Budgeting for your First Home    

If you're spending 30 percent or more of your monthly income on rent, it may make financial sense to buy a home, but first consider these things:   

• Taxes: As a homebuyer, the mortgage interest - the biggest part of the payment in the early years - is tax deductible. You'll cut $28 off your federal income tax for every $100 of interest you pay if you're in the 28 % tax bracket, $15 if you're in the 15 % bracket.
• Closing costs: Because closing costs may be $2,000 to $2,500 on an average home, you may not recoup those if you sell your house within five years after you buy it.
• Maintenance: Repairs, lawn care, and upkeep on your home may add 5 to 10 % to the cost of  home ownership. Also, your utilities may go up if you're heating and cooling more square footage than your apartment, and you'll have a water bill, something that's often covered in apartment rent.
• Budget: To see if you're ready to live with a mortgage payment, set up a budget and save the additional amount you'll be putting into your house note. Write down all expenses for at least three months. This will give you an idea if you can afford the mortgage.
• Debt: If the house payment will take up more than 28 or 29 % of your gross monthly income, or if your total debt, including the house note, exceeds 36 % of your gross monthly income (41 % on VA and FHA loans), you may not qualify for a loan.

If you have too many bills but have the income and down payment to qualify for the loan, consider:   

• Combining several bills with a consolidation loan with a lower interest rate and perhaps a longer payment term.
• Refinancing a recently purchased car.
• Transferring a Visa or MasterCard balance to a card with a lower rate.
• Paying one or two bills off (or way down). Lenders usually only count debt that will take more than 10 months to pay off.
• Making a bigger down payment.
• Postponing the home buying for a few months.