Initial Steps for Financial Preparation































Think the home buying process begins when you start house hunting? Think again. There are certain financial steps you need to make long before you shop for a house or a mortgage loan. Here are some preliminary steps for first-time home buyers who want to do things right.

1. Start saving your cash early on. You’ll need some money to put toward a down payment, and you’ll also need sufficient funds for your closings costs. Not having a down payment is a common obstacle for first-time buyers, so start putting money away early.

2. Get copies of your credit reports from all three reporting bureaus (Experian,TransUnion and Equifax). You are entitled to one free credit report per year, from all three of the bureaus. You can request these online through

3. When you have your credit reports, check them for accuracy. If you find any errors, correct them immediately. Errors on your reports can lower your credit score, and that will hurt your chances of getting a mortgage loan. The FTC website offers some great tips for fixing errors on your reports.

4. Check your credit scores too. These are different from your credit reports. If your scores are in the upper 600s or above, you’ll probably have little trouble getting approved for a mortgage. If it’s 650 or below, you should try to improve it as much as possible before applying for a mortgage.

5. If you find that your score is low and you need to improve it, focus on that first before applying for a loan. If you boost your score, it will help you get approved for mortgage. It will also help you get a good interest rate on the loan.

6. Lenders will also review your debt-to-income ratio when considering you for a loan. You can help your cause by paying down your debt as much as possible. Just make sure you don’t wipe out the cash reserves we talked about earlier — you’ll need those to cover your closing costs and other expenses.

7. It’s also a good idea to start learning the mortgage terminology or lingo. As a first-time buyer, many of these terms will be new to you. You’ll have a much smoother process if you speak the language. Do a Google search for “mortgage glossary” and you’ll find plenty of reading material.

8. Establish a home buying budget with a maximum amount you can afford to spend each month. Do this before you start talking to mortgage lenders. A mortgage company cannot tell you how much you can afford (that’s a dangerous notion). They can only approve or reject you for a certain amount. Establish your own budget.

9. To create your budget, take a look at how much money you bring home each month (net income), and how much you spend each month on expenses. Account for all of your expenses — bill payments, savings account contributions, entertainment spending, etc. What you have left over is what you can afford to put toward a mortgage payment. Do not exceed this amount when applying for a mortgage loan.

10. Aside from saving money and paying down your debt (both good things), try to keep your finances stable. Avoid opening any new credit accounts or loans. Keep your money where it is, and add to it. The more credit accounts you have, the more things you’ll have working against you when you apply for a mortgage.