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Tips for first-time home buyers

Given the bad times that have occurred in real estate prices lately, many first-time buyers may be wondering if this is a good time to enter the market.

Purchasing a home can be an excellent investment, according to the Maryland Association of CPAs, but there are some important issues to consider before you do.

Set realistic price guidelines

The easiest way to decide how much house you can afford is to determine what size mortgage payment will fit into your monthly budget.

As a general rule, your monthly housing cost should not exceed 25 percent to 30 percent of your gross monthly income if you want to qualify for a conventional mortgage. Monthly housing costs include your mortgage principal payment, interest payment, property taxes and home insurance.

To determine your possible mortgage costs, use a mortgage calculator like the one found on the Web site of the CPA profession’s 360 Degrees of Financial Literacy program at www.360financialliteracy.org. Fill in the expected mortgage amount, the interest rate and the mortgage term. When you see the monthly outlays based on different mortgage sizes and interest rates, you can determine a fairly specific range for your home price and loan rate. Once you set this range, stick to it during your house hunting so that you don’t end up spending more than you can handle.

Don’t forget the extras

When you are evaluating what monthly mortgage payment you can afford, remember the other expenses you’ll be paying each month and as you move into a new home. Utilities bills, for example, may increase if you’re moving into a larger space or if they have been previously included in your rent.

You may also need to pay for items such as moving expenses, new furniture, home appliances and improvements. Make a list of all your possible one-time and ongoing expenses so you have an accurate picture of how home ownership will change your financial situation.

Review your credit situation

When you apply for a mortgage, the lender will examine your financial information to determine whether you qualify for the loan. If you have a great deal of outstanding debt or if you have missed car loan or credit card payments in the past, that could hurt your changes to get a mortgage.

Before starting your home search, evaluate your current credit situation and your credit history. You have the right to receive a free credit report from each of the three credit bureaus each year. If you find any problems with your credit history or credit score, you can take steps to repair your record before you apply for a mortgage. You can also notify the credit bureau about any errors that you find and ask to have them corrected.    

Remember the tax advantages

You are allowed to deduct the interest you pay on up to $1 million of debt used to buy, construct or improve your principal residence or second home ($500,000 if married filing separately) That’s a tremendous advantage to homeownership that you will reap benefits from right away. In addition, you can also deduct the real estate taxes you pay on your home.

Need ideas on determining how much house you can afford or on selecting the best mortgage? Your local CPA can provide you with the advice you need to make the best decisions. Turn to him or her with any questions on home purchases or other financial decisions.

Only CPAs are equipped to address your full range of financial needs with integrity and insight. In Maryland, CPAs must pass a rigorous two-day examination, adhere to strict ethical and professional standards, and, beyond college, complete 80 hours of continuing education every two years to be certified by the state — accountants do not.

Your doctor is certified; your lawyer is certified. Make sure your accountant is a certified public accountant.

For CPA referrals in your area, contact the MACPA at (410) 296-6250 or click here.

The Maryland Association of Certified Public Accountants (MACPA) is a statewide professional association that provides leadership, information and services for its nearly 10,000 CPA members, who are employed in private practice, industry, government and education. CPAs are business and financial professionals who have passed a rigorous two-day examination in order to be licensed by the state. CPAs are committed to protecting the public interest, and must adhere to stringent ethical and professional standards and continuing professional education requirements.