It sounds like you can afford a mortgage around $120,000 depending on the interest rate you are able to get. You may have to get an FHA loan as well.
The steps EatSpam laid out are on target. However, let me take this from a different angle. Here are the DO NOTS of home buying:
--------- FINANCING ---
1. Do NOT go with the first lender you find -- shop around.
2. Do NOT get a variable interest rate on your loan, unless you do not plan on staying at the house very long.
3. Do NOT get a loan that has a pre-payment penalty. Even though you'll struggle to make payments at first, as you begin making more money it will become very easy to start paying down the mortgage quicker - you don't want to be penalized for this.
4. Do NOT get a loan that has PMI. Get an 80/20 loan if you need in order to avoid this. (However, if you get an FHA loan, there is something called MIP (different than PMI) that is mandatory and won't be removed for 5 years).
5. Do NOT get one of those new-fangled front-loaded-interest loans. They're nothing but trouble.
--------- REALTOR ---
1. Do NOT settle on a realtor you are uncomfortable with or the first one you meet. You may even want to "interview" a few prospective realtors and pick one from there.
2. Do NOT be fooled by your realtors comments as you look at houses. Realtors have many tricks they use to persuade you to buy a house. If you don't buy, they don't get commission.
3. If you find a house you like, *** DO NOT *** use your realtor's inspector, engineer, or pretty much anyone that is associated with the realtor. It's a conflict of interest, and can only work against you.
4. Do NOT let your realtor make an easy buck. Ask them to pull the comp rates, to find out how long the house has been on the market, to find out if the house has had previous listings, and even to find out the builder of the house if it's a newer home.
5. Do NOT let your realtor take you to houses that you don't want to see. Be very specific in what you are looking for. For example, when we went looking for our house, our list looked like this:
External Cosmetics:
- Lots of "peaks" and protrusions (no flat or "square" designs).
- Clear view of the house (no big trees blocking view of it)
- Nice landscaping
- All-house front (No garage door showing on the front of house)
- All-brick or All-vinyl (no brick facade unless it blends nicely)
* Nice patio is a plus, but not a must (deck is OK too, but it must be VERY nice)
* Pool is OK but not really desired (if there is one, it must be in-ground).
Internal:
- Vaulted/raised ceilings (especially in living/family room)
- Fireplace
- At least 2 floors plus basement (no ranches or bi-levels).
- 2 to 3 Bathrooms (at least 1 large master bathroom)
- 4 to 5 Bedrooms (at least 1 large master bedroom)
- Newer build (but can be a little older if in good condition)
- Land size: 0.333 to 1.5 acres
- Neutral color scheme
* Loft is a plus, but not a must
* Library a plus, but not a must
Misc:
- Cost: Between $250,000 to $350,000.
- Cost ratio: Less than $130 per square foot of house.
- Taxes: Less than $2,500 per half.
- Spacious environment (not too close to neighbors).
- Should be about 30 minutes to 45 minutes from Downtown (between 20 and 40 miles).
6. Unless you trust your realtor implicitly, do NOT sign a contract without having your own realtor attorney review it first -- not even a bid on a house. If you aren't going to have an attorney look at it, AT LEAST put an "attorney rider" on the contract that says "Contract is subject to approval by buyer's attorney". This might put a seed in your realtor's head and hopefully make them less inclined to screw with you.
--------- HOUSE-HUNTING ---
1. Do NOT go out only one or two times. I'd recommend looking through at least 20 houses, even if you think you found one you like.
2. Do NOT forget to take notes and/or pictures. You'd be surprised how quickly the houses you're viewing begin to blend together. Without proper documentation and pictures, it's easy to forget what you liked or didn't like about a house.
3. Do NOT neglect to take the neighborhood into consideration. As they always say, location location location.
4. Do NOT overlook foundation problems. One of the first things I look for in any house is the basement. Numerous cracks, or stair-cracks, could be indications of serious foundation issues. If you are seriously considering a house with these types of cracks, have a reputable structural engineer look at it.
5. Do NOT buy a house without viewing it at least twice, in addition to when you have it inspected. You'd be surprised at what you may miss (positive or negative) the first time around.
6. Do NOT buy a house simply because you are tired of looking. If you have gone through numerous houses and haven't found what you want, maybe the timing just isn't right. It might be time to put aside the idea of a house until next year.
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Hope these help. I know it's an intimidating process, but if you use common sense and don't let people push you around, you'll be fine. Remember, the realtor is not your "friend" -- they are just a tool you use to obtain what YOU want. Don't let them make you think any different.