Housing is generally the largest item in a budget and often causes the largest budget problems, because many families buy or rent houses they can't afford.

General guidelines

• Purchase/rent only if payments – mortgage, taxes, insurance, utilities, phone, and maintenance – don't exceed 38 percent of your net spendable income.
  
  
• Don't finance a second mortgage for a down payment and don't finance closing costs.
  
  
• If trading up, make sure it's a need and not simply a desire.
  
  
• Purpose to pay off the house as soon as possible, and avoid second mortgages and home equity loans.

There are a number of ways to buy a home:

• Cash If you're able, buy with cash. Buy a small home, improve it and then sell it for a profit. Follow this process with a larger home until you have the one you want – debt free.
  
  
• Institutional loans These loans are issued by banks, savings and loans, credit unions, and mortgage companies. Consider the following variables and shop around.
  
  
  
  • Down payment. Generally 5 to 20 percent. Larger down payments, mean smaller monthly payments.
  • Closing costs. Costs and financing fees that must be paid up front, or rolled into the loan, that can amount to several thousand dollars.
  • Fixed-rate mortgages. These mortgages let you know exact interest rates and monthly payments and whether it will fit your budget.
  • Adjustable-rate mortgages(ARM). Usually lower interest rates than the fixed rates (preferably 2 percent or more lower). Interest an ARM fluctuates, so it's important to know how high the interest could go.
  • Payday mortgages. Instead of a monthly payment, the buyer pays one-half results in the equivalent of one extra payment per year – reducing the length of the mortgage.
    
    
• Assumable mortgages May benefit the buyer if the interest rate and monthly payments are lower than current rates. However, sellers may require a written liability release from the buyer on this type of mortgage.
  
  
• Government financing Subsidized government loans may be obtained through local lending institutions: VA, FHA, and state-bonded programs. Some require little or no down payment.
  
  
• Seller financing Some sellers will finance a house for the buyer. The buyer usually gets financing for a percent or two lower than current interest rates, and saves on closing costs.
  
  
• Equity sharing A buyer needing help for a down payment may find an investor willing to loan a portion or all of the funds. The agreement defines the time you must live in the house before you can sell and, if you sell, the amount of equity to be paid to the investor.
  
  
• Assisted financing Parents often help children with the down payment to buy a home. With joint ownership, parents make the payments and rent the house to the children for an amount equal to the monthly house payments.