Buying your first house is very exciting. But financing your home purchase can be an intimidating experience. Deciding how much to spend on your home and which type of mortgage will work best for you – as well as understanding the settlement process – can be confusing.  

Following a few simple tips will help put you in a better position to find the home that is right for you and prepare you well before you step foot into a sales office, model home or open house

  • Get familiar with the lingo. SHBA's Home Buyer’s Dictionary can help you.
  • Figure out what you can actually afford to pay on a monthly basis. Remember that, in addition to the monthly principal and interest, you will also pay into escrows for property taxes, hazard insurance and possibly a home owners' or condominium association assessment. You have more knowledge about your living expenses than a lender. Hold firm with that number and don’t be tempted to agree to an amount higher than what you are comfortable spending. Mortgage calculators are a great way to figure out what your monthly payments would be based on interest rates and down payment amounts. Calculators can be found on most real-estate-focused websites.
  • Pay down your debts. Credit card debt limits what you qualify for from a lender. Lenders want to see a total debt service ratio that is less than 40% of your monthly income.
  • Attend a first-time home buying seminar or talk to a credit counselor who does not work for a lender. You can research your options without being influenced by someone who has a financial interest in the home or loan you choose. The US Department of Housing and Urban Development (HUD) offers free housing counseling and seminars.
  • Pay down your debts. Pre-approval also enables you to quickly make an offer when you find a home, and is attractive to sellers who are considering multiple offers. A lender’s pre-approval would still be subject to a final verification of your credit and a satisfactory appraisal. Qualifying for a mortgage and saving for a downpayment remain primary obstacles to homeownership. To address these issues, Fannie Mae and Freddie Mac offer low-downpayment mortgage programs geared primarily toward the first-time home buyer market. These lenders will now offer mortgages with 3% downpayments, allowing more creditworthy borrowers who lack the funds for a large downpayment to obtain a home mortgage.