Before we get into the nuts and bolts of this lesson, a bit of advice for first-time homebuyers (current owners may want to skip to the next section; sellers to the last one):

Sure, owning a home is one of the key elements of that clichéd American Dream -- and not by accident. Home ownership means you no longer pay monthly rent for the roof over your head. Now you own it, and most of what's under it too. You can do what you want with your house (within reason). And when you leave, you can sell it to recoup the purchase price and -- with any luck -- perhaps earn a profit too.

Don't kid yourself. Like most good things in life, home ownership comes with a slew of disadvantages, responsibilities and downright headaches. In fact, it's probably the second biggest financial commitment most people ever make -- the biggest being children. So before going any further, consider whether your lifestyle and finances make homebuyng a smart move.

Let's start with lifestyle. Except in a roaring real estate market, it usually doesn't make sense to purchase a home that you'll be departing in less than four or five years. Reason: the high cost of buying and selling homes, and their generally slow price appreciation, mean you'll lose money on the deal. So ask yourself, can you can really stay put for that long? Will you need to move because you are transferred by your current employer or a new one? Are you thinking of going back to school? And will your income remain steady or grow, or is it likely to decrease?

Some more mundane, but equally important, questions: Do you really want to call the plumber -- and pay for his services -- every time a pipe leaks? Or would you rather leave it to the landlord to fix the plumbing, paint the walls, patch the roof and buy a new refrigerator? There's nothing wrong with that.

On the financial side, one key question is whether it costs more, on average, to rent or own in your area. Investigate local housing costs, and then use one of the Web's many calculators to help you decide whether it makes more sense to rent or buy. You can find examples at Quicken.com or Microsoft's HomeAdvisor.

If you want to do it by hand, the rule of thumb is that if you pay 35 percent less in rent than you would for owning -- including the monthly mortgage, property taxes and any homeowner's fees -- then it's smarter to continue renting. You could also ask a real estate or rental agent to help you figure this out.

Only if all those answers still point towards owning should you proceed to the next step -- getting your financial house in order.

Next: Lining up cash