by Priya Dhananjay

Created on: August 22, 2008   Last Updated: October 07, 2008

Buying a home is fun but can also be stressful. A good way to manage the stress is to plan it well.

Analyze the reason you want to buy a home. If the only reason you want a home is to keep up with the Joneses, you will soon regret it. But if the decision is based in sound logic; whether it is because your family is getting bigger or you'd rather build equity than pay rent then it is a wise decision.

Before buying your home make a wish list of what you'd like in your home. Make a table with a weight assigned to each point in order of preference. For example, if location is more important to you than price you would allot more weight to it. When you shortlist houses you like, weighing them according to what you have tabled will make the decision a lot easier.

The next step is to figure out what you can afford. Talk not only to your bank but other banks too. You might even approach a mortgage consultant to help you figure out what's best for you considering your monthly expenses, savings and income. Also get a mortgage pre-approved if you are a first time buyer. Figure out how much down payment you would like to make and then break it down into monthly or bi-weekly mortgage payments you would end up paying. Play around with the number of years to arrive at an optimum mortgage payment that works for you.

There are two types of debt ratios involved. A front-end ratio used by lenders is a percentage of your gross monthly income. It gives you an idea of the payment that you can afford, from a lender's point of view. The back-end ratio, also calculated on your gross monthly income, is a computation of your new mortgage payment plus all recurring debt. The front-end ratio will suggest that you can afford a home that is between two to six times your annual salary but back end ratio will dictate that it is smarter to look at an amount of mortgage that will fit into an affordable monthly payment.

The down payment and closing costs have to be liquid. If you are getting monetary help from a relative then remember that the relative has to give you a letter stating that it was a gift and they do not expect you to pay them back.

Enlisting a good agent to help you find your home is a very important part of the process. Talk to your family and friends and use someone with a good reference.

Here are a few tips to help you save money for a down payment. Look at the top three big ticket expenses in your monthly budget. They are rent, grocery & utilities and gas & insurance. If you are willing to live for a few months or couple of years in a smaller place, with family or as a roommate you will save a big chunk of money. Leading a frugal lifestyle helps a great deal in saving. Try to consciously bring down this expense by at least 10% every month. When it gets hard, remember that it is a temporary situation and has long term benefits. You may not have much flexibility with insurance but you can try and save on gas by car pooling, walking or cycling in summer and planning your travel to minimize the amount of driving you do.

The feeling of accomplishment when you do become a home owner makes the entire process enriching and worthwhile.

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