2. Set your budget – Next is figuring out how much house can you afford.  The rule of thumb is to aim for a home that costs about two-and-a-half times your gross annual salary. If you have significant credit card debt or other financial obligations then you may need to set your sights little lower.  Another rule of thumb: All your monthly home payments should not exceed 36% of your gross monthly income.  The size of your down payment will also determine how much you can afford.

3. Line up cash – You’ll need to come up with cash for your down payment and closing costs.  Lenders like to see 5%-20% of the home’s price as a down payment.  If you can put down more than that, the lender may be willing to approve a larger loan.  If you have less, you’ll need to find loans that can accommodate you.

With a down payment under 20%, you will probably wind up having to pay for private mortgage insurance(PMI).  PMI is a safety net protecting the bank in case you fail to make payments. PMI adds about 0.5% of the total loan amount to your mortgage payments for the year.

Once you’ve considered the down payment, make sure you’ve got enough to cover fees and closing costs. These include the appraisal fee, loan application fees, attorney’s fees, inspection fees, and the cost of a title search.  They can easily add up to more than $10,000 — and often run to 5% of the mortgage amount.

If your available cash doesn’t cover your needs, you have several options. First-time home buyers can withdraw up to $10,000 without penalty from an Individual Retirement Account, if you have one, though you must pay taxes on the amount. You can also receive a cash gift up to a certain amount from each of your parents without triggering a gift tax.  Also check on whether your employer can help; some companies will chip in on the down payment or help you get a low-interest loan from selected lenders. You can also tap a 401(k) or similar retirement plan for a loan from yourself.

4. Find an agent – Most sellers list their homes through an agent — but those agents work ONLY for the seller, not the BUYER.  They’re paid based on a percentage, usually 5 to 7% of the purchase price, so their interest will be in getting you to pay more.

You need “exclusive buyer agent.”  A buyer’s agent representing buyer has the same access to homes for sale that a seller’s agent does, but the buyers agent is will always and only represent you the buyer.

5. Searching for home – Now is the fun part, SHOPPING!!!  Your first step is to figure out what city or neighborhood you want to live in.  Your agent can help you determine this understanding your needs and wishes.  Good Agents will ask you to pay special attention to districts with good schools, even if you don’t have school-age children. When it comes time to sell, it is most often that a strong school system is a major advantage in helping your home retain or gain value.

6. Making an offer – Once you find the house you want, move quickly to make your bid because if you like something, chances are others like it too for the same reasons.  Here’s where buyer’s agent will advice you and guide you on the offer price.  Agents line up data on at least three houses that have sold recently, went under agreement and are currently active in the neighborhood.   They come up with a ball park figure of what the home is worth in the current market.  If you really want the house, don’t low-ball.   The seller may give up in disgust.  This happens many a times with seller responding “we are not entertaining low-ball offers.”  Remember, that your leverage depends on the pace of the market.   In a slow market, you’ve got muscle; in a hot market, you may have none at all.

There’s no foolproof system for negotiating a fair price.  More often it’s better to work exclusively through agents for best negotiation of price.  Once you reach a mutually acceptable price, the seller’s agent will draw up an offer to purchase that includes an estimated closing date (usually 45 to 60 days from acceptance of the offer).

You also need to make a good-faith deposit — usually $1000 — that should be deposited into an escrow account. The seller will receive this money after the deal has closed. If the deal falls through, you will get the money back only if you or the home failed any of the contingency clauses.

8. Entering into contract – Real Estate Lawyers representing buyers in the purchase transaction review Purchase and Sale Agreement to make sure the deal is contingent upon:

1. You obtaining a mortgage.

2. Any repairs seller has agreed to after inspection.

3. A guarantee that you may conduct a walk-through inspection 24 hours before closing.

8. Securing a loan – Typically when the Purchase and Sale agreement is signed by both the buyers and sellers, the buyer applies for a mortgage.  This is when you decide whether to go with the fixed rate or adjustable rate mortgage and whether to pay points.  Expect to pay $50 to $75 for a credit check at this point, and another $150, on average to $300 for an appraisal of the home. Most other fees will be due at the closing.  Also look into taking out a homeowner’s insurance policy.  Most lenders require that you have homeowner’s insurance in place before they’ll approve your loan.

9. Closing – The sweet day where you get the keys to your house.  One day before the closing you will receive a Closing Disclosure from your lender that lists all the charges you can expect to pay at closing.  Review it carefully.   It will include things like the cost of title insurance that protects you and the lender from any claims someone may make regarding ownership of your property.  The cost of title insurance usually comes in at less than 1% of the home’s price.