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Line up financing before you shop

If you're like most people and start your home search by scouring the classifieds and checking out open houses, you're putting the cart before the horse.

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By lining up reliable financing before you start hunting for your new home, you can be sure you are looking for a house you can truly afford and increase your odds of getting into your dream home when it does make its way onto the market.

Many people don't truly understand their buying power or lack thereof, says David C. Harty, vice president for legal affairs for Residential Home Loan Centers in Greenbelt, Md. Prospective buyers should go to a reputable broker, lender or banker, a professional who understands such things as credit, credit scores, mortgage funding and debt-to-income ratios, says Harty. That person can help you figure out very closely the interest rate your credit score entitles you to, how much you are likely to be able to borrow and how much cash you may need. You can also get a close idea using Bankrate's calculator.

The higher your credit score, the lower the interest rate for which you'll qualify. The lower your interest rate, the more house you can afford. So if you don't start with a handle on your credit score, you might waste the afternoon looking at houses in the $250,000 range when you can only afford $175,000. Likewise, you could be sacrificing certain qualities in a home that you think you can't afford when you could very well have that finished basement you've always wanted.

"A lot of people like to call up mortgage companies, banks or brokerage houses and ask what is the interest rate," says Janette E. Jones, senior loan officer for Residential Home Loan Centers, "and our first question is, 'Well what's your credit score?' "

Credit reports are available online for free to everyone. Credit scores are not included but can be purchased from the individual credit bureaus. You can also estimate your credit score using Bankrate's calculator.

Another reason to secure financing before beginning your home search is you may find out you are qualified for special programs that may, again, change the range of homes you should be looking at.

-- Updated: Sept. 6, 2005

'05 Real Estate Guide
30 yr fixed mtg 4.17%
15 yr fixed mtg 3.19%
5/1 jumbo ARM 3.61%
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