What Do You Need to Know About Home Ownership?
The biggest financial advantages of owning a home is the investment value of a house. Every payment reduces the principal amount of your mortgage loan, and you own more of your house. This is your equity, and it grows as you pay off the mortgage and as the market value of your home increases. That makes your mortgage a type of forced savings account. Home ownership gives you a financial advantage because you get to deduct real estate taxes and the interest on your mortgage on your annual income tax return. It makes a big difference on your tax payments.

When is the right time to buy a home?
If your family is growing and you are ready to establish roots in a neighborhood with good schools and amenities for families, you may be ready to buy a house.

Homeownership is one of the most important financial steps you will take in your life. As a homeowner, you will take on many new responsibilities and many new expenses. You also will give up some of the freedom and flexibility you enjoyed as a renter. Here are just a few examples of how your life will change as a homeowner:

• A home means putting down roots and saying farewell to moving from place to place as a renter.
• You'll have the responsibility for maintaining a home—caring for a yard, replacing a roof, painting the exterior, caulking cracks, and keeping the yard neat.
• You'll have to pay real estate taxes, but they are tax deductible.

Can you afford to buy a home? A lender will look at your financial situation and determine your ability to pay back the money you borrow for your home mortgage. A lender will want to know how much money you have now as well as how much you will likely make over the next 30 years.

You can expect your lender to want to know your debts for college loans or credit card charges, and assets such as investments, automobiles, and other tangible personal property.

Many lenders will offer you a bigger loan than you can afford. They may start with your total household income, but they may qualify you for a mortgage with payments that take more than 50 percent of your income.

Your lender will also want to know how much cash you'll be able to accumulate for a down payment, which runs anywhere from 5 percent to 20 percent of the purchase price of the home. So how much house can you afford? You can easily calculate the answer using two standard debt-to-income ratios.

Front-end ratio shows how much of your gross (pretax) monthly income would go toward the mortgage payment. As a general guideline, your monthly mortgage payment, including principal, interest, real estate taxes, and homeowners insurance, should not exceed 28 percent of your gross monthly income. To calculate your housing expense, multiply your annual salary by 0.28, then divide by 12 (months). The answer is your maximum monthly housing expense.

Back-end ratio shows how much of your gross income goes toward all of your debt obligations, including mortgage, car loans, child support and alimony, credit card bills, student loans, and condominium fees. In general, your total monthly debt obligation should not be more than 36 percent of your gross income. To calculate your debt-to-income ratio, multiply your annual salary by 0.36, then divide by 12 (months). The answer is your maximum allowable debt-to-income ratio.

Check here to see how much you can reasonably afford to borrow. Are you better off buying your home, or should you continue to rent?

More realistic payments will not be more than one-third of your net monthly income. Refer to the Housing Cost worksheet to see what percentage of your income do you have available to spend on housing?

Even if you have had difficulties with your credit history, you still may be able to qualify for home ownership. Special federal mortgage programs may be available to you. To find out if you qualify, and to determine your next steps, you can contact a local housing counseling agency. Contact information for agencies near you is listed on various Web sites, including those of the U.S. Department of Housing and Urban Development and Fannie Mae.