We first published “How Much House Can You Afford” over a year ago, but we’ve been getting a lot of questions about the subject recently. In fact, we’ve also been getting a lot of people asking why they haven’t been approved for a mortgage. In many cases, we simply have to tell them that they’re trying to buy too much house. The easy solution is to know how much house you can afford before you apply for a mortgage.

Buying your first home is one of the most important and exciting financial milestones of your life. But before you hit the streets with a realtor, you need to have a good sense of a realistic budget. Just how much house can you afford? You can determine how much house you can afford by following three simple rules or percentages of your monthly income. [...]

Want to save thousands on your taxes? Consider buying a home. Without a doubt, the home mortgage interest deduction is a major perk of home ownership: the mortgage interest you pay on your home reduces your taxable income. The first-year interest payments on a $180,000 30-year fixed rate home loan at 5.01 percent add up to almost $9,000. That’s a lot of interest paid, but it’s also a huge tax deduction.

If you’re getting ready to buy your first home or are a new homeowner, here’s what you need to know—in plain English—about the home mortgage interest deduction. [...]

Shopping for a mortgage can be intimidating. There are thousands of mortgage lenders and hundreds of ways lenders can tweak home loans to distort their real costs. You’re also facing the excitement of buying a new home and you may feel vulnerable as lenders nit-pick your credit report. It’s understandable that many home buyers get stuck with bad mortgages because they just wanted to get the process over with. Unfortunately, that’s no small mistake: On a 30-year mortgage, fractions of a rate point can add up to tens of thousands of dollars.

Want to avoid a similar fate? It’s all about knowing how to shop for a mortgage. [...]

Last week, a long-time reader e-mailed a superb question: If you must choose, should you save first for retirement or save for a down payment on your first home?

Obviously, both are important. The younger you are when you start contributing to a 401(k) or IRA, the longer compounding interest will work its magic. At the same time, many of us want to own a home before we turn a certain age, get married, or have kids. And if we’re able, the money-savvy among us would like to buy our home with a substantial down payment (ideally 20 percent).

That’s no small goal.

But can you save for both retirement and a down payment at the same time? And, if you must choose, which should be your priority? The answer is, of course, complicated, and depends on some individual financial factors. But, in general, save for retirement first. [...]

Buying your first home is a serious and exciting event. It takes patience, money and responsibility to be ready to buy a home, but buying the property is only half the battle. The transition between depending on a landlord and being your own landlord can be a shock!

And though home ownership has certain advantages, it’s not all fun and games. As you age, you will most likely start to feel pressure to buy a home from friends, family and the media. I’m here to tell you that it’s perfectly alright—perhaps even preferable—to wait. You should buy a home if:

• You want to be a home owner. (Not everybody does, and that’s OK.)
• You’re financially ready. (Meaning good credit, secure income and a 20 percent down payment.)
• You’re not going to move. (If you think you’ll change cities within five years, why bother buying?)

You should not, however, buy a home for the following reasons: [...]

FHA mortgage loans are mortgages that are guaranteed by the U.S. Government’s Federal Housing Administration. Thanks to this guarantee, FHA mortgage loans are often available to home buyers who do not qualify for “traditional” mortgages.

Authorized FHA lenders may approve borrowers with less-than-perfect credit and with as little as three and a half percent to put down for FHA mortgage loan. Although FHA loans were designed to serve low- and moderate-income home buyers who would otherwise have trouble getting a conventional mortgage; anybody can apply for an FHA loan up to FHA lending limits (by region).

As traditional lenders respond to the recession by making it more difficult to qualify for a mortgage, more borrowers are turning to FHA loans. That’s good news for able buyers, but it may not be good news for the recovering housing market in general. Recent reports indicate the FHA is losing money as current borrowers continue to default. (Anybody surprised?)

That said, you can still get an FHA loan, and with low mortgage rates and the $8,000 first-time home buyer tax credit and $6,500 home buyer tax credit in effect until next Spring; it’s still a very good time to buy a home. [...]

Good news for prospective home-buyers: It looks like Congress will extend the $8,000 first-time home buyer tax credit that was slated to end this month and add a $6,500 tax credit for those that have already owned a home.

The Senate voted 98-0 Wednesday to extend and expand the tax credit and the House could vote on the bill as early as today. If passed, the $8,000 tax credit would remain in effect for first-time home buyers — or anyone who hasn’t owned a home in the last three years. [...]

When it comes time to buy a new home, you need to know whom you can trust. Real estate is a cutthroat business, and as a prospective home buyer, you should recognize that the real estate agents who list properties are working for sellers—they’re salespeople, and they’ll push hard to sell their clients’ homes. Not to say there aren’t agents out there that tell it like is, even while working for a seller. But you’ll want to be prepared for the ones that don’t.

That’s where enlisting a buyer’s agent can be a wise move. [...]

Buying your first home is a huge financial milestone. Whether you’re just starting to consider home ownership or are already entrenched in the search for your first home, there’s an important step I recommend you take before making an offer or even starting to shop around: Get a pre-qualification or pre-approval letter from a mortgage lender.

Having this letter from a mortgage lender in advance can save you from major disappointment if you find your perfect home, make an offer, and then find you the bank has denied your mortgage application.

Pre-qualification and pre-approval is simply when a lender takes a fast look at your credit and decides, preliminarily, that you’re eligible for a mortgage. Although this does not guarantee your ability to get any mortgage, it does give you an upper hand when negotiating with sellers.

So, what’s the difference between pre-qualification and pre-approval? [...]

Ready to take the leap and buy your first home? Searching for your dream house can be an exciting—and trying—experience. Here are a few suggestions to make house hunting easier and help you get into your new home sooner!

1. Make a plan. What do you want and need from your first home? Take a moment to write it down. This is especially important if you’re shopping with a partner or spouse. You’ll save a time and aggravation if you agree on what’s most important in your house before you hit the streets shopping. Is it all about the location? Do you want an impeccably-kept modern home or would you consider a fixer-upper? The more factors you identify as important early-on, the faster you’ll be able to hone in on properties that meet your needs.

2. Set a budget. This goes hand in hand with tip number one. How much house can you afford? If you’re not sure, I’ve written on this subject in How Much House Can You Afford and What Percentage of Your Income can You Afford on Mortgage Payments? Do you want to stretch and buy more home than you need so you can grow into it, or do you hope to pay off your mortgage quickly by buying a home you can afford with a 15-year fixed mortgage?

Ultimately, your income, savings, and local real estate market will determine your viable housing budget. Once you set it, commit to it. Your real estate agent will inevitably show you properties that exceed your budget “just for comparison”. You need to prepare to be firm and stick with a house you can afford. [...]