Before you start looking at house, review your financial situation to determine how much cash you will have for a downpayment and closing costs, and how large a monthly mortgage payment (including taxes and insurance) you can afford. If you're a first-time homebuyer, then you probably don't have these answers and you have some work ahead of you.

Hopefully, you realized at least a year or two ago that you needed to begin saving for a house, and have some money put aside. Also, if you have been seriously thinking about a house, then you probably put together some sort of a budget to figure out how much you could afford to pay each month for the mortgage. If you haven't done either of these things, don't despair because you may still be able to purchase a house. The good news is that some mortgages don't require anything down, and some will include your closing costs in the mortgage. In this respect, you can basically buy a house with no money down, although you may not like the terms (higher interest rate). If you don't make a lot of money, there may also be state-funded programs that will help with these payments. The answers to these and other questions are available through a lender who will know all of the possible mortgage types, their requirements, their terms, and their costs. Therefore, the third thing you will want to do is meet with a lender.

The first and second things you will want to do before you discuss your situation with a lender are prepare a net worth statement and prepare a budget. Most people don't really enjoy doing these things, but you should have these things already if you are serious about owning a home and, besides, the lender will need to know this same information, especially if you decide to apply for a loan with them.

If you have lots of money saved, or if you are moving to a larger home and have equity in your existing home, the question may be how much money to put down on your house. The more cash you pay up front, the less you will pay every month on the mortgage, and the lower your total interest costs will be. Conversely, the less you put down, the larger the tax deductions for mortgage interest, and you will have available funds for other expenses, including decorating and furnishing.

One further consideration regarding the size of the downpayment, if you have lots of cash, is whether you would be better off investing this money rather than using it to lower your mortgage. If mortgage rates are low, you might be able to earn a much higher return by investing. If mortgage rates are high, and market returns are not great, then you would benefit by putting the extra cash into your home. You will need to weigh these considerations carefully, and seek professional advice if necessary.

Finally, you need to calculate how much you can afford for the mortgage, property taxes and homeowner's insurance. If you've done a good budget, you can pretty much estimate how much you have left over for a monthly payment. What's left is to figure out the cost of taxes and insurance and subtract that from the monthly amount you have available for a mortgage payment. This can then be translated into the largest mortgage that you can reasonably afford. CNNMoney has a calculator that you can use to help you determine the maximum mortgage you can afford. For comparison, you can also check out the calculator at Bankrate or the one at YoungMoney.

One final word regarding the size of the mortgage. Too many people find themselves mortgage poor, meaning that their budget is real tight every month for the first couple of years until their earnings hopefully improve. These can be stressful times when you can barely afford your mortgage payment, let alone new furniture or taking a vacation. Add a new child to the mix and things can get real scary financially. Although there is some benefit to buying as much house as you can afford, especially if you have an emergency fund to fall back on, in many ways you will be better off if you buy what you can reasonably afford so that you can still enjoy life and not spend all your time worrying about the bills. Evaluate your budget and your lifestyle carefully, and make sure that you don't buy more house than you are willing to sacrifice for.

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