5. Look at your budget and determine how a house fits into it. Fannie Mae recommends that buyers spend no more than 28% of their income on housing costs. Go much past 30% and you risk becoming house-poor.
See why debt to income matters in mortgages.
6. Talk to reputable Realtors in your area about the real estate climate. Do they believe prices will continue falling or do they think your area has hit bottom or will rise soon?
7. Remember to look at the big picture. While buying a house is a great way to build wealth, maintaining your investment can be labor-intensive and expensive. When unexpected costs for new appliances, roof repairs and plumbing problems crop up, there's no landlord to turn to, and these costs can quickly drain your bank account.
So consider whether you're ready for the expense and effort of homeownership before pulling the trigger.
Prepare for the hunt
If the numbers make sense for you, taking a few steps at the beginning of the homebuying process can save you time, money and aggravation.
1. Examine your credit. Right now, blemished credit or the inability to make substantial down payment can put the kibosh on your homeownership plans. That's why it pays to look at your creditworthiness early in the home-buying process. Get your free annual credit report and comb through it for errors and unresolved issues. If you find mistakes, contact the credit reporting bureau to make sure they are corrected. It's also a good idea to get your FICO score, which will cost you a small fee.
Here's another thing to inspect: your credit report. Get your credit report and score today, free and with no obligation, at myBankrate.
2. Get your docs in a row. Collect pay stubs, bank account statements, W-2s, tax returns for the past 2 years, statements from current loans and credit lines, and names and addresses of your landlords for the past 2 years. Have them ready to show to the lender. This may seem like a lot, but in this age of tight credit, don't be surprised if your lender needs a lot in the way of documentation.
3. Find lenders and get preapproved. Getting preapproved for a mortgage helps you bargain from a position of strength when you are house hunting. The institution where you bank and a local credit union are good places to start your search. Use Bankrate's mortgage rates tool to find lenders offering the best rates in your area. Applying to multiple lenders in the same month helps increase your chances of getting a loan approved at the best rate possible without dinging your credit score too much.
4. If at first you don't succeed, try, try ... the government? If you can't find a bank willing to lend to you -- and in the current tight credit market, it's possible you won't -- consider getting an FHA loan. The Federal Housing Administration has a program that insures the mortgages of many first-time homebuyers. As a result of this guarantee, lenders who might otherwise feel queasy about your qualifications will be more inclined to lend to you. As a bonus, the FHA requires a down payment of only 3.5% from first-time homebuyers.
Interested in getting an FHA loan? Start by shopping today for an FHA mortgage on Bankrate.com.