Beware becoming a member of the house-poor set.

Owning a Home: the Monthly Tally

It's hard enough reconciling yourself to the reality of paying the monthly principal and interest on a new home mortgage. When you realize all the expenses that will be added to that price tag, it can be a real shocker.

Bottom line: prepare yourself. Home ownership costs are bearable -- people pay them every day -- as long as you know what's coming. You may even want to scale back the size of the home you're looking for in order to bring the whole package in line with your budget.

Here's a list of potential monthly fees and expenses you'll encounter:

• Insurance. They won't let you complete the home-buying deal without it, so shop wisely. Homeowner's insurance, also referred to sometimes as "hazard insurance" on mortgage documents, provides basic protection against fire and theft. It does not generally cover flood damage; flood insurance is an entirely separate entity that you will be required to purchase if you live in a flood-prone area. HINT: Consider bundling your homeowner's insurance with your auto insurance to get a bargain price.
• Property taxes. You can't avoid these either, but consider them a good thing: pay them, and the fire department will come when you call. Depending on where you live, you may be responsible for both city and county property taxes; call your county property assessor's office to be sure. Local tax rates vary, but your home is typically taxed on its assessed value, an amount equal to a fraction of its appraised value, which is the number you're probably familiar with from the loan-securing process. Taxes can add hundreds of dollars to your monthly payment, and the figures on your good faith estimate may not be accurate, so find out the final number before you sign the dotted line.
• Private mortgage insurance (PMI). If your down payment is less than 20 percent of the mortgage value, you may have to foot the bill for PMI, which protects the lender against your defaulting on the loan. This can tack on as much as a couple hundred dollars per month, depending on the size of your loan.
• Homeowner's association fees. If you're buying into a subdivision or a condominium community, you may have to pay for the monthly upkeep of common areas and other shared expenses. Some HOA fees are paid yearly and are quite inexpensive; on the other hand, some Manhattan co-op fees run to four figures per month. Some states allow associations to foreclose on homes with unpaid fees, so don't treat them as optional. Find out if your state imposes limits on HOA power, including how much fees can increase per year.
• Utilities. If you're moving from an apartment to a home for the first time, know that the increase in square footage (not to mention water for a newly sodded yard) can pack a real punch in the form of a huge utility bill. Plan to implement some energy conservation measures, like light-blocking blinds and compact fluorescent light bulbs, to offset the tab.
• Maintenance. This won't show up in your mortgage payment, but it's no less real an expense. Be sure you have some monthly budget set aside for repairs and upkeep, whether for small do-it-yourself things like replacing floodlight bulbs or the inevitably serious issues that crop up from time to time (sure, the fridge looks fine today, but all appliances have life spans).

Remember, forewarned is forearmed!

Money Stuff You Need to Do before Buying a Home

Get your pile of paper together before you start cruising the MLS

You know how to look for a house. But the money part is trickier. You need to start working on the financial details of buying a home three to four months before you want to move into your new digs. Here's a step-by-step breakdown:

1. Gather the financial documents you'll need to get a mortgage:

• pay stubs
• statements from banks, brokerages and retirement accounts
• income tax returns
• records of debts such as auto loans, mortgages, student loans and credit cards

2. Find out your credit score.

You can go to MyFICO.com and see your credit score and a get a copy of a credit report for $12.95. Your credit score is a distillation of your bill-paying history expressed as a three-digit number between about 300 and 850, the higher the better. A score above 720 is most desirable, the equivalent of a getting an A. These credit scores are calculated using a secret mathematical formula devised by the data management company Fair, Isaac & Co. - hence the name "FICO."

3. Fix any errors on your credit report.

Errors appear regularly on credit reports, and they can lower your credit score and keep you from getting loans with lower interest rates. Clerical or computer errors cause most mistakes on credit reports. You can correct them by sending a letter to the credit bureau describing the mistake and requesting an investigation. Getting that incorrect report off your credit report will take at least a month.

4. Find a broker or lender, who will look at your pile of paper and estimate how much you can afford to borrow.

Note to self: Prepare to be shocked at how much money lenders will give you. And don't borrow that much.

5. Get pre-approved for a mortgage so that when you make an offer for a house, it's taken seriously.
When you're pre-approved, a lender has agreed to lend you a certain amount of money for your home purchase at specified terms and conditions. Pre-approval gives you leverage in the deal-making process, because it establishes your buying power. The letter of preapproval you get from your lender makes the bid you put on a property as reliable as a cash offer.

Now that you're pre-approved for a mortgage, you're ready to shop till you drop.

Understanding the Pre-Approval Process

Loan shopping is as intricate a process as house shopping, and the terminology is often confusing. The terms "pre-qualification" and "pre-approval" sound like the same thing, but they're not. And in fact, neither pre-qualification nor pre-approval means a bank actually has to give you the loan.

Clear as mud, right? Don't worry -- the loan approval process is fairly straightforward, as long as you understand a few key points:

• Pre-qualification is the first step you can take -- but it's not mandatory. If you want a ballpark idea of how much a bank will loan you so that you can shop within your price range, pre-qualification is a quick and easy way to find out. Most banks and credit unions will do this over the phone, and your credit history will usually not be checked. A loan officer asks you about your income, assets, debts and projected down payment and then calculates what kind of loan you'd likely qualify for. The process takes just a few minutes.
• Pre-approval is more involved and usually requires an appointment. In this step, the lending institution gathers all the information it requires to offer you a loan, and your credit report will be checked; you may be charged a fee for this at the time of the appointment. You'll need to bring some items with you to document your identity and your assets:

1.       A copy of your most recent bank statements (this includes your daily checking account as well as any money market, savings or other accounts)

2.       Your most recent W-2 (or entire tax return if you're self-employed)

3.       Proof of IRAs or retirement accounts and their current balances

4.       Ditto for any stocks or mutual funds you own outside of retirement accounts

5.       Your driver's license

6.       The most recent month's paystub(s) from your job

7.       An application fee (this depends on the lender)

• The result of the pre-approval process is the good faith estimate. At the end of the pre-approval process, if the bank looks you over and likes what it sees, you'll receive what's called a good faith estimate (GFE), which is a brief document spelling out the likely terms of the loan, including the interest rate, loan type (fixed-rate, adjustable and so on) and closing costs.
• The pre-approval step may be a bit time-consuming, but you'll need to complete it with a few lenders in order to comparison-shop. Without a GFE, you can't truly compare terms among lenders. And it pays to compare -- for a loan as large as a mortgage, little things like the interest rate make a big difference. To negotiate for a great interest rate, reduced closing costs, or lender-paid private mortgage insurance, you have to make lenders compete with each other. (Lining up GFEs is also a good way to spot lenders who charge unnecessary fees.) So don't just accept the first offer you get -- make sure it's a good one by soliciting several in a short time period. Don't worry about nicking your credit score with several loan applications, because credit scoring recognizes multiple checks in quick succession as part of the loan-shopping process and does not penalize you.

Pre-approval does not mean the bank guarantees you the loan. It just means that you're approved to get loan -- unless something goes wrong. Commitment to the loan generally comes after the bank has had the house in question appraised to make sure the price you're paying isn't higher than the home's market value. This protects them in case you default on the loan, which would leave them in the red even if they evicted you and sold the property. Banks also check to make sure the home has a clear title and that you've insured it for replacement value.