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The first thing we did was look at our finances. We used a lot of online calculators to get to a house price range that we thought we could comfortably afford (which was lower than what the bank gave us). Then I did some research online on Zillow to see what kind of house we could get, and narrowed down our options/neighborhoods.
At this point, we decided that we could get a good house for our money, and went to get pre-approved by the bank (a lot of realtors won't even talk to you unless you are pre-approved). That was a pretty painless process, I don't recall it requiring a lot of paperwork or time. THEN we called a realtor, and started looking.
Since I did a ton of research online, we only looked at like 6 houses, and ended up putting in an offer fairly quickly. Then we coordinated with our realtor to talk to the bank, and went in and got fully approved for a mortgage. We knew we didn't have the down payment for a conventional, so we got an FHA loan with 3.5% down at around 3.5% interest.

So despite this post's length, this is a fairly simplified answer because I'm sleepy, but I'd be glad to go into more detail if you need it.

I think going to the bank is a good starting point but I would advise against looking at houses in the range of what you're preapproved for.
I would look at your budget. Calculate up all your bills and living expenses (leaving out rent obviously) and all the extra money you spend. How much you make and subtract the expenses from that. What are you left with? Subtract another few hundred from that for unexpected homeowner expenses. That should be the number of your mortgage. Don't forget to account for property, school taxes. etc.

There are bank calculators online if you punch in the monthly mortgage amount you can afford it will tell you how much house you can afford.

@regberadaisy: to your point, there are also calculators that tell you if you are better of renting or buying.

First is get pre-approved for a mortgage. They will tell you what you qualify for and how much you will be required to day payment wise. Once they tell you what you qualify for, you can figure out what the monthly payment would be. Then figure out what you are comfortable spending for a mortgage payment.

Just make sure when you start looking you find a realtor that you will get along with. And if you aren't happy, don't waste time with them, move on to another. We wasted too much time with one that we weren't happy with. Ask friends and family for recommendations. Meet with them and go with the one that you click with the best.

@sunny: Amen. My first home was DH's 3rd and he just turned 32. All that moving and selling did not fatten his pockets. Even with this house I regret buying it (really leasing it from the bank) because DH hates it here. Our home is great easily a forever home, but will likely be a less than 7 year s home.

@lindseykaye: Start with how much you can afford. A general rule of thumb is 3 times your annual salary. So your max would be $180, 000. Depending on your credit score and financial health lenders will tell you you can borrow more. Remember your mortgage is composed of three things Mortgage, Taxes,and Insurance...it all adds up.

Figure out what you want in a home and the neighborhood. You can go to Zillow.com and look at houses that are for sale. Lots of times the website is inaccurate. But, I found my realtor by calling him on a property I saw on Zillow. It was under contract, but we hit it off.

The major change to the FHA loan coming in june is the PMI or mortgage insurance its a premium you pay on the loan. Previously once you had 20% equity on the loan you could drop the PMI charges with the changes you will pay the PMI for the life of the loan or unless you refinance to a conventional loan.

Our PMI is $100/month we looked into refinancing in January for a lower interest rate and our PMI would have increased to $300/month which negated the savings on the interest rate.

You first need to come up with your own budget - how much can *you* afford to pay each month for a mortgage, taxes, utilities, etc. What happens if one of you loses a job, or has to take a pay cut - how much can you afford then?

How long do you plan to live there? If less than 5 years, is it really in your financial best interest to buy now? If more than 5 years; do you know where the best/better school districts are? Higher/lower taxed areas? Do you want an established neighborhood, or something up and coming?

How large of a home do you want? What features are your "must have" features? Your "must NOT have" features?

How much will you put down? How much will you have left in savings after doing that? If you borrow $ from your 401k you have to repay that amount within a certain amount of time (I think 5 years...?) - can you make extra payments towards your 401k and your new mortgage?

You can view homes in your area on your local MLS website. It's a free service (some scams charge you for MLS access). Is there anything you like?

A mortgage lender will want good credit scores, proof of income, length at jobs, bank account documents, your previous years taxes, etc.

Once you figure out your own budget, then I would suggest going to the bank to get preapproved for a mortgage and talking to a few buyer's agents.

One thing that confused me was how the realtor figured out what we could afford.

Lets say the bank approved us for a 100,000 loan, and we had 10,000 saved for a down payment. The realtor said, "you can afford a 110,000 house!"

While that may have TECHNICALLY been true, we planned on using that $10,000 as a down payment and wanted to look for a $100,000 house, put $10,000 down and have a $90,000 loan. Does that make sense?

I would get pre-approved first so you don't go looking at houses you can't afford, or fall in love with something and it's gone before you can get the paperwork together for pre-approval. Houses go fast! Then start looking for a realtor, they should be able to help you with all sorts of questions you may have!

I like to use zillow for real estate listings because it also shows you the estimated taxes on the property, which I found to be pretty spot on.

I'd also add making a list of your non-negotiables so you can weed out properties. Go to open houses if you can, they're a great no pressure way to take a look at homes.

Everyone has great suggestions. I'd suggest working with a mortgage broker instead of a bank. Mortgage brokers can access lending programs from multiple lenders, which give you access to better rates.

Ask family and friends for recommendations on mortgage brokers and realtors. Its important to work with someone knowledgeable and trustworthy.

Spend a lot of time looking at houses (open houses, looking online) and figuring out what you must have in a house. If you are buying a "fixer uper" make sure you have a lot of room in your budget.

Do not spend all of your savings on your downpayment. Homeownership is expensive and things will happen. Its crucial that you have a cushion in case something breaks or one of your becomes unemployed.

@evansjamie: Please remember: The realtor cares about getting paid. He/she will ONLY get paid if the deal closes.

Therefore any referral you get from a realtor will be someone who is reliable--not necessarily cost effective. While reliability is important, you also have to keep costs in mind since you are footing the bill!

Therefore I don't really care who my realtor likes as a lender... I'm going to pick my own lender since I will be the one paying the mortgage for 15-30 years!!

@Bluebonnet: I have always heard mortgage brokers are for people who cannot get a bank loan. Our resltor kept digesting we go through his mortgage broker, but we went to our Credut Union and the bank DH had his other mortgage. In our case the seller picked us because we had a Chase loan eventhough the other iffer was $2k more. You can shop your bank loan all you want, just do it within a 2 weeks before your credit score drops from the initial inquiry.

@Mrs. Lemon-Lime: Mortgage brokers are not for people who cannot get a bank loan. Mortgage brokers have access to multiple lenders (including big banks) and are able to get much better rates. Instead of calling multiple banks and applying for loans all over, a mortgage broker does all of that leg work for you.

@lindseykaye: Also, when putting together your budget I think its important to figure the following things -

1) Mortgage (principal and interest payments)
2) PMI (if you do an FHA you will have mortgage insurance, ours in $150/month)
3) Home owners insurance, ours is $100/mth
4) Utilities (you may not have these as a renter) water, gas and electric for starters (not to mention cable/internet)
5) Cost of setting up a new house (all the sudden you need things like a lawn mower, tree trimmer, ladders, tools, etc stuff you dont need if you rent a condo or apartment necessarily)
6) House Expense savings (within 1 year we had to replace several windows and our garage door - totalled $4K - we knew it going in but still was a tough pill to swallow) As a new home owner I would definitely take into consideration the age of certain major items (appliances, furnace, A/C, roof, etc) to get a feel for when you may need to replace them.

Also, as someone else mentioned - definitely consider what you would do if either of you lost a job - we were adamant about buying within a budget that one of us could support on our own. That may not be the right answer for everyone but its worth considering.

Lastly, as someone else mentioned, I think taking stock of why you really want to own is key. The reality is that interest rates aren't going anywhere for a few years and the housing market may be on a slight bubble right now (at least where I live) but I certainly wouldn't feel rushed. We bought our home before we were engaged - now with #1 on the way we are already thinking we'd like to upgrade! If we would have rented for 2 years we may be in a better position?!

Best of luck to you!