Tips for First-Time Home Buyers

Given recent issues surrounding the real estate market, many potential first-time buyers may be wondering if this is a good time to buy a home. Purchasing a home can be an excellent investment, according to the Virginia Society of CPAs, but there are some important issues to consider before you do.

Set realistic price guidelines

The easiest way to decide how much house you can afford is to determine what size mortgage payment will fit into your monthly budget. As a general rule, your monthly housing cost should not exceed 25 to 30 percent of your gross monthly income if you want to qualify for a conventional mortgage. Monthly housing costs include your mortgage principal payment, interest payment, property taxes and home insurance.

To determine your possible mortgage costs, use a mortgage calculator like the one found on the Web site of the CPA profession’s 360 Degrees of Financial Literacy program at www.360financialliteracy.org. Fill in the expected mortgage amount, the interest rate and the mortgage term. When you see the monthly outlays based on different mortgage sizes and interest rates, you can determine a fairly specific range for your home price and loan rate. Once you set this range, stick to it during your house hunting so that you don’t end up spending more than you can handle.

Don’t forget the extras

When you are evaluating what monthly mortgage payment you can afford, remember the other expenses you’ll be paying each month and as you move into a new home. Utilities bills, for example, may increase if you’re moving into a larger space or if they have been previously included in your rent. You may also need to pay for items such as moving expenses, new furniture, home appliances and improvements. Make a list of all your possible one-time and ongoing expenses so you have an accurate picture of how home ownership will change your financial situation.

Review your credit situation

When you apply for a mortgage, the lender will examine your financial information to determine whether you qualify for the loan. If you have a great deal of outstanding debt or if you have missed car loan or credit card payments in the past, that could hurt your changes to get a mortgage. Before starting your home search, evaluate your current credit situation and your credit history. You have the right to receive a free credit report from each of the three credit bureaus each year. If you find any problems with your credit history or credit score, you can take steps to repair your record before you apply for a mortgage. You can also notify the credit bureau about any errors that you find and ask to have them corrected.

Remember the tax advantages

You are allowed to deduct the interest you pay on up to $1 million of debt used to buy, construct or improve your principal residence or second home ($500,000 if married filing separately). That is a tremendous advantage to homeownership that you will reap benefits from right away. In addition, you can deduct the real estate taxes you pay on your home.

Need ideas on determining how much house you can afford or on selecting the best mortgage? Your local CPA can provide you with the advice you need to make the best decisions. Turn to your CPA with any questions on home purchases or other financial decisions.

The Virginia Society of Certified Public Accountants (VSCPA) is the leading professional association dedicated to enhancing the success of CPAs. Founded in 1909, the VSCPA has approximately 8,300 members who work in public accounting, industry, government and education. For more information, please visit the Press Room on the VSCPA Web site at www.vscpa.com, e-mail vscpa@vscpa.com or call (800) 733-8272. For more information on financial literacy topics like money management, or to search for a CPA in your geographic region, visit www.FinancialFitness.org.  

© 2008 American Institute of Certified Public Accountants