Gerber and Co., CPAs and Financial Advisors

Whether you're searching for your first home, moving up, or downsizing, the purchase of a home is a major financial commitment. Don't let the excitement of looking for your dream home prevent you from following these tips:

Set an upper limit for your home's purchase price and don't exceed it. Before you start looking, carefully analyze your expenses and decide how much you can afford to pay for a home. An often-cited guideline indicates that your mortgage payment, insurance, and property taxes should not exceed 28 percent of your gross income. Nowadays, however, some lenders allow up to 40 percent of gross income to be spent on housing costs. Rather than letting your lender dictate what you can afford, you should decide what a comfortable mortgage payment is. Don't raise that limit as you look for houses, thinking you can reduce your living expenses to cover the difference. It's very difficult to change your spending habits.

Consider how your down payment will impact your home's financing. Down payments typically range from five percent to 20 percent of the total purchase price. A lower down payment makes it easier to purchase a home, but also increases the size of your mortgage. If possible, you should aim for a down payment of 20 percent so you don't have to obtain private mortgage insurance, which typically runs from 0.25 percent to 1.25 percent of your total mortgage amount. Keep in mind that you will also have to pay closing costs, which can equal between two percent and five percent of your total purchase price.

Familiarize yourself with housing prices in the area. A realtor can provide a comparable market analysis, which shows the prices of homes for sale in the area as well as prices of recently sold homes. This analysis can give you a feel for whether the asking price of a home is reasonable for the area.

Consider resale value while you are purchasing. At some point, you will probably sell your home. While you may like unusual features, consider how likely other buyers are to want those features. Be cautious of purchasing a home with a much higher selling price than other homes in the area. Even if the higher price can be justified, homeowners typically want to be surrounded by homes of similar size and value.

Get a professional inspection.While the home may look like it is in great shape to you, an inspector will check things like the heating and air conditioning systems, plumbing, electrical, walls, roof, foundation, drainage, garage, and basement.

Review your options before selecting a mortgage. Fixed-rate mortgages are typically a good option for homeowners who plan to stay in their home for many years. The fixed rate results in a fixed mortgage payment, making it easier to budget for other expenses. Adjustable-rate mortgages (ARMs) are popular with homeowners with rising incomes, those planning to move in a short time, and those who want the short-term cash flow benefits of lower interest rates.