Buying your first house

by Linda DiProperzio

Buying a home is one of the biggest—and most expensive—decisions you’ll ever make as a couple (yes, even bigger than which flowers to choose for your reception!). “This is the most important financial step people make,” says Michael O’Leary, a financial adviser for First Financial Group in New Jersey. And even with the current state of the real estate market, it still makes sense to buy—if you do it right. Here’s a crash course on how to make sure your house doesn’t wind up owning you:

How long will you be staying? In order to see a return on your investment, you should be committed to staying in your home for at least five years. That’s why the real estate mantra—location, location, location—is so important. “You want to choose a neighborhood that will make you happy, whether it’s being close to family and friends, a great school system, or an easier commute to work,” explains O’Leary.

Figure out your finances Sit down together and go over the numbers—and be honest about not only how much you earn, but also how much you spend each month. O’Leary recommends that couples use only 25 percent of their combined monthly income on monthly housing expenses. “Many couples stretch their budget to buy a house, and the result is that they have to give up dinners out and vacations,” says O’Leary. “Those were the things that helped keep your romance alive while dating and you don’t want to cut them out just to have a house.”

Get pre-qualified Review your finances with a licensed mortgage professional. They’ll review your tax returns, pay stubs, and credit reports, and then will determine how much house you can afford. Bonus: Sellers are more likely to accept offers from buyers who already have a mortgage lender ready to finance the purchase.

A down payment The days of putting no money down on a home are over—at least for now. “The companies that were offering sub-prime mortgages are going out of business, and lenders are stricter about who gets approved for a mortgage,” says O’Leary. The old rule of 20 percent is a good one to follow, although couples with a high credit rating may be able to put down less.

Think beyond the mortgage You also need to consider closing costs, property taxes, homeowner’s insurance, community dues, and other additional expenses this house might bring to you. “The best thing to do is sit down with a mortgage professional,” says Lianne Izenberg, a real estate broker for Century 21 in Parsippany. “They will provide you with a ‘good faith estimate’ so you can see all of those expenses beforehand.”

Have a nest egg While the down payment is important, you don’t want to deplete your savings in order to buy a house. O’Leary suggests having at least three month’s worth of expenses socked away in case of emergency. And think about an online savings account like ING, which can earn you an average interest rate of 5 percent.