Getting Ready to Purchase

Financial preparation is the first – and perhaps the most important – step in the homebuying process. Get ready for your purchase by taking a careful look at your savings, credit, income, and debt.

Down-payment options

Buying a home doesn't necessarily mean having to make a large down payment. If you have a down payment goal in mind that you need to save for, you'll reach it more quickly if you stick to these simple rules:

• Pay yourself first. When you pay your monthly bills, the first check you write should be to your savings or investment account.
• Avoid unnecessary purchases. The less you spend on things that you don't really need, the sooner you'll become a homeowner.
• Set realistic goals. Take an objective look at your monthly income and expenses, and decide how much you can really afford to put aside. It defeats the purpose of saving for a home if you fall behind on your other obligations.

Your credit

Responsible credit use is an important part of the mortgage equation, and your lender will take your credit history into account when deciding whether to approve you for a mortgage. If you have a strong credit record, do your best to maintain it until you buy your home. If you've had credit problems in the past, the time to reverse that trend is now. Follow these steps to put yourself in the best possible credit standing:

• Check your credit report. Report incorrect or outdated entries on your credit report. Each year, you can get one free credit report from each of the three credit agencies through www.annualcreditreport.com.
• Contact creditors if you have a problem. Many creditors are willing to work with clients to help relieve difficult financial situations. It's always better to seek help than to let a problem go unchecked.

Income and debt

To qualify you for a home loan and determine how much you can borrow, lenders will generally compare your income to your outstanding debt. Guidelines vary, depending on your loan program, your credit history, and other compensating factors. It’s best to avoid taking on new debt in the months leading up to your purchase.

But even if your debt expenses are high, you may still be able to get a mortgage. Consult with a lender to talk about your options.