W hen you walk into a lender's office or speak to them on the phone, you should already have a budget in mind. In this context, I'm talking about your housing budget. This is the amount you can realistically afford to pay toward a mortgage each month. There are all sorts of fancy mortgage calculators online to help you determine your budget. But you don't need them. All you need is a piece of paper, a pen, and a regular calculator.

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Here's what you need to do for this step: Write down everything you spend money on each month. Your car payment, credit card bills, groceries and your entertainment expenses. Everything. You can leave out your rent, or your current mortgage payment (since it will be replaced by your new mortgage payment). You're trying to find out how much money you spend each month, for everything other than your rent or mortgage payment. These are your non-housing expenses. Write this number down.

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Next, subtract your non-housing expenses from your take-home pay. Don't use your gross monthly income for this. You want to use your net income, after taxes have been withheld. Remember, we're trying to create a budget here. So you need to use the amount you actually take home after taxes. Using your gross income will only distort the process.

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Write down the number you're left with, after subtracting your debts from your income. That's the absolute most you should spend on a monthly mortgage payment. In fact, a smart homebuyer won't even come close to this number. She will leave some extra breathing room for financial emergencies. The further your mortgage payment falls below this number, the safer you'll be.

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It's possible to get approved for a mortgage loan that's too big for you. It happens a lot actually, as evidenced by the number of home foreclosures in the U.S. This is why it's so important to have a budget on paper before dealing with lenders.

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This is one of the most important steps when buying a house. That's one of the reasons it's at the top of the list. It's also up top because it makes sense to do this step first. This article follows a logical sequence of events. You want to know how much you can comfortably afford to spend each month, before you apply for a mortgage. Otherwise, you might get approved for a monthly payment that's too big for you.

The lender does not care about your long-term financial stability. They're going to sell the loan into the secondary mortgage market, which takes it off their books entirely. So why would you trust someone like that to determine your financial comfort-zone? You shouldn't. You should do it yourself. It's the first and most important step to buying a house.

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You should also start a housing fund at this stage in the process. The sooner the better. A lot of first-time buyers are shocked by the amount of money they have to pony up when buying a house. There's the down payment to consider. Unless you use a VA or USDA loan, you'll be making a down payment of at least 3.5 percent.

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Closing costs are another major expense when buying a home. They can easily add up to $5,000 or more. If you're buying a higher-end home, your total closing costs could be well over $10,000.