Given the financial and real estate statistics of the last year or so, more and more consumers have come to recognize the potential perils involved with buying a home. That is not to say that purchasing a home is an unwise investment. Quite to the contrary, it is still one of the best investments you can make, but only when you understand a few basic rules, especially if you are making a purchase as a first time home buyer.

One of the most important rules involves the amount of money you put down on the purchase of your first home. In recent history, it became somewhat of a trend to put down the least amount of money possible when buying a home. As the real estate market continued to burgeon prior to the recently collapse, an ever increasing number of home loan programs emerged with lower and lower down payment requirements. Some even made it possible for buyers to purchase a home without making any down payment at all. That sounded fine unless you stopped consider the fact that the less you put down on your home, the more you owe. Also, unless you put down 20% when you purchase a home, you are going to have to face the reality of private mortgage insurance. The best way to make sure you stay out of trouble and avoid additional costs such as PMI is to save until you have enough to make a 20% down payment on the purchase of your first home.

Second, avoid any exotic loans or even adjustable rate mortgages for that matter. An adjustable interest rate that is slightly lower may seem quite attractive but keep in mind that nothing is written in stone that it will stay that low. Obtaining a fixed rate mortgage, even if it is somewhat higher, will ensure that mortgage remains the same and helps you to avoid any surprises in the future.

Make sure you know how much you are spending in terms of the percentage of your income on a mortgage. To avoid potential problems, you should never spend more than 35% of your pretax income on your total mortgage. That includes not only your mortgage payment but also your home insurance and property tax payments as well.

Never make any assumptions when it comes to your income. At one time, it was fairly common for first time home buyers in their 20s and 30s to assume that their incomes would grow quickly in the foreseeable future. Unfortunately, as we now know, that is not always the case. If you are banking on being able to afford a higher mortgage at some point near in the future, you could be banking on disaster. This is precisely why you should avoid any type of mortgage in which the monthly mortgage amount starts out low and then increases after a period of time, such as three or five years. If your assumptions are wrong and your income has not increased, you could very well find yourself in a situation where your mortgage has suddenly become unaffordable.

Remember that unknown situations in the future can very well affect the purchase you make today. For example, if you do not yet have children, keep in mind that you very well may feel differently about many things once children arrive, including whether both spouses will continue to work. If that is the case, you may not want to have an unwieldy mortgage reducing your options in the future.

You may very well find it helpful to sit down and draft a proposed mortgage based on three different circumstances for the future. For example, one in which both spouses work full time, one where one spouse works part-time and one where one of you stays at home for at least a few years. This will allow you to gain a much more realistic idea of whether your mortgage will truly remain affordable. Remember that even if you do not have children now or in the future, it is still a good idea to keep this in mind as the possibility of future layoffs or early medical problems could always potentially affect the plans you make today.

Ultimately, you need to work out a mortgage that will allow you to sleep at night without worrying how you will make the next month’s payment. Giving some careful thought and consideration to the matter before you sign on the dotted line can help you to avoid potential disaster.