Buying your first home

The path to owning your own home can be a daunting process that seems filled with uncertainty and obstacles, particularly for first-timers. Here are a few important steps that can help you along the way.

Know your overall readiness to buy

Why do you want to buy a home? If you merely feel you “should,” you may want to postpone buying one. Is renting less expensive than a mortgage? Are your job and location stable? Selling a home within only a few years can prove costly; it can take years to recoup the fixed costs associated with the process.

Assess your financial readiness

Know how much you have saved and if it is enough to cover upfront purchase costs, including a down payment, inspection, appraisal and closing costs. Make sure these costs do not deplete your savings because you should have an emergency fund for unexpected home repairs or other urgent situations.

Also, determine how much of your monthly income you can spend on your mortgage payment and insurance while also setting aside money to pay for annual property taxes. The rule of thumb used by mortgage lenders: don’t spend more than 28 percent of your gross monthly income on these costs known as PITI (principal, interest, taxes and insurance).

Pull your free credit reports from the three credit bureaus, and fix any errors. Try to avoid opening new lines of credit or making large purchases in the months leading up to preapproval and closing on your new home; either could negatively affect your score, which the lender must check again before closing.

Look for first-time homebuyer incentives from the federal and state governments, as well as local non-profits aimed at helping people buy their first homes. Such programs may offer down payment assistance, interest rate subsidies or help with closing costs.

Speak with several banks, credit unions and mortgage brokers to compare fees and mortgage rates. Once you have selected a lender, work with it to get preapproved for your mortgage.

Find the right home for you

Where do you want to live? If you’re planning on raising a family, are there good schools nearby? Are basic needs met in or near your desired neighborhoods? Can you walk to restaurants and shops? Parks? Which amenities are must-haves? Look up crime reports, property values, school reviews and nearby businesses.

Next, find a real estate agent who specializes in your preferred neighborhood or area. His or her name should be on “for sale” signs there. He or she may even know of listings before they go on the Multiple Listing Service (MLS).

If there is a free, first-time homebuyer’s seminar near you, you may want to go. Real estate agents often run these classes, and they may have advice on mortgage lenders and homebuyer programs.