Unless you are going to pay cash for a home, the first thing you need to know is how much of a mortgage loan you qualify for. This will require you to speak with a lending institution such as a bank, credit union, or mortgage brokerage. The prospective lender will need to review your financial situation in great detail, including requiring W-2's from your employer (1099's if you're a contractor), most recent paystubs, previous tax returns, a credit report, bank statements, etc. These are all applied to a magic formula to render a pre-approval amount and eligible loan programs.

Your loan approval should result in 2 documents that the lender will give you:

• A pre-approval letter indicating the amount and terms of your qualification
  
• A Good Faith Estimate (GFE) showing a break-down of your loan costs and monthly payment

Make sure you leave your appointment with this information so that you can have in writing anything the lender promises you.

It is important to begin saving money well in advance of planning to purchase a home. Your mortgage lender will tell you the necessary amount you need to have on hand to settle, but their are some upfront costs (called pre-paids) that can vary, depending on what your requirements are. Included in these pre-paids are the home inspection(s), the appraisal, mortgage application fee, and retainer fees that some agents charge.

You also want to make sure that you have enough reserves after the transaction closes such that you can cover 2 or 3 months of your mortgage payments. This will cover you in the event of any unforseen cash flow issues.

Also, do not make any major purchases or open new lines of credit during this period, as that can affect your loan approval status.

It is critical for you to decide up front whether or not you are going to use a real estate agent to assist you with the home buying process. Most buyers do, as it gives them an advocate who is trained to facillitate and negotiate a real estate transaction from beginning to end. This is the biggest purchase many people will ever make, so having a professional to navigate through the process is usually recommended. There are of course thousands of agents out there, so how do you select one? Based on statistics acquired from the National Association of Realtors(R) (NAR), this is how most people found their agent in 2007:

• Referred by (or is) a friend, neighbor, or relative 43%
  
• Used agent previously to buy/sell a house - 11%
  
• Internet Site - 8%
  
• Saw contact Information on For Sale Sign - 7%
  
• Visited open house and met agent 6%
  
• Referred by another real estate agent/broker - 5%
  
• Walked into/called office and agent was on duty 4%

Regardless of how you find an agent, be sure to select one that is on the same page as you. Your agent should be knowledgeable about the market you are looking in, friendly, accessible to view homes with you, and have the skills to negotiate your best deal. Click Here to understand more about hiring an agent.

There are a number of ways that you can find listings in your price range and in the areas you like. According to NAR Statistics for 2007, the top resources which buyers used in the process of locating a home were as follows:

• Real estate agent - 84%
  
• Internet - 84%
  
• Yard sign - 59%
  
• Open house - 48%
  
• Home book/magazine - 31%
  
• Builders - 24%
  
• Television - 9%
  
• Billboard - 7%
  
• Relocation company - 5%
  

This is where the rubber meets the road and you begin to see the homes that you select from your search. Many people erroneously think this step should occur before you are pre-approved for a mortgage, but that is actually the backwards approach. You should only preview homes once you know you can get a mortgage. If you wait to find a home first, it may be gone by the time you complete the mortgage application process, and you will have to begin looking for homes again. That is frustrating for both real estate agents and buyers.

When you are going around looking at homes, it is highly recommended that you bring a notepad and perhaps even a camera so that you won't forget the features of a home you might be interested in. After a day of showings, many features of the homes you see will blend together and you won't be able to recall which house had what.

It is also beneficial to bring a prioritized checklist of items that are important to you, so that you can rule in or rule out homes quickly. This is particularly true if you are buying a house with another person, so that disagreements about what things are important in the house are dealt with ahead of time.

When you've identified a home that you want to purchase, your offer must be formalized with a written offer that spells out all of the terms under which you are willing to consumate a sale of the property.

The contract spells out a very important stipulation that all parties should recognize: "Time is of the Essence." That means that every function to be performed by either buyer or seller throughout the home sale process must have a specific date and time associated with it, or the contract becomes voidable, with potential financial repercussions on the defaulting party. Therefore, be sure that reasonable deadlines are placed on the various requirements within the contract.

It is strongly advised that you retain the services of a real esate agent, to assist you in preparing a proper contract. The slightest omission can leave you in an unanticipated legal bind or lead to a financial loss.

Even if you are on great terms with the seller or their agent, the very act of purchasing the home involves competing interests, in that both parties want the best possible deal.

Once you've found a house you like, you will have to contact the seller or the seller's agent to submit an offer to purchase, and that's where the negotiation process begins. Only about 4% of homes are sold under the terms originally offered in the purchase contract, so the other 96% of the time, you'll need to be prepared to negotiate. This is where having a skilled real estate agent can be critical to saving you thousands or even tens of thousands of dollars.

Some of the things you might end up negotiating with the seller include:

• Sale Price
  
• Closing Cost Assistance
  
• Settlement Date
  
• Financing Terms
  
• Home Inspection Repair Requirements
  
• Appraisal Contingencies
  
• Personal Property Conveyed with the home
  
• Leaseback Agreements
  
• Decorator Allowances

The biggest thing to remember with respect to negotiation is to ask for everything you want, no matter how minute, up front. Since the real estate purchase contract is required to be in writing, and verbal agreements are irrelevant, you can't add new items after the initial negotiation is completed. The seller will have no obligation to consider additional items once both parties have signed off on the contract.

Also remember to keep a level head during the negotiation process, whether you've decided to undertake it with the help of a buyer's agent or not. It is very typical during negotiations for either the seller or the buyer to take things personally, and that can ruin the deal for both parties, making each subsequent step in the process a major hurdle (if it gets that far).

As the buyer, you will have the option of putting provisions in your offer to purchase that allow you to have the seller repair certain deficiencies in the home. The home inspection contingency of the real estate contract spells out the terms under which the transaction can end depending on whether the seller is willing to complete certain repair items prior to settlement.

You should hire licensed professionals to thoroughly inspect all aspects of the home, including exterior and interior issues that can cost you thousands of dollars if they are not repaired before you acquire the home. In some cases, there may be environmental concerns, such as Radon, that will impact your decision to purchase if not properly remediated.

Here is a non-exhaustive list of some of the types of inspections a typical residential real estate transaction might involve:

• Structural/Mechanical Inspection
  
• Chimney Inspection
  
• Lead Paint Inspection
  
• Mold Inspection
  
• Radon Inspection
  
• Septic System Inspection
  
• Well Yield Test
  

The appraisal is a critical piece of the puzzle. It involves a third-party, disinterested, trained professional (the Appraiser) coming to the home to determine its value in the context of the latest real estate transactions in that market. It is a scientific process of valuation, involving looking at recent sales, features of competitive properties, square footage comparisons, judgments of functionality, and local market trends to determine a specific dollar value of the home.

The appraisal is generally paid for by the buyer, but is really designed to protect the lender. The lender requires the appraisal to make sure they never lend to the borrower more than the property is actually worth. If they did lend more, and the buyer lost the property due to foreclosure, their losses would be limited, as they own an asset (the home) which is worth at least what the lent against it.

Inadvertently, the appraisal also protects the buyer from overpaying for the property, and typically it is a contingency of the contract that the appraisal value should be at least as high as the purchase price in the sales contract.

If the property doesn't appraise high enough, a re-negotiation of the sales price of the contract will be required, and if not done properly can result in the voiding of the contract.

Settlement costs can be a complicated thing for the uninitiated so the government standardized the form on which your costs at settlement are rendered. This form is called a HUD-1. It is structurally very similar to the Good Faith Estimate (GFE) referred to earlier in this guide, so that's why it so critical to obtain the GFE from your lender before you even start looking at homes.

For the sake of simplicity, there are two components to your settlement costs: downpayment and closing costs. Your downpayment is money that you actually put down towards the purchase of the home, effectively reducing the amount financed. Your closing costs are the fees over and above the purchase price of the home. Closing costs include state and county transfer taxes, lender origination fees or discount points, commissions to real estate agents if applicable and pro-rated reimbursements to the seller for pre-paid bills (taxes, condo fees, etc).

When budgeting for closing costs, which can usually not be predicted down to the penny, budget a minimum of 4% of the purchase price of the home, less any closing help that the seller might be willing to provide at settlement. Your lender will be your strongest guide as to accurately estimating your true closing costs, because the lender fees are the most variable component of the closing cost picture.

Settlement should be an exciting day, as you will be able to take possession of your new home. There are a few things to keep in mind to keep you sane though.

First, be prepared to sign a lot of documents, mostly from the lender, regarding your promise to repay the loan on the house. If you are the type to want to read every letter of these documents, request to have them ahead of time, at least a day before, so that you can have time to ask questions about what you will be signing.

Pay particlar attention to a document called the "Truth-In-Lending" disclosure. It is a formalization of the terms within which you must repay the loan, and specified the interest rate, monthly payment and APR (annual percentage rate) of the home.

You must have certified funds to submit to the title company at settlement. Make sure your bank is open to account for acquiring that, as they will generally not accept a personal check. Also, bring a picture identification, as you will be signing affidavits verifying you are who you say you are, and not who you say you're not.

Be sure you call all utility companies immediately after settlement to transfer service into your name. Your schedule for moving in can be significantly delayed if you have to wait for the gas & electric to be activated or the water to be turned on.

Finally, make sure you get all keys to the house, including mailbox keys, so that you have total access to your new home.