Along with food and clothing, shelter is an absolute requirement for human survival. And you’re going to reach a point where renting an apartment doesn’t suit you. You want something you can claim as your own. Home ownership is the American Dream! But where do you start?

Decide what you want

Your first house isn’t your dream house, so don’t expect to find something as nice as the house you grew up in. People rarely live in the same house for the rest of their lives any more. I think that your first house is a starter house. It’s modest.

Your greatest asset isn’t your money right now; time is. Use that sweat equity to remove those metal cabinets from 1970, paint the place, and save the yard.

When we went house hunting last year, my husband led me into a house. I looked around and almost died–the place smelled like cat pee. The walls and carpets looked disgusting, and in our case, we didn’t have to remove the antiquated cabinets. The previous owner already did!

Imagine what you would want for the next three or four years: number of bedrooms, yard, general location. You can upgrade to a newer, more expensive house in a few years. I think that the first goal is to get a house.

Set a budget

The coolest things about buying a house are:

Leverage means that you get to use someone else’s money to invest. The goal is to sell your first house for more than you bought it. To determine your purchase budget, use the standard mortgage formula, the 20/28/36 rule:

A lender will offer you more leverage: don’t take it. We all like to think that we can get by for a year without an entertainment budget or new clothes and household goods. But we can’t. What’s the point of a great new house if all you can do is sit around in it with no money because all of your money goes to your monthly mortgage payments?

The second cool thing about home ownership is the tax advantage. The interest you pay on a mortgage is tax-deductible. You can claim a deduction for your property tax. And after you’ve lived in your house for two years, you can defer the capital-gains tax if you buy another house worth at least the same amount of money. Keep track of all home improvement expenses like cabinets because you can use them to reduce your capital-gains upon sale. How cool is all that? Plus you get to pick the colors of your walls when you own the house.

Find someone to help you

Get in touch with a local real estate agency. From what I’ve seen, “For Sale By Owner” tends to mean “over-priced and under-experienced”; I’d keep clear. You want to find an agent who represents you. He will be the guy that shows you houses around town. Do NOT contact the agent selling a particular house and ask to see it; she can’t help but have a priority other than your personal needs. If she can convince you to buy a falling apart, over-priced place, I hate to say it, but she might! She gets her percentage off the top of the sale.

Yes, the agent that represents you might be tempted to do the same, but I have three theories to prevent this scenario:

1. Hire the dumb guy. The top agents want to make money from the top houses. You’re more of a hassle with your small budget. But the dumb guy? He’s not making as many sales. He wants to work for you (especially if he knows you want to upgrade in a few years and will need someone to sell your house and take you out to find a new house). Yet the greatest reason for hiring the dumb guy? He’ll have the inside story on everything. He’s made it to where he is through his people skills. Other agents don’t take him as a serious threat; they look at him as a friendly guy. He’s the one to share a beer with. He’ll joke about beating up cops. Other agents tell him anything. Sure, his words might embarrass the heck out of you. Yet your agent could be the one who accidentally took the key to the new house with him on vacation, so no one else could view your prospective house. Other agents will just laugh at his slip. What a silly guy! Then they might give him some hot tips because “what’s he gonna do?”

2. Make him work for the money. Ask to see gobs of houses. (Make sure he is a member of the local Multiple Listing Service, “MLS”, where other salespeople list their properties.) Get the statistics on houses from him. A tycoon once told me, “Get on them, and get on them often.” It’s true. Call for new listings. Call for information. Heck, keep calling.

3. Don’t YOU be the dumb guy. A lot of people get pushed around by real estate agents because people don’t know any better. Why let the agent pick where you’re going to live, though? First know how to interpet property descriptions. I’ve written about how disgusting homes suddenly sound “charming” or “cozy”. Know the market. A local broker posts information online. I get e-mail updates of houses in my price range even though I’m not his client. Know about the local economy. Your goal is to know enough about the housing market that when you find the house you want, you know exactly how much its worth. The asking price will be merely the seller’s perspective. You bid what you know is right. The best ways to learn? Read the paper, check out many houses, and see what’s selling and what’s not.

Examine the house

Don’t be afraid to take a flashlight with you on house tours. Poke into the crawlspace. Shimmy into the attic. You’ll find it hard to examine a house beyond the stains in the carpet or the broken light fixtures and cute doll collection. Those things can be changed. In fact, their furniture won’t be your furniture, so don’t waste your time looking there. You can fix almost anything. But you can’t fix the actual structure. Is the add-on sagging? Do you see huge cracks in the foundation? How’s the roof–a horrendously expensive repair if you find troubles.

Hire a home inspector to take a look. He’ll test every plug in the house and present a detailed report of every flaw. The inspector we hired even included photos of a ripped screen window. Most people stop at the report. Don’t! You’re paying your home inspector upwards of a week’s salary at our age. Talk to him. Ask him about crucial areas that he has noted, thing he doesn’t see as a problem, and most importantly, how much repairs will cost.

Now I jumped the gun a wee bit here. Before you can hire a home inspector, you have to put a bid on the house. A bid is pretty self-explanatory. Your elated agent will walk you through the process. The cool thing? Your home inspector found something bad about the house. Repairs will cost thousands.

What do you do? Ask for a reduction in your bid. The inspection resulted in a loss of value to you. The seller might try to haggle a little. Though the truth is that this problem is going to decrease any prospective buyer’s interest and price. Nothing is cooler than getting the house AND getting a chunk of the price knocked off, especially if you can do the major repair yourself for less.