Create a budget before buying a home

Many first time home buyers come to me with unrealistic expectations about the mortgage payment associated with a certain purchase price. For example, I had one person request a $700 payment for a $200,000 loan and I can work magic to get the payment down but Houdini couldn't get this done. I asked the buyer some more questions related to his finances and I was able to determine that he had too much debt and alas the reason for the super low payment request. I put my financial counseling cap on and worked out a solution which he was able to pay off a car with only a year left on it which created $500 per month cash flow as well as eliminating some expenses from his budget which gave us another $250 per month cash toward the mortgage payment. Now, he was able to afford $1,450 per month payment and I was able to customize a 30 year fixed zero down payment of $1,550 per moth which was still a little tight. I had one more rabbit to pull out of the hat. I explained to him that he could take less taxes out of his check because he will be getting some good tax benefits from mortgage interest and real estate tax deductions. He then said, "why would I give up my tax return which is one of the main reasons I want to buy a home?". I told him even if he doesn't get any more money back from Uncle Sam, he would still build wealth when his home goes up in value every year. For example, if his new home appreciates at 5% per year for 5 years, his home would be worth $255,000 or more..a $55,000 increase in his net worth. Remember, he will be putting zero down and paying no closing costs out his pocket. My point is that you must sit down, look at your income and expenses, and work out a budget for your new home and determine what cuts could be made and what could be the maximum payment you can afford. Then, you can find out which loan programs and payment options will fit your budget. Finally, be realistic about the price range of your first home and don't think you are going to get the Taj Mahal. You may have to buy a modest starter home at first but in a couple of years you can put down a large down payment and bump up to the home of your dreams.