Lesson #1: Know what you can

afford

What's worse than not being able to find the house of your dreams? Buying your dream home and then realizing you can't comfortably afford it.

Even worse: losing it in foreclosure because you couldn't make the mortgage payments.

What looks affordable on paper today could be a terrible burden tomorrow. A little organization, research and simple math can give buyers a realistic picture of what they can spend without giving up their other dreams.

A record high 1.2 percent of mortgages were in foreclosure in the first quarter of this year, according to the Mortgage Bankers Association. The MBA attributes this mostly to a higher unemployment rate, but also said the availability of "subprime" mortgages--that is, lending to customers whose credit record or income levels make them less than the ideal borrower--is contributing to the rise, as these higher-risk borrowers find they cannot make the payments.

The attractiveness of record low interest rates, while helping many more people afford to buy a house or a better house, may be luring people into paying more for their home. "Interest rates are great, so some people are making the decision to buy more house than they need," said Douglas Duncan, chief economist for the Mortgage Bankers Association.

That can be a very good investment, but some buyers may need to be more conservative in their shopping.

While it's tempting to visit a few open houses or check the listings online to "get in the mood" for home buying, shoppers will be better off studying their own finances first and anticipating what the house will cost to maintain.

"It's heartbreaking when you go out and look at homes and find something you really like and realize 'I can't afford this,'" said Sandy Cutts, a spokeswoman for Fannie Mae, one of the two largest buyers of home mortgages.

Being able to afford the home is different from being able to buy it.

"When a person sits down with a lender and a lender tells them they qualify for a certain amount, that's very different from what they can afford," she said. "Only the buyer can tell whether that's a realistic figure."

Drawing up a household budget is the place to start, and it needs to include more than just the basics of food, transportation and housing.