Buying Your First Home

How do you get started with homeownership? Here are a few details to know and steps to take before you contact a real estate agent.

Required down payments can typically range from 3% to 20% of the purchase price. Your down payment will depend on the lender and the type of loan you choose. Establish a monthly budget to help you save money for the down payment, then use automatic deposits from your paycheck or checking account to a savings account; this makes it easier to put aside money each month. If you can afford only a small down payment, consider a Federal Housing Administration loan.

Check your credit report to be sure you can attract the best deal for your home loan. Each year, you can receive a free copy of your credit report from the three major credit reporting agencies by visiting Once you see what your credit profile looks like to potential lenders, take steps to improve it or resolve any inaccuracies, as needed.

Get your financial documents in order. You'll need to provide your lender with several financial documents, including your past two pay stubs, your most recent W-2, your tax returns for the past two years, and your current bank and brokerage statements. Having them ready will accelerate your loan application process.

Get prequalified. Before they work with you, many real estate agents will want you to be prequalified for a loan. The process is simple: It requires such financial information as your income, your savings and investments, and a credit check. By being prequalified, you'll have a better sense of how much you can borrow and thus the price range of houses you should consider.

Use a mortgage calculator to help you determine how much house you can afford. Calculators can generate different scenarios to show how much your monthly mortgage payment would be with different house prices, down payments and interest rates.

Understand the various loan options. There are fixed-rate loans, which give you predictable monthly payments, and adjustable-rate loans, which can rise or fall with market conditions. Research them to find out what is best for you.

Compare offers. Even with the same interest rate, there may be differences in the points and fees associated with your loan, making one mortgage more expensive than another. By understanding the components that go into the price of a mortgage, you can accurately compare the offers you get.

Track interest rates. This is one of the biggest factors in your mortgage cost. Interest rates change almost every day; read expert opinion on which way they're heading.

Keep your credit strong. Before closing on a loan, many lenders pull a second credit report to see whether anything has changed in your financial situation. Take care not to do anything that would bring your credit score down while your loan is being processed. For example, pay your bills on time, don't apply for any new credit cards and don't take any new car loans until your home loan has closed.

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