Having a place to call home is one of the cornerstones of the American Dream, and this booklet helps buyers understand the steps typically taken in getting ready to buy a home. The educational part of the guide walks the prospective buyer through nine questions, which we will look at this week. I have summarized and condensed their 39 pages of advice in these answers:

1. How steady is your job history?

Having a steady source of income is probably the most important part of the first time buyer’s loan application. Since payments fall due on the first day of each month for years to come, the lender needs to know that you have a history of holding down a job.

If you have been working continuously for two years or more, you are considered to have steady employment. If not, you may need to explain to the lender the reason for any gaps in your employment.

2. Do you pay your bills on time each month?

When you apply for a mortgage, you will be asked to list all your debts and all your monthly payment amounts. If your monthly payments are too high a percentage of your income, you may need to postpone your loan application until you pay down some bills.

3. Do you have a credit history?

If you have a good record of paying your monthly bills and rent on time, you are more likely to be approved for a home loan. If you are new to the world of credit, you may still be able to use non-traditional forms of credit, such as utility payment records, to show your ability to pay on time.

4. Do you have money saved for a down payment?

When you buy a home, you will probably need some amount of savings to pay for a portion of the purchase price, called a down payment. Depending on the type of loan program you select, the down payment required may be anywhere from 20% of the purchase price to as little as 5% of the price. Some programs actually require no down payment whatsoever.

In addition, you may need more cash to pay for "closing costs." This is a collection of fees associated with creating the loan itself. Closing costs can amount to as much as 3% of the loan amount. Sometimes the seller will pay a portion of the closing expenses.

These costs must be paid from money you have saved, and usually cannot be funds you have borrowed from another source.

5. Can you afford to pay a mortgage payment each month?

The amount of your monthly mortgage payment is a function of the amount you borrow, the interest rate you are charged on the loan, and the "term" or length of the loan in years. The longest term available is thirty years, and results in the lowest payments. Most first time buyers select this term.

Some loans start off at a very low interest rate, which can rise or fall over time. Because it is hard to predict what the payments will be, this may not be the best loan for a first time buyer.

6. How does the lender determine the amount of the mortgage you may receive?

Lenders use two commonly accepted guidelines:

If your total projected monthly housing cost is less than 28% of your gross monthly income, lenders feel comfortable that you are not borrowing more than the typical home buyer.

In addition, if your housing expense plus all your other monthly payments exceeds a total of 36% of your gross monthly income, then the lender may feel you are overextending yourself. Because over-borrowing is a common problem for first time buyers, lenders will try to keep your monthly debts within these guidelines.

7. How large a mortgage do you qualify for?

As a rule of thumb, if you applied for a 30-year loan at 6% interest, you would likely qualify for about three and a half times your annual household income. So if you had annual income of $30,000, you might qualify for a maximum loan amount of about $105,000.

8. Have you been turned down for a mortgage?

If so, it is important to find out the reasons why, and work to improve your chances of being approved in the future.

9. You’re ready to buy a home. What do you do first?

The booklet suggests that you first make an appointment with a mortgage lender to get pre-qualified for a loan, then contact a real estate professional to start seeing houses.

This guide presents a logical approach to the homebuying process, and helps buyers understand the steps they will need to take in order to become homeowners in today’s market. You can order a free copy by calling 800-611-9566 or by visiting www.homebuyingguide.com and requesting Guide 2 from the menu.