Purchasing a home is the most exciting and financially risky step any person or couple can make. Below are several aspects you should consider when deciding whether to buy a home, and highlights of the home purchasing experience. A final thought about VA loans is provided with a link to more detailed information.

When should you consider buying a home?
You might want to buy a home for many reasons. For example, your family is growing and you are ready to establish roots in a neighborhood with good schools and amenities for families. Perhaps you want to take advantage of the financial benefits of home ownership.

Can you afford to buy a home?
A lender will look at your financial situation and try to determine your ability to pay back the money you borrow for your home mortgage. To decide how large a loan you can afford, most lenders look at your total household income as a starting point. Some lenders will qualify you for a mortgage loan with payments that are more than 50 percent of your income. More traditional or conservative standards suggest that your payment not be more than one-third of your net monthly income. For more information about home loans, see Owning a House.

Can you benefit from the financial advantages of home ownership?
One of the most significant financial advantages of owning residential real estate is the investment value of a home. The percentage of your home that you own grows over time as you make your monthly mortgage payment and reduce the principal amount of your mortgage loan. This is your equity. Your mortgage, in effect, becomes a type of "forced savings" account. Another way your equity can grow is through increases in the market value of your home. Home ownership also has major financial advantages in that you may also deduct real estate taxes and the interest on your mortgage on your annual income tax return. The impact of this deduction is significant.

How can you prepare for buying a home?
The best way to prepare for buying a home is to make sure your financial picture is a healthy one. Gather your financial information and talk to a number of mortgage lenders to find the best rates available. A lender will look at your

• Employment history. Lenders typically consider two years of steady work in the same industry as employment stability.
  

• Current debt and your credit history and rating. Lenders will make decisions based on your current debt level. Read more about credit ratings.

• Records of all your asset and liability accounts. When you begin to think about buying a home, gather the following asset and liability information and have it ready for mortgage interviews.

What is the role of a real estate agent in buying a home?
A real estate agent can provide valuable services to both new and experienced home buyers. Agents know the neighborhoods and selling trends of homes in your target areas of interest. An agent can also help guide you through the many steps involved in buying a home, including recommendations on mortgage lenders, home inspectors, and other service providers.

What should you look for as you search for a home?
Before you begin your home search, you should come up with a list of what you want in your new home, so that you can evaluate each home as you look at it and compare it with others you have seen. After you begin looking at a number of homes, you might be surprised how difficult it is to remember specific features and impressions you had as you walked through.

What is the offer to purchase and what does it include?
The written offer goes by different names in different parts of the country. You might hear it called an offer to purchase, a contract of purchase and sale, a purchase agreement, an earnest money agreement, or a deposit receipt. Whatever the name in your part of the country, this contract is considered the most important document in the real estate transaction. Once you make a written offer and it is accepted by the seller, the resulting contract establishes the legal rights and obligations of the buyer and seller and determines the contents of the deed. Your real estate agent or lawyer will help you complete the offer, present it to the seller, negotiate its terms, and finalize the contract.

Protect yourself with contingencies. It is common for buyers to protect themselves by including contingencies in an offer to purchase:

• Mortgage contingency will protect you and your earnest money until you have a mortgage commitment from a lender.
  

• Inspection contingency gives you time to arrange for adequate inspections and also gives the seller time to complete needed repairs.
  

• Property-sale contingency protects you from owning two homes at once because it states that you must sell your property before you are obligated to buy the new one. In a seller's market, a property-sale contingency will make your offer less attractive to a seller.

What should you do to prepare for closing?
You and the seller agree on price and terms by signing the offer to purchase contract. While you await your closing date, you have a few things to do. Your responsibilities are to

• Purchase homeowner's insurance. You must provide a policy number or binder agreement before closing.
  

• Conduct a walk-through and inspection of your new home just before the closing. The purpose of this inspection is to make sure all required repairs have been completed to your satisfaction.
  

• Notify the post office and utility companies of the change of address/ownership. Be certain you have made all necessary arrangements to change over utility accounts to your name. You must also submit change-of-address information to the post office. Real estate agents often have helpful resources and contact information to make this process easy.

Your real estate agent, lawyer, or title attorney will be busy preparing for your closing. They will make certain your seller is providing title evidence and a deed with all liens removed. Before the closing, your lender will provide a good-faith written estimate of the closing or settlement costs you can expect to pay.

What happens at the closing?

What about VA Loans?
A lender, such as a mortgage company, savings and loan, or bank, makes a Veteran's Administration-guaranteed loan. The VA's guaranty on the loan protects the lender against loss if the payments are not made and is intended to encourage lenders to offer veterans loans with more favorable terms. The amount of guaranty on the loan depends on the loan amount and whether the veteran used some entitlement previously. With the current maximum guaranty, a veteran who hasn't previously used the benefit may be able to obtain a VA loan of up to $417,000 ($625,500 limit for Alaska, Hawaii, Guam and the U.S. Virgin Islands), depending on the borrower's income level and the appraised value of the property. Your local VA office can provide more details on guaranty and entitlement amounts. The VA can provide additional guarantees above the $417,000 ($625,500) limit – refer to Circular 26-08-19 for more information.