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The HUD Home Buying Guide.

Owning a home of your own.
Your dream home could be a HUD Home.

Almost everybody has a dream home. A place they like to wander through in their thoughts, choosing imaginary wallpaper and putting in imaginary skylights. But for too many people, dream homes remain just that-dreams. The reality of owning their own home never seems to become theirs.

We at HUD would like to help. HUD, short for the U.S. Department of Housing and Urban Development, is a government agency created to make the American dream of home ownership a real possibility for everyone. And that includes you.

Since 1934, we've been putting Americans, millions of them, through the doors of their own homes. We do it by making home buying easier and more affordable. You see, HUD owns homes in many communities throughout the U.S., and we offer them for sale at attractive prices and economical terms.

So that home you've been dreaming about just may be one you buy from HUD. But whether you decide on a HUD Home or not, you can use this guide to take you step by step through each stage of finding and buying your own home.

How much home can you afford?
Before you start shopping for a home, you need to know what kind of home to shop for. To determine that, of course, you've got to figure out how much you can afford to pay each month.

Fortunately, there's a pretty simple formula for coming up with this number. It's the Federal Housing Administration (FHA) formula that many mortgage lenders use. The FHA has found that most people can afford to budget 29% of their gross monthly income to housing expenses, depending on total debt. Buyers with no debt can budget as much as 41% of monthly income to housing.

No need to reach for your calculator-we've done the math for you. The two charts below should tell you everything you need to know.

The first chart tells you how much 29% of your monthly income is. Find your annual income, or a figure close to it, in the column at the left. Then read across to find out how much your monthly gross income is, and finally, what 29% of that figure amounts to. This approximately how much you can spend on total housing costs each month.

The second chart tells you how much your monthly mortgage might be based on a home's selling price. Remember to keep in mind that the monthly figure from this second chart is based on a 30-year fixed mortgage and includes monthly principal and interest payments only. Taxes and insurance - which vary from community to community - are not included.

So if 29% of your gross income is, say, $604, that doesn't mean you can pay a $604-per-month mortgage. You need to look at a mortgage somewhat below that, to leave room for taxes and insurance. Be sure to ask your lender to help you estimate how much your total costs will be.

Mortgage payment calculator.
Monthly principal, interest payment for 30-year, fixed rate mortgage. Monthly taxes, insurance not included.

It's time to stop talking about it and begin doing something about it.

Help is available.
You'll need someone to help you through the process of buying a home. That person should be someone you trust, someone who understands what you want.

A good real estate agent is all of these things. He or she will be well-acquainted with all the important things you'll want to know about a neighborhood you may be considering. The quality of the schools, the number of children in the area, the safety of the neighborhood, traffic volume: a real estate expert will be aware of these factors and more.

And all the financial details that can seem so mind-boggling to first-time home buyers are something the agent deals with every day. He or she will help you figure the price range you can afford, explain the advantages and disadvantages of different types of mortgages, guide you through the paperwork, and be there to answer last-minute questions when you sign the final papers at closing.

If you're buying a HUD Home, you're required to use a real estate agent. While purchasing a HUD Home may be easier than many private real estate transactions, there are still some requirements which must be met-certain forms that must be used, and procedures that must be followed. But these requirements are clearly stated in advance, and the real estate agent will be there to help you through it all.

There are no negotiations between buyer and seller when you buy a HUD Home. This can be a real advantage. There's no haggling about price-everything is spelled out in black and white. In some areas, a HUD office may accept a counter-offer from you, but if your counter-offer is not accepted, the home goes back on the market. What's more, HUD responds promptly to your offer, and if it's accepted, closing on the home will usually occur within 30 to 60 days.

Finding a HUD broker is not difficult, especially since so many real estate brokers are happy to sell HUD Homes. All you need to do is to call a few brokers who work in the area you're interested in and you'll find someone willing and experienced. Some brokers specifically advertise their desire to sell HUD Homes in the real estate sections of newspapers.

Best of all, the valuable help you'll receive from the real estate agent is usually free! In most instances, agents get their sales commission from the home seller, not you, the buyer. Even if you're buying a HUD Home, HUD will pay the broker's commission.

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