It is difficult for first time homebuyers to understand the true cost of their property and to be eligible for a loan.

Eric Roberge, a certified financial planner and founder of Beyond Your Hammock Boston, said, “When purchasing your first home, consider the fact that what a lender is willing to lend you may not always be what you can reasonably pay.”

Roberge recommends that clients keep their annual housing expenses (mortgage payment, homeowner’s insurance, and maintenance) below 20% of their gross annual income.

CJ Harrison CFP vice president at DecisionPoint Financial, Mesa, Arizona, stated that “in today’s climate, they’re purchasing the payment, and not the purchase price.” But they should remember that these are very high home prices.

“I asked these clients: “Can you handle financially a drastic decline in the home’s worth?”

Brian Mercado is a CFP at JSF Financial Los Angeles. He has his clients do an exercise to bring them down to Earth.

He stated, “I tell them they should, while house-hunting,” that they should be living as though they had already made that greater payment. It’s a test of their cash flow.

Mercado helps buyers adjust to their new budget while they save extra money each month to pay for the downpayment.

Stephanie Campos CFP is the owner of Campos Financial Miami. She said that you don’t want your house to grow on you. Clients are asked questions like “Will the house provide for your family’s needs for five to ten years?” If you plan to move in the future, will closing costs and mortgage fees be worth it?

Campos advises home-seekers with credit scores under 600 to look into mortgages back by the Federal Home Authority. These are geared toward first-time homebuyers who have difficulty saving up the 20% down needed to avoid private mortgage insurance, she said. FHA loans may require as little as 3.5% down but come with slightly higher rates and certain payment and income requirements.

A way for buyers to avoid having to get private mortgage insurance, or PMI, Mercado said, is to take out two separate loans — i.e., a mortgage for 80% of the needed amount, and a home equity line of credit for the balance.

Mercado also suggests buyers request multiple pre-qualification letters from lenders in different amounts for different negotiation strategies. For example:

• If you don’t want to tip off the seller that you can pay more, use a letter that shows only the amount you need for the purchase.
• If you are in a bidding war, use a letter with an amount that shows the seller that you can go higher.

Buyers should have a few on hand, in case they need to make an immediate offer, Mercado said.

Mortgages are one of the “most competitive arenas out there,” said Harrison, “so get the cost breakdowns and show them to other lenders.”

He tells buyers to get quotes from at least three mortgage sources and request a fee worksheet, which is preliminary and does not require a credit check, and/or a loan estimate, which is binding and requires a credit check.