Six must-do’s before buying a home

Check your credit; learn about your loan options

Before you jump into the wonderful world of homeownership, learn about credit score requirements, mortgage options and other must-do’s as a first step.

HAVE A CHECKLIST

Whether you are a first-time buyer or an experienced owner, buying a house requires a “preflight check,” in the words of Barry Zigas, director of housing policy for the Consumer Federation of America.

Read on for Bankrate’s six-item checklist, including tips on the types of savings you need, plus advice about what matters beyond purchasing a home at its resale value.

1. STRENGTHEN YOUR CREDIT SCORE

“It’s a brave, new world with respect to credit requirements for mortgages,” says John Ulzheimer, president of The Ulzheimer Group and a nationally recognized credit expert.

One old rule still applies: The higher your credit score, the lower your monthly payments.

“Below 660 or 680, you’re either going to have to pay sizable fees or a higher down payment,” Zigas says.

HIGHER SCORES WANTED

Vicki Bott, a former official at the U.S. Department of Housing and Urban Development, says that her office noticed much the same thing.

“While there are many qualified borrowers in the 580 range, the market today is probably (looking for) 640 to 660, at a minimum,” Bott says.

On the other end, a score of 700 to 720 will get you a good deal, and 750 and above will garner the best rates on the market.

Improve your chances by: pulling your credit reports and ensuring you’re not being unfairly penalized for old, paid or settled debts, Zigas says.

Stop applying for new credit a year before you apply for financing. And keep the moratorium in place until after you close on your home, Ulzheimer says.

2. FIGURE OUT WHAT YOU CAN AFFORD

Get a home that’s financially comfortable.

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. But with some mitigating factors, the FHA will let you go higher.

REALISTIC DEBT-TO- INCOME RATIO

For conventional loans, a safe formula is that home expenses should not exceed 28 percent of your gross monthly income, says Susan Tiffany, retired director of personal finance publications for adults for the Credit Union National Association.

Improve your chances by: trying on that financial obligation long before you sign the mortgage papers, says Tiffany.

Before you home shop, calculate the mortgage payment for the home in your intended price range, along with the increased expenses. Then bank the difference between that and what you’re paying now. 3. SAVE FOR DOWN PAYMENT, CLOSING COSTS

Depending on your credit and financing, you’ll typically need to save enough money for a down payment — somewhere between 3 percent and 20 percent of the home’s price.

To get an FHA loan, you need a credit score of 580 or higher.

One exception: Veterans Affairs loans, which require no down payment.

DON’T FORGET LOAN FEES

Another cash expense: closing costs. Whatever your loan source, you’ll also need money to pay closing costs. For a $200,000 mortgage, closing costs run (depending on where you live) from $2,300 to $4,000.

Improve your chances by: banking your own money and seeking down payment assistance,

Tiffany says. Often it’s locationbased or tagged to a certain type of buyer, like first-timers, she says. Search online with the city name, then the county name, along with word combinations such as “down payment assistance,” “first-time homebuyers” and “homebuyer’s assistance.”

In a buyer’s market, you can also negotiate to have the seller pay a portion of the closing costs.

4. BUILD A HEALTHY SAVINGS ACCOUNT

Building your savings is something you should do over and above saving money for the down payment and closing.

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

THINKSTOCK