by Simon Wright

Created on: August 20, 2008   Last Updated: October 07, 2008

For many of us the route to owning our first home is preceded by first leaving the family home and then renting an apartment or a room in a shared apartment. There comes a time however when factors conspire to convince us that it is time to own our own home. This is an exciting moment but also a big financial undertaking. It's important therefore that you devote sufficient time and energy into preparing for it.

Save for down payment:
Typically, you will need to make a 10% down payment towards the cost of the house. So, for a mortgage of $200,000, you'd need $20,000. It's therefore worth committing to set aside money each month to build up your down payment slush fund.

Research house prices and localities:
You probably have a good idea of the neighborhoods you favor. However, you need to gauge what house prices are like in those areas. The easy way to do this is to look at property websites or property sections of newspapers to see what the asking prices are, and also speak to local estate agents to get a feel for what prices properties are selling for.

If you're not that familiar with some of your target localities, then it is a good idea to get out there and see what they're like. You don't want to discover later that you've made the wrong choice.

Research mortgages and affordability:
You now know roughly what size of mortgage you'll need. The next step is to see whether a bank would be willing to lend you that amount and what the monthly repayments would be. It's important to shop around as not all mortgages are equally good.

You can use money comparison sites to source the best available mortgages, or alternatively check out various banks' websites. They should have loan calculators that will enable you to see how much your monthly repayments and the total repayment cost would be. They usually ask you to enter your salary and will then indicate whether they would be likely to offer you that sum.

Another thing to look at is your debt ratio. Many mortgage providers have a rule that states that your total debt mustn't exceed a certain percentage of your income, typically 36 42%. They will look at existing personal loans, credit cards and overdrafts when making this assessment. Reducing your debt will therefore increase the likelihood that you will be accepted for a mortgage.

Arrange an appointment with your chosen mortgage provider:
You've seen a house that you would like to bid for. Now it's time to get a mortgage arranged. In preparation for the appointment, make sure that you have worked out how much you can afford to pay per month. Banks like to see that applicants have given proper thought to the affordability of the mortgage, especially in this sub prime and credit crunch environment.

You will be taken through an application form and provided with a formal mortgage quotation. An online credit score will then be conducted and the loan officer will advise you whether your application has been successful. Hopefully, the answer will come back that you've been successful, in which case the loan officer will outline what needs to happen in order for the funds to be drawn down.

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