If you are a renter considering buying your first home, your first step should be determining what mortgage amount you can afford.

Use the following worksheet to calculate an estimate:

Income
Job-related income ________
Investment income ________
Yearly bonuses ________
Additional income ________
Total Income ________

Expenses
Yearly taxes ________
Monthly savings ________
Groceries ________
Insurance ________
Medical bills ________
Car payments ________
Car expenses ________
Credit card bills ________
Student loans ________
Additional loans ________
Day care ________
Wardrobe ________
Recreation ________
Vacation ________
Charitable donations________

Other ________

Total Expenses ________

Subtract total expenses from total income ________

This amount is your discretionary income.

Discretionary income divided by 12 ________

This is your monthly disposable income.

Now you will need to decide how much of your disposable income can go toward a mortgage payment.

Mortgages come in two basic forms: the fixed-rate mortgage and the adjustable-rate mortgage (ARM). A fixed-rate mortgage has a fixed interest rate that never changes, and the payments will be the same amount for the duration of the loan. An ARM has an interest rate that fluctuates with the market and the economy, although increases are limited to a certain number of points per year and over the life of the loan.

Another challenging aspect of buying a first home is the down payment. Traditionally, lending institutions have required a 20% deposit, and paying 20% down will help you avoid paying private mortgage insurance (PMI).

However, many prospects exist today for down payments as low as 3% or even 0%.

If a large down payment is not possible for you, consider these options:

• "Fixer-upper" condos or houses that need repairs are often less expensive. Simple do-it-yourself improvements can add to a home's value.
• A lease-option contract allows you to rent a home with the option to buy at a specific price within a given time frame.
• If you have a traditional Individual Retirement Account (IRA), you can withdraw a lifetime maximum of $10,000 for a first-time home purchase with no early withdrawal penalty; however, the withdrawal will be subject to taxes, unless funds were contributed on an after-tax basis. If you have had a Roth IRA for five years, you can withdraw up to $10,000 free of penalties and taxes for the purchase of a first home. (Remember, borrowing from retirement accounts has the potential to affect the financial security of your retirement years.)

If you take time to educate yourself before buying a home, you'll be fully prepared for the steps ahead. The rewards of homeownership are worth the effort!