(© Raoul Minsart)

In his book "Washington Homes," author and real-estate broker Jim Stacey claims that there are three stages for the first-time home buyer: contemplation, comparison and commitment. He urges prospective buyers to get through the first stage on their own, with the help of friends and family members.

The road between contemplation and being ready to commit to buying a house is arduous and emotional, and Stacey has learned that the best use of a broker's time and skills is to enter the fray after buyers have done some preliminary footwork.

Part of this background work is figuring out whether you're ready to be a homeowner — financially, psychologically and emotionally. First, make sure your credit record will appeal to a lender. If you have doubts, get a copy of your credit report in advance. If your credit history is less than shiny, you're probably better off renting while you buy down your debts and polish up your record.

Home affordability calculator

Figuring out what you want
No matter how well you can picture your dream house and communicate your ideal to a real-estate agent, the house you finally fall in love with may have little resemblance to the image you started out with. But you have to begin somewhere, and a detailed wish list is a great head start. Let's say your wish list looks like this, in order of priority:

  • Two bedrooms, two baths
  • Safe, quiet neighborhood
  • Garden
  • Ability to add on
  • No major repairs needed
  • Near close friends or family members
  • Close to downtown
  • Craftsman-style detached home
  • Lots of natural daylight
  • Parking
  • Good investment with excellent resale potential
  • Affordable property taxes
  • Neighborhood matches family personality, culturally and politically
  • Enclosed laundry area
  • Walk-in closet in master bedroom
  • Storage space for sports equipment
  • Gas hookup for stove
  • Back deck or patio
  • Close to work, schools, church
  • Finished basement for office or guest room
  • No threat of commercial encroachment
  • Within 1/2 hour of the airport
  • Hardwood floors
  • French doors leading to backyard
  • Close to public transportation

Now, how would the list change if you had to settle for only 10 of your wishes in your price range? If you had to narrow it to five, would your top priorities be different? When you start looking at houses, this information will be invaluable to a real-estate agent as he or she matches your requirements to available houses.

What can you afford?
Every market is different, but the first step to answering this question is finding out what you can pay on a monthly basis after you've made your down payment — 5%, 10% or 20% of the asking price of the house.

What's your home worth?

Visit a loan officer. The best way to learn what you can afford is to get prequalified for a loan. Your real-estate agent may recommend someone or you can just walk into the office of a local lender. Prequalifying won't cost you anything, except a probable sales pitch, since the lender would like your business when you're ready to apply for a loan. You'll walk away with a good idea of how your income, assets and liabilities translate into what you can afford, and it can also help your chances of beating out the competition in a sellers market (where there are more buyers than houses on the market).

Do the math. You can also do a simple calculation on your own. Broker wisdom says that monthly payments should be 25% to 33% of your monthly gross income. To calculate: Take your monthly income before taxes, including all sources, and divide it by four. Subtract from this figure the total amount you pay per month in debts (loans, charge accounts and the like). The result is the lower end of what you can reasonably afford to pay on a monthly basis. After deducting monthly homeowners insurance (say, $50 per month) and property tax payments ($100), you'll see approximately what you can afford for your monthly loan payment. To calculate the higher end, divide by three instead of four.

To find out how this translates in terms of house pricing, multiply your final total above by 12 (months) and then divide that number by the average interest rate on loans today — say, 7%. The result is the approximate market you'll be focusing on.

Additional costs. Keep in mind that in addition to the purchase price you'll need extra cash for closing costs (including points and fees), inspection and future expenses. All in all, to get through closing — meaning, once you've signed the last remaining paper after agreeing on price and terms with the seller — the cost will typically be 2% to 7% more than the agreed-upon selling price. If you calculate that from the middle zone, at 4.5%, a $200,000 house will cost $209,000 to purchase. Be sure to consider annual property taxes and repairs (predictable and unexpected).

Take heart in knowing that most first-time buyers are simply getting into the market. Your dream house may be two or three houses into the future, so don't feel like you have to spend every penny you can afford if it means trading off some cherished freedom.

Starting the house hunt
Now that you have an idea of what you can afford, you can focus on whether you're in the market for a condominium, co-op, townhouse, single-family detached home or — hey, it happens — a mansion that will accommodate 20 of your closest friends. Begin interviewing real-estate agents based on recommendations. A great agent can educate you about what to look for and avoid, provide reliable references for other experts you'll need along the line — such as lenders and inspectors — and represent you in negotiations and at closing. It definitely pays to shop around.

Now you're ready for the fun stuff: pounding the pavement. Go to as many open houses as you can stand, even at times your broker isn't available, and then go to another. (Just be sure to sign in under your broker's name.) In the neighborhoods you're considering, include some homes you know you can't afford and some priced below your means. Think of it as leveling out your learning curve.

Talk to friends and family about their buying experiences. People are often surprisingly open about what they've learned about financing, construction — and even themselves — in the course of buying their first house.

And finally, if there are times when you just can't bear to see another overpriced house with kelly-green shag carpet, take a day off — and remind yourself that someday you'll know it was all worthwhile.