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A checklist for first-time homebuyers

Date posted:  3/16/15 08:30:00 AM First-time homebuyers should place an emphasis on the space of a home and their commute to work.

With the nation's economy gradually rising in the wake of the Great Recession, many would-be buyers are trickling into the housing market as they look to purchase their first homes.

But what exactly should first-time homebuyers be looking for?

According to certified financial planner Karen Carr, who runs seminars to help young adults learn about the finances of purchasing a home, buyers need to realize it's "not all about the house."

Carr told U.S. News & World Report that seminars place a focus on the current financial standing of buyers as well as what they are looking for from life in the coming years. She asks clients about what they want from a home and tries to emphasis certain qualities - such as having enough space to start a family and time of commute - should be at the forefront of the decision-making process rather than the color of the gutters or new kitchen appliances.

Keep track of expenses before buying a home
Carr said it's also important to talk about financial issues.

"We try to match their expectations with their budget," she said.

Carr stated buyers need to know what they can reasonably afford, otherwise, keeping up with mortgage payments will be an uphill climb. She asked prospective first-time buyers to keep track of monthly home expenses such as insurance, utilities and loan payments along with other needs like entertainment and food expenses. By keeping a list of monthly expenses, buyers will get a better sense of how much they can afford. It's also important to remember that buyers will need to budget property taxes and interest on their monthly mortgage payments, if and when they decide to buy.

Former mortgage planner Mike Winesburg told Bankrate tracking expenses is a great way for consumers to know if they are ready to purchase a home.

"You should understand a little bit about monthly cash flow," Winesburg said. "If I were a first-time homebuyer and I wanted to do everything right, I would probably try to track my spending for a couple of months to see where my money was going."

How will lenders view a buyer's income?
Not all incomes are created equal in the eyes of mortgage lenders, according to Winesburg. Despite there being nearly 9 million people who view themselves as self-employed across the country, Winesburg said employees with a standard salary will likely have an easier time acquiring a loan compared to professionals who earn wages via sales commission or are self-employed.

This is because lenders tend to see the self-employed and those earning money through commission as a higher risk. He said that in previous years it wasn't as hard for non-salaried employees to secure a loan, but with tighter lending standards in a trying economy, many contractors will need to show a few strong years of their earning history to woo a potential lender.

Pava Leyrer, a mortgage training and development manager in Michigan, told Bankrate it can be a slippery slope for buyers who work for themselves.

"How we qualify self-employed doesn't always agree with how the IRS says you can run your business legally," Leyrer said. "So they are finding it harder to get a loan unless they want to show more income to the IRS."

Don't procrastinate, do the homework
U.S. News & World Report stated first-time buyers especially need to do research if they hope to avoid some of the common pitfalls of buying a home. One thing they might want to consider before pulling the trigger on a purchase is getting a home inspected. While inspections can cost a few hundred dollars, they could save a family thousands of dollars should any unforeseen problems come to light during the inspection.