Tips for the First Time Home Buyers by Bobbie Shocket Lazarz, CFP

Decide how much house you can afford. Mortgage lenders typically require that your monthly housing expenses, including mortgage principal and interest, property taxes, and homeowners and mortgage insurance, total no more than 28% of your monthly gross income. Lenders also generally 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. Just because you may qualify for a large loan, however, doesn’t mean you should take on that amount of debt. Instead, realistically evaluate your expected future income and expenses before making such a long-term commitment.

If you're a low- to moderate-income homebuyer, look into special programs. Depending on your income, you may qualify for programs offered by your state, the Federal Housing Administration, the Department of Veterans Affairs, the U.S. Department of Agriculture's Rural Housing Service, or Fannie Mae's Community Home Buyer's Program. For more information and free home buying and credit guides, visit Fannie Mae Foundation's website (www.homebuyingguide.org). Also visit the U.S. Department of Housing and Urban Development's website for information about home buying and mortgages (www.hud.gov)

Check out your credit risk score. To qualify for a favorable mortgage rate, you’ll need a good credit history. If your credit risk score needs improvement, focus on paying your bills on time, decreasing your debt balances, and fixing any negative errors in your credit report.

Choose your loan carefully. Your choices are between a fixed-rate mortgage or an adjustable-rate mortgage (ARM). Fixed rate mortgages have a set monthly payment that remains the same throughout the life of the loan. 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. Points, essentially prepaid interest, are one-time charges by a lender for originating a loan. One discount point equals 1% of the mortgage amount, 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 necessary things as closing costs, moving, furnishings, home maintenance, and repairs. If you put less than 20% down, you're usually required to purchase private mortgage insurance (PMI). PMI protects lenders in case you default on the loan.

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 insurance you'll need. At the same time, shop for a homeowners policy that will adequately protect both your house and its contents against damage or loss. For more information

• Looking for the Best Mortgage, The Federal Trade Commission, www.ftc.gov.