Home ownership is the second largest financial commitment most people make, the largest being children. Home ownership has great benefits, as well as great responsibilities. The following are items to consider when launching into homeownership.

plan to stay

Home ownership is probably not the best option for you if you cannot commit to staying in one place for 3-4 years. Given the transaction costs, you may end up losing money if you sell a home a few years from now. And, if you make money from the deal, you’ll pay capital gains tax if you’re in the house less than two years.

clean up your credit

Take steps to make sure your credit history is as clean as possible. Before looking for a house, get copies of your credit report and make sure the information is correct. Contact Experian, Equifax, or TransUnion to receive a copy of your credit report. Please fix any issues you discover by contacting the agencies directly (this can take up to 3 months to resolve). Be prepared to explain any past problems to a loan officer.

Find a house you can afford

As a general rule, look for homes where the sales price is no more than two and a half times your annual salary. Find online tools and calculators at CNNMoney.com or Quicken.com to better understand your income, debt and expenses to determine how much you can afford.

Don’t worry about the 20 percent rule

If you qualify, there are public and private lenders that offer low-interest mortgages that require down payments as low as 3 percent of the purchase price. For more information, visit FannieMae.com or Freddiemac.com. Note: For down payments less than 20 percent, you may have to pay for private mortgage insurance (PMI). PMI protects the bank in case you don’t make payments. It typically adds 0.5 percent of the loan amount to your mortgage payments over a year.

If you’d rather pay 20 percent, you have a few options. First-time homebuyers can withdraw up to $10,000 from an IRA without penalty (although you must pay tax on the amount withdrawn). You may also receive a cash gift of up to $12,000 per year from each of your parents (without incurring gift tax). Another method is to withdraw money from a 401k or similar retirement plan for a personal loan.

Buy a house in a good school district

This rule still applies even if you have no children or children of school age. From a resale perspective, strong school districts are a top priority for many homebuyers. Good school districts increase property values.

Understanding points and fee

Points (also known as a loan’s “origination fee”) are interest charges that are paid upfront when you close your loan. They are a one-time fee paid to the lender as a percentage of the loan amount (one point equals one percent of the loan amount). In general, the more points a loan has, the lower your interest rate should be. Points paid on a mortgage are deductible in the year you pay them. However, if you are refinancing your home, the points paid when you refinance must be amortized over the life of the loan. For example, you could deduct one-thirtieth of the points from your taxes each year if you take out a 30-year mortgage when you refinance.

The mortgage rate is the most expensive part of buying a home. With a 30-year mortgage, you’ll probably pay more in interest than the price of the house. There are fixed-rate loans, which ensure a monthly payment amount that remains constant throughout the life of the loan (even if interest rates rise). If rates drop, you could refinance (although you would pay additional closing costs). An adjustable rate mortgage (ARM) has an interest rate that rises or falls with the financial index. There are also hybrid loans that offer a fixed rate for the first 5 to 10 years and then convert to an adjustable rate for the remaining term.

Which option is better? This depends on how much you can spend each month and how long you plan to stay in the house. It also calls into question the possibility of refinancing the loan if rates drop in the future. When deciding between points and rate, it’s helpful to determine your break-even point, or the month in which you will have saved exactly as much in monthly payments as you spent at closing.

To determine this, divide the cost of the points you would pay at closing by the potential monthly savings. Also, don’t forget to factor in tax deductions, inflation, or alternative investment options. Consult your tax attorney, accountant, or financial planner.

Seek professional guidance

Although the Internet provides buyers with access to home listings, it is still advisable to use an agent. Find an “exclusive buyer’s agent” where the “seller” agrees on the fee to be paid to the home sales agent. The listing agent shares this fee 50/50 with the agent representing the buyer. Agents will help with strategies during the bidding process and can negotiate for the seller to pay points.

Get pre-approved

Getting pre-approved will put you in a better position to make a serious offer when you find the right home. Pre-approval is based on your income, debt and credit history (pre-qualification is based on an initial review of your finances).

Research before bidding

Before making an offer, research the sales prices of similar homes in the neighborhood in the last three months. If you find that homes have recently sold for 5 percent less than the asking price, consider making an offer that is 8 to 10 percent lower than the seller’s asking price.

Have the house inspected

Although your lender will still require a home appraisal (as a way to determine if the home is worth the price you’ve agreed to pay), you should hire your own home inspector. Find an engineer with experience conducting home surveys in the area where you are shopping. The home inspector will point out potential problems that could require costly repairs in the future.