6 Must-Do's Before Buying a Home

Excerpt from 6 Must-Do's Before Buying a Home
By Dana Dratch, Bankrate.com

You might be ready to buy a home, but are you armed with the knowledge you need? Here is a six-item checklist, including tips on two types of savings you need, plus advice about what's more important than buying a house for its resale value.

1. Strengthen your credit score.
The higher your credit score, the lower your down payment and monthly payments. A score of 700 to 720 will get you a good deal and 750 and above will garner the best rates on the market, says John Ulzheimer, president of consumer education at smartcredit.com and formerly of FICO, which pioneered credit scoring. Improve your chances by pulling your credit reports and ensuring you're not being unfairly penalized for old, paid, or settled debts.

2. Figure out how much house you can afford.
There are various rules of thumb that will help you get an idea of how much home you can afford. If you're using FHA financing, your home payment can't exceed 31 percent of your monthly income. For conventional loans, a safe formula is that home expenses should not exceed 28 percent of your gross monthly income. Improve your chances by trying on that financial obligation long before you sign the mortgage papers.

3. Save for down payment and closing costs.
Depending on your credit and financing, you'll typically need to save enough money to put anywhere from 3.5 percent to 20 percent down. Another cash expense: closing costs. Whatever your loan source, you'll also need money to pay closing costs, which run (depending on where you live), from $2,300 to $4,000. Improve your chances by searching out down payment assistance.

4. Build a healthy savings account.
Your lender wants to see that you're not living paycheck to paycheck. If you have three to five months' worth of mortgage payments set aside, that makes you a much better loan candidate. Improve your chances by setting aside money every month. For example, if you're buying a $250,000 home, aim to bank $520 to $625 per month.

5. Get preapproved for a mortgage.
For serious home shoppers, "the No. 1 thing is they better have everything in order," says Dick Gaylord, past president of the National Association of Realtors. That means that, before the real home shopping begins, you want to get financing in place, he says. Improve your chances by getting financing in place "before you walk through the first house," Gaylord says.

6. Buy a house you like.
If you're buying today for yourself and your family, you want a home that will make you happy for the next few years. Improve your chances by stepping back, and making certain you like the house.

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