QuickTips: Buying a Home

Decide how much house you can afford. Mortgage lenders typically require that your monthly housing costs, including mortgage principal and interest, property taxes, and homeowners and mortgage insurance, total no more than 28% of your monthly gross income. They also look to see that your monthly housing costs, combined with your payments on long-term debts, total no more than 36% of your monthly gross income.

Look into programs for low- to moderate-income home buyers. Depending on your income, you may qualify for programs offered by your state, the Federal Housing Administration, the Department of Veterans Affairs, the Farmers Home Administration, or Fannie Mae's Community Home Buyer's Program.

Choose your loan carefully. Your choices are between a fixed-rate mortgage or an adjustable-rate mortgage (ARM). ARMs frequently offer lower initial interest rates, but as market conditions change their interest rates can rise or fall within preset limits. You also have to decide whether to pay more discount points and a lower interest rate, or pay fewer points and a higher interest rate. One discount point equals 1% of the loan, so on a $100,000 loan, one point equals $1,000. You have to pay points up front, but you pay interest over the term of your loan. So if you plan to live in your house for a long time, you may decide to opt for the lower interest rate.

Figure out how much you can put toward a down payment. The larger your down payment, the smaller your monthly payments and the total cost of your loan. However, make sure you'll have enough left over for such things as closing costs, moving, furnishings, home maintenance, and repairs. If you put less than 20% down, you'll probably be required to purchase private mortgage insurance that protects lenders in case you default.

Rethink your insurance. Taking on huge mortgage debt probably means you'll need to boost your insurance coverage. Review your disability and life policies and figure out how much more protection you'll need. At the same time, shop for a homeowners policy that will protect both your house and its contents against damage or loss.