Where do you start when you’ve decided you’re ready to buy a home? It can seem and overwhelming and daunting task, but it’s not if you take it one step at a time.

Start with your credit. There are three major credit agencies: Experian, Equifax, and TransUnion. They show whether you are habitually late with payments and whether you have run into serious credit problems in the past. A credit score is a number calculated from a formula created by Fair Isaac based on the information in your credit report. You have three different credit scores, one for each of your credit reports. The higher your score, the better your chance of getting the best interest rate on your mortgage loan. Contact the agencies to get a report from each one. Look them over and if you see any errors, or if there are things on your report that do not belong to you, contact the agency directly to correct them, which can take two or three months to resolve.

The rule of thumb is to aim for a home that costs about two-and-a-half times your gross annual salary. The size of your down payment will also determine how much you can afford. This brings us to the next step in buying a home. Line up cash for your down payment. Lenders like to see 20% of the home's price as a down payment. If you can put down more than that, the lender may be willing to approve a larger loan. If you have less, you'll need to find loans that can accommodate you. Also, make sure you've got enough to cover fees and closing costs. These may include the appraisal fee, loan fees, attorney's fees, inspection fees, and the cost of a title search. They can easily add up to more than $10,000—and often run to 5% of the mortgage amount.

Now you need to find an agent to help you find the perfect home for you. Note: most home sellers list their homes through an agent—but those agents work for the seller, not the buyer. They're paid based on a percentage, usually 5 to 7% of the purchase price, so their interest will be in getting you to pay more. What you need is an “exclusive buyer agent.” They are paid directly by you, on an hourly or contracted fee. Other times they split the commission that the seller's agent gets upon sale. A buyer's representative has the same access to homes for sale that a seller's agent does, but his or her allegiance is supposed to be only to you.

Now you’re all set to search for your home. If you have the time, consider doing your house hunt in the off-season—meaning, generally, the colder months of the year. You'll have less competition and sellers may be more willing to negotiate. Once you find the house you want, move quickly to make your bid. If you're working with a buyer's broker, then get advice from him or her on an initial offer. If you're working with a seller's agent, devise the strategy yourself.


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