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Consider up-front costs to determine if you can buy

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With interest rates low, many American are jumping to buy their first homes but how do you determine if you can afford to buy a house?

If you're not prepared financially, you might find yourself living in a splendid house without a penny to spare for anything else.

Or you might overextend yourself to the point where you can't keep up with your mortgage payments and risk losing the house, according to a news release from Source One Mortgage Services.

Source One recommends prospective buyers follow these five steps to determine whether you are ready to jump into the hot housing market.

1. Add it up.

Figure the probable housing costs for a new home in your price range.

Include monthly mortgage payments, moving costs, settling-in costs, taxes, insurance and property repair and maintenance.

Are these costs higher than what you pay in rent? If so, can you afford to pay more for housing than you are now paying?

2. Analyze current expenses.

Take a look at your spending patterns by keeping a record of everything you spend over a given period of time.

Do you usually have some money left at the end of each pay period? If not, you may need to change some of your spending habits before you can seriously consider buying a house.

3. Try out the cost of home ownership.

Start now to put aside money from each paycheck in whatever amount you decide you could pay in excess of your existing housing costs.

If you find you can do this, you may be ready for home ownership.

4. Analyze up-front home purchase costs.

Your up-front costs include the down payment and various closing costs. Depending on the type of mortgage loan you choose, your down payment can range from as little as 3 percent (with government loans such as FHA or VA loans) to 20 percent of the purchase price of the home.

In addition, closing costs typically range from 3 percent to 6 percent of the amount of the mortgage.

5. Check out the ongoing costs of ownership.

Your housing costs will include your monthly mortgage payment, property taxes, homeowners insurance, mortgage insurance (if required), utilities and maintenance.

Also, if you buy a house in need of immediate repairs, you will need to have money left after buying the house to make those repairs.

If repairs are needed but money is

tight, you could use a 203(k) government loan that allows you to both finance and renovate your home under a single


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