First, congratulate yourself for making a smart move. You could make your monthly housing payment work for you. Instead of paying rent, you will be building equity (the difference between what you originally pay for your home and its market value when you sell it). You are also giving yourself two major deductions on your annual tax return — the interest you pay on your mortgage and the property taxes you're billed each year.

But now looming in front of you are two big questions: How much can I afford? How do I choose the right home?  We're going to try to help you answer those questions.  Be sure to go to the Buyer's Classes and check out the SMART Buyer guides.

Now, the first thing you do is...

Finding a Lender

It pays to shop around for a lender. In addition to comparing interest rates, you'll want to consider total costs. Closing costs are all the expenses associated with borrowing money from a lender, and they can be substantial!

Points are a one-time payment that guarantees the lending institution a profit and protects it against rising interest rates. You generally pay from one to four points, with each point equaling 1% of your mortgage.

Loan establishment costs include loan application and origination fees, attorney's fees, mortgage insurance premiums, transfer tax and prepaid interest.

Document preparation costs include a title search, home inspection (e.g., for termites and structural damage), survey and deed recording. Title insurance protects a homeowner and/or lender from past defects in title from unknown risks such as mistakes in recording, liens for unpaid taxes and forgery. Lenders generally require title insurance as a condition of obtaining a mortgage. An owner's policy protects the buyer's interest. Cost for title insurance policies vary by state and by the purchase price of the property. Generally, you pay the one-time premium at the time of closing.
Compare the rates and costs for 15- or 30-year loans at fixed or variable interest rates before deciding on a lender. With a fixed-rate mortgage, you have the assurance that your mortgage payments will stay the same over the life of the loan. A variable-rate mortgage, which typically starts out at a lower monthly cost, may allow you to buy a home you otherwise could not afford. However, you may face higher rates - and payments - later in the life of the loan. If you think your income is likely to rise enough to afford the higher payments, that may be a chance you're willing to take. It is worth noting, too, that you may be able to refinance a mortgage when interest rates or your personal situation change.

(Be sure to visit Are you financially ready to buy?)

Now it's time to find that perfect home. Start by checking out potential neighborhoods. An old saying in real estate notes that there are three factors to consider when shopping for a home - location, location, location. This emphasis has as much to do with resale value as with what is right for your family. Before you settle on any area, you will want to know about the following:

• Local schools. Even if you do not have school-age children, the quality of schools can be an important factor when you resell.
• Municipal services. Is there city water, sewer, transportation, recreation, trash removal?
• Commuting times and public transportation alternatives.
• Proximity to religious institutions, community colleges, entertainment, supermarkets.
• Type of neighborhood.
  Is there a mixture of families of different ages? Seeing a number of swing sets in the neighborhood might appeal to growing families but can serve as a warning flag to buyers anticipating quiet weekends.
• Property taxes, common charges, co-op fees, assessments.

Next, to help narrow your search further, draw up a list of the things you must have in a home and a list of the things you'd like to have. In choosing a new home, don't let your emotions take over. Here are some of the things to check in each home you're considering: 

• Style, age and condition of home
• Exterior maintenance required
• Number of bedrooms and baths
• Average utility bills
• Kitchen layout and appliances (if included)
• Basement or attic for storage
• Garage
• Yard
• Air conditioning
• Environmental concerns (radon, lead paint, etc.)

(Be sure to visit Recognizing Value)

If you've done your homework by reading the real estate section of your newspaper, going to open houses or retaining the services of an agent, you should have a feel for average selling prices relative to the size of a home and its neighborhood. You want to avoid the danger of overpaying; be especially wary of homes that have been on the market more than six months.

When you have found the home of your dreams, make an offer. If the seller accepts your offer, it's time to arrange financing. Fortunately, because you did your financial homework in advance, you won't be faced with the disappointment of finding out you can't afford your first choice.

Real estate licensees strive to be real estate experts. But when specific items require other expertise,  such as how to take title to the property or what the tax consequences of the transaction might be, buyers should obtain qualified legal or tax counsel. This type of advice might appear costly at the outset, but it really provides a type of guarantee against problems arising in the future. Family, friends, or your real estate agent can often recommend competent professionals.   

Inspecting Your Home Before You Buy
Before you close on your dream house, have it inspected. An inspection is a professional examination of the structure of the house and its systems. It may reveal structural defects, such as substandard plumbing or a leaky roof, or problems with radon, termites or lead-based paint. Your obligation to buy the house should be contingent upon the findings of the home inspection and your ability to secure a mortgage.   

To find a qualified inspector in a new area, ask friends or business associates for recommendations. Our "RickRealtor Team is also able to recommend several inspectors. Inspectors may advertise in the Yellow Pages, but use this resource as a last resort. Housing inspectors are generally unregulated, and most states do not require them to be licensed. 

The fee charged for an inspection varies from location to location. The size, age and features of the house also play a role in determining the price. Check prices with at least three reputable inspectors locally.  

Now Relax...and Enjoy
You've plowed through the financial calculations and dealt with the myriad details that go along with buying a house. You've shopped for just the right home - with both your heart and your head. Now it's time to sit back and enjoy your piece of the American dream. You're a homeowner at last!