance policy. Source hud.org

30-Year: In the first 23 years of the loan, more interest is paid off than principal, meaning larger tax deductions. As inflation and costs of living increase, mortgage payments become a smaller part of overall expenses. 15-year: Loan is usually made at a lower interest rate. Equity is built faster because early payments pay more principal. Ask your loan officer about other terms that you may qualify for, such as, 20-year, 10-year and 5-year term loans. Source hud.org

Yes. By sending in extra money each month or making an extra payment at the end of the year, you can accelerate the process of paying off the loan. When you send extra money, be sure to indicate that the excess payment is to be applied to the principal. Most lenders allow loan prepayment, though you may have to pay a prepayment penalty to do so. Ask your lender for Source hud.org

Yes. Lenders now offer several affordable mortgage options which can help first-time homebuyers overcome obstacles that made purchasing a home difficult in the past. Lenders may now be able to help borrowers who don't have a lot of money saved for the down payment and closing costs, have no or a poor credit history, have quite a bit of long-term debt, or have experienced income irregularities. Source hud.org

There are mortgage options now available that only require a down payment of 3% or less of the purchase price. But the larger the down payment, the less you have to borrow, and the more equity you'll have. Mortgages with less than a 20% down payment generally require a mortgage insurance policy to secure the loan. When considering the size of your down payment, consider that you'll also need money for closing costs, moving expenses, and possibly repairs and decorating. Source hud.org

The amount of the down payment, the size of the mortgage loan, the interest rate, and the length of the repayment term and payment schedule will all affect the size of your mortgage payment. Source hud.org

Established by your lender, an escrow account is a place to set aside a portion of your monthly mortgage payment to cover annual charges for homeowner's insurance, mortgage insurance (if applicable), and property taxes. Escrow accounts are a good idea because they assure money will always be available for these payments. If you use an escrow account to pay property tax or homeowner's insurance, make sure you are not penalized for late payments since it is the lender's responsibility to make those payments. Source hud.org

Choose your lender carefully. Look for financial stability and a reputation for customer satisfaction. Be sure to choose a company that gives helpful advice and that makes you feel comfortable. Do your research and ask your real estate agent for recommendations. Source hud.org

Pre-qualification is an informal way to see how much you maybe able to borrow. You can be 'pre-qualified' over the phone with no paperwork by telling a lender your income, your long-term debts, and how large a down payment you can afford. Without any obligation, this helps you arrive at a ballpark figure of the amount you may have available to spend on a house. Pre-approval is a lender's actual commitment to lend to you. It involves assembling your financial records (without the property description and sales contract) and going through a preliminary approval process. Pre-approval gives you a definite idea of what you can afford and shows sellers that you are serious about buying. Source hud.org

There are three major credit reporting companies: Equifax, Experian, and Trans Union. Obtaining your credit report is as easy as calling and requesting one. Once you receive the report, it's important to verify its accuracy. Double check the “high credit limit,” “total loan,” and “past due” columns. It's a good idea to get copies from all three companies to assure there are no mistakes since any of the three could be providing a report to your lender. Fees, ranging from $5-$20, are usually charged to issue credit reports but some states permit citizens to acquire a free one. Contact the reporting companies at the numbers listed for more information. CREDIT REPORTING COMPANIES Experian: 1-888-524-3666 Equifax: 1-800-685-1111 Trans Union: 1-800-916-8800 Source hud.org

A credit bureau score is a number, based upon your credit history that represents the possibility that you will be unable to repay a loan. Lenders use it to determine your ability to qualify for a mortgage loan. The better the score, the better your chances are of getting a loan. To qualify for a conventional loan, your score should be at least 620. Ask your lender for details. hud.org

RESPA stands for Real Estate Settlement Procedures Act. It requires lenders to disclose information to potential customers throughout the mortgage process, by doing so, it protects borrowers from abuses by lending institutions. RESPA mandates that lenders fully inform borrowers about all closing costs, lender servicing and escrow account practices, and business relationships between closing service providers and other parties to the transaction. For more information on RESPA, call 1-800-569-4287 for a local counseling referral. Source hud.org

It's an estimate that lists all fees paid before closing, all closing costs, and any escrow costs you will encounter when purchasing a home. The lender must supply it within three days of your application so that you can make accurate judgments when shopping for a loan. They must also supply a copy of any changes that occur during the loan process. Source hud.org

It usually takes a lender between 1 and 6 weeks to complete the evaluation of your application. It’s not unusual for the lender to ask for more information once the application has been submitted. The sooner you can provide the information, the faster your application will be processed. Once all the information has been verified, the lender will call you to let you know the outcome of your application. If the loan is approved, a closing date is set up and the lender will review the closing with you. After closing, you'll be able to move into your new home. Source hud.org

There may be closing cost customary or unique to a certain locality, but closing costs are usually made up of the following: Property taxes (to cover tax period to date)
Interest (paid from date of closing to 30 days before first monthly payment)
Loan Origination fee (covers lenders administrative cost)
Recording fees
Survey fee
First premium of mortgage Insurance (if applicable)
Title Insurance (yours and lender's)
Loan discount points
First payment to escrow account for future real estate taxes and insurance Paid receipt for homeowner's insurance policy (and fire and flood insurance if applicable)
Any documentation preparation fees
Source hud.org

Mortgage insurance is a policy that protects lenders against some or most of the losses that result from defaults on home mortgages. It's required primarily for borrowers making a down payment of less than 20%. hud.org

PMI stands for Private Mortgage Insurance or Insurer. These are privately-owned companies that provide mortgage insurance. They offer both standard and special affordable programs for borrowers. These companies provide guidelines to lenders that detail the types of loans they will insure. Lenders use these guidelines to determine borrower religibility. Source hud.org

Program guidelines may differ slightly, but they all offer the same basic services:
Home buyers must qualify for a loan that allows gift funds.
There are no minimum or maximum income requirements for buyers, but there may be top limits set on the sales price of homes.
Typical assistance seems to range from 1% to 7%.
Funds can be used for the down payment and for closing costs.
Gift funds can be used for new or existing homes.
Unused funds must be returned to the gift program.
Funds must be used to purchase a home.
Sellers cannot use the gift as a charitable contribution, but it may be deductible as a selling expense. Talk to a tax professional.

Why Would a Seller Want to Participate? Home sellers usually price their homes to include some negotiation space. What matters to a seller is his bottom-line. How much money he takes away from the closing table? A buyer who has the funds to close may get a better deal on the house, while a buyer who needs help will pay closer to (or more than) the asking price, but in return can negotiate help from the seller. One thing you must keep in mind is the home's appraisal value. The lender will not allow gift funds that result in a loan that exceeds the appraised value of the home. If you're working with a real estate agent, they can help you decide if the home is priced reasonably, and if the appraisal will match. Your lender can help you choose a down payment assistance program, and explain how to word the purchase agreement to ensure compliance with its underwriting guidelines.