10 Tips for Buying a Home
A guide for first-time home buyers

With a softening of the housing market in certain areas of the country, many renters are now considering the option of buying their first home or condo. Certified Public Accounts (CPAs) suggest first-time home buyers consider the following 10 steps when deciding to buy.

1. Make sure you have a budget -- and you know how to use it.
Owning your own place comes with a slew of new expenses, so good money management skills are essential. If you don't have a household budget right now, start one. You need to know where you are financially -- where your money is coming from and where it goes every month -- to know exactly how much you can afford to spend on a new home.

2. Create a mock budget for homeownership.
Once you have your current finances sorted out, draw up a mock budget for homeownership. Find out how much homes cost in your area and how much your mortgage payment will run. Then, factor in higher utility bills, homeowner's insurance, property taxes, homeowners association fees, and maintenance and upkeep costs, as well as higher commuting costs if you're considering a neighborhood further from work. If you simply cannot afford the increased expenses that come with a house, it's never a good time to buy -- no matter what's happening in the real estate market. You might also want to consider buying a condo or co-op that could be less expensive than a house in certain markets.

3. Generate a sizeable down payment.
Traditionally, to get your foot in the door, you'll need a down payment worth 20% of the home price. That means for a $250,000 home, you'll need $50,000 upfront. Sure, there are ways to get around that steep requirement with zero- or low-down loans, but those options will cost you. You may have to pay extra for private mortgage insurance or take out a piggyback loan with a much higher interest rate. With the slowing housing market, having that 20% down payment becomes even more important because you'll start off with some equity in case you have to move earlier than expected.

And the money down is only the beginning. Don't forget to factor in closing costs (3% to 6% of the purchase price) property taxes, initial repairs, moving expenses, and decorating costs.

4. Secure a reliable source of income.
Buying a home is a long-term financial commitment, so you'll need consistent cash flow to cover those monthly payments -- not to mention the little extra expenses that come with homeownership. If you're in school, plan to go back to school, have a less-than-reliable job, or plan to start a family, you need to take a good look at your future cash flow abilities. Will you be able to make your mortgage payment six months from now? How about six years from now? Some couples can afford the house when they're both working, but if a kid comes along and one wants to stop working, then they may have a problem.

5. Have an emergency savings fund.
If you have enough cash on hand to cover three to six months of your living expenses, you're one step closer to being prepared for homeownership. Just in case something happens to disrupt your steady income -- say a serious illness, unexpected layoff or even a natural disaster that prevents you from working, you want to make sure you can still afford to make your mortgage payments until you can get out of your rough patch.

6. Keep your debts under control.
Lenders like to make sure you'll have enough money each month to pay your obligations. So before they'll give you a mortgage, they take a look at your debt-to-income ratio. Generally speaking, they want to make sure your monthly housing costs, including principal, interest, taxes, and insurance, will consume no more than 33% of your monthly gross income; and that your total debt payments, including your mortgage, credit cards, student loans, and auto loans, will remain below 38% of your total pay. So if you have large outstanding debts, it's a good idea to try to pay them down before applying for a mortgage to make sure you can qualify for as much money as you'll need. This also means you should avoid taking on any substantial new debt six months to one year prior to your purchase, or you may throw your ratio off. So, it may be best to drive that clunker for a little while longer, or put off charging that European vacation.

7. Make sure your credit report is in good shape.
Nowadays you don't have to have perfect credit to become a homeowner, but a decent history can help you get a lower interest rate on your mortgage and a lower monthly payment. The government allows you to check your credit history free once a year from each of the three main credit bureaus.

So take a peek to find out what lenders see about you. If you see any errors, correct them now. If you see room for improvement, find out how you can boost your score. You don't want any missed payments or other black marks that could lower your estimation in the eyes of lenders.

Having bad credit, however, may not be your biggest concern. If you're just starting out, you need to make sure you have a credit history. If you hold a credit card or took out student loans, you're probably covered. If not, find out how you can build a stellar credit history from scratch, preferably one year or more before you plan to buy.

8. Make a long-term commitment.
Are you ready to stay put for at least three to five years? Typically, that's how long you'll have to keep the house in order to recoup your buying and selling costs. If you sell before then, you may lose money on the deal. And if you do turn a profit, you'll have to pay capital gains taxes if you lived in the house less than two years. The length of your stay becomes even more important now that home appreciation is beginning to slow from its previous pace. If you don't think you'd stay put for that long, you may be better off renting.

9. Be prepared to become your own landlord.
Even if you can afford homeownership, don't buy simply because you can. You need to make sure you're ready to live the lifestyle. Owning a place comes with a fair share of new responsibilities, headaches, and costs, not the least of which is becoming your own landlord. When you rent an apartment, you simply call the landlord if something breaks. With your own home, if it's broke, you fix it, or you'll have to pay someone else to fix it. You're also responsible for upkeep, including yard work, and shoveling snow (unless, of course, you buy a condo without a yard). Will you have the time, energy or desire to maintain the property? How about the money for all those little extras, such as buying your own lawn mower and hiring the occasional plumber? Make sure you know what you're getting into.

10. Do additional research.
Check out the American Institute of Certified Public Accountants' (AICPA) on personal finance topics to help manage your finances. The site contains additional free articles, calculators and other tools you can use to help you on buying your first home.