1. Develop a family budget. Instead of budgeting what you¿d like to spend, use receipts to create a budget for what you actually spent over the last six months. One advantage of this approach is that it factors in unexpected expenses, such as car repairs, illnesses, etc., as well as predictable costs such as rent.

2. Reduce your debt. Generally speaking, lenders look for a total debt load of no more than 36 percent of income. Since this figure includes your mortgage, which typically ranges between 25 percent and 28 percent of income, you need to get the rest of installment debt¿car loans, student loans, revolving balances on credit cards¿down to between 8 percent and 10 percent of your total income.

3. Get a handle on expenses. You probably know how much you spend on rent and utilities, but little expenses add up. Try writing down everything you spend for one month. You¿ll probably see some great ways to save.

4. Increase your income. It may be necessary to take on a second, part-time job to get your income at a high-enough level to qualify for the home you want.

5. Save for a downpayment. Although it¿s possible to get a mortgage with only 5 percent down¿or even less in some cases¿you can usually get a better rate and a lower overall cost if you put down more. Shoot for saving a 20 percent downpayment.

6. Create a house fund. Don¿t just plan on saving whatever¿s left toward a downpayment. Instead decide on a certain amount a month you want to save, then put it away as you pay your monthly bills.

7. Keep your job. While you don¿t need to be in the same job forever to qualify, having a job for less than two years may mean you have to pay a higher interest rate.

8. Establish a good credit history. Get a credit card and make payments by the due date. Do the same for all your other bills. Pay off the entire balance promptly.

The first step in getting yourself in financial shape to buy a home is to know what you make and what you spend now. List your income and expenses below.

Credit scores, along with your overall income and debt, are a big factor in determining if you¿ll qualify for a loan and what loan terms you¿ll be able to qualify for.

1. Check for and correct errors in your credit report. Mistakes happen, and you could be paying for someone else¿s poor financial management.

2. Pay down credit card bills. If possible, pay off the entire balance every month. However, transferring credit card debt from one card to another could lower your score.

3. Don¿t charge your credit cards to the maximum limit.

4. Wait 12 months after credit difficulties to apply for a mortgage. You¿re penalized less for problems after a year.

5. Don¿t purchase big-ticket items for your new home on credit cards until after the loan is approved. The amounts will add to your debt.

6. Don¿t open new credit card accounts before applying for a mortgage. Having too much available credit can lower your score.

7. Shop for mortgage rates all at once. Too many credit applications can lower your score, but multiple inquiries from the same type of lender are counted as one inquiry if submitted over a short period of time.

8. Avoid finance companies. Even if you pay the loan on time, the interest is high and it will probably be considered a sign of poor credit management.

This information is copyrighted by the Fannie Mae Foundation and is used with permission of the Fannie Mae Foundation. To obtain a complete copy of the publication, ¿Knowing and Understanding Your Credit,¿ visit http://www.homebuyingguide.org.

Credit scores range between 200 and 800. Scores above 620 are considered desirable for obtaining a mortgage. These factors will affect your score.

1. Your payment history. Whether you paid credit card obligations on time.

2. How much you owe. Owing a great deal of money on numerous accounts can indicate that you are overextended.

3. The length of your credit history. In general, the longer the better.

4. How much new credit you have. New credit, either installment payments or new credit cards, are considered more risky, even if you pay promptly.

5. The types of credit you use. Generally, it¿s desirable to have more than one type of credit¿installment loans, credit cards, and a mortgage, for example.

For more on evaluating and understanding your credit score, go to http://www.myfico.com.

While your opinions on the type of home you want to own may change during the homebuying process, use this easy checklist to help you prioritize and make the shopping process less time consuming.

• How close do you need to be to: (a) public transportation _______ (b) schools _______
  (c) airport _______ (d) expressway _______ (e) neighborhood shopping _______
  (f) other_______?

• What neighborhoods would you prefer?

• What school systems do you want to be near?

• What architectural style(s) of homes do you prefer?

• Do you want a one-story or two-story house?

• How old a home would you consider?

• How much repair or renovation would you be willing to do?

• Do you have special facilities or needs that your home must meet?

• Do you require a fenced yard or other amenities for your pets?

The neighborhood you choose can have a big impact on your lifestyle¿safety, available amenities, and convenience all play their part.

1. Make a list of the activities¿movies, health club, church¿you engage in regularly and stores you visit frequently. See how far you would have to travel from each neighborhood you¿re considering to engaging in your most common activities.

2. Check out the school district. The Department of Education in your town can probably provide information on test scores, class size, percentage of students who attend college, and special enrichment programs. If you have school-age children, also consider paying a visit to schools in the neighborhoods you¿re considering. Even if you don¿t have children, a house in a good school district will be easier to sell in the future.

3. Find out if the neighborhood is safe. Ask the police department for neighborhood crime statistics. Consider not only the number of crimes but also the type¿burglaries, armed robberies¿and the trend of increasing or decreasing crime. Also, is crime centered in only one part of the neighborhood, such as near a retail area?

4. Determine if the neighborhood is economically stable. Check with your local city economic development office to see if income and property values in the neighborhood are stable or rising. What is the percentage of homes to apartments? Apartments don¿t necessarily diminish value, but they do mean a more transient population. Do you see vacant businesses or homes that have been for sale for months?

5. See if you¿ll make money. Ask a local REALTOR^ or call the local REALTOR^ association to get information about price appreciation trends in the neighborhood. Although past performance is no guarantee of future results, this information may give you a sense of how good an investment your home will be. A REALTOR^ or the government planning agency also may be able to tell you about planned developments or other changes in the neighborhood¿like a new school or highway¿that might affect value.

6. See for yourself. Once you¿ve narrowed your focus to two or three neighborhoods, go there, and walk around. Are homes tidy and well maintained? Are streets quiet? Pick a warm day if you can and chat with people working or playing outside. Are they friendly? Are their children to play with your family?

Condominiums and townhouses offer an affordable option to single-family homes in most areas. But consider these facts before you buy.

1. Storage. Some condos have storage lockers, but usually there are no attics or basements to store belongings.

2. Outdoor space. Yards and outdoor areas are usually smaller in condos, so if you like to garden or entertain outdoors, this may not be a good fit. However, if you hate yard work, this may be the perfect option for you.

3. Amenities. Many condo properties have swimming pools, fitness centers, and other facilities that would be very expensive in a single-family home.

4. Maintenance. Many condos have onsite maintenance personnel to care for common areas, do repairs in your unit, and let in workers when you¿re not home.

5. Security. Many condos have keyed entries and or even door attendants. Plus, you¿ll be closer to other people in case of an emergency.

6. Reserve funds and association fees. Although fees generally help pay for amenities and provide savings for future repairs, you will have to pay the fees agreed to by the condo board, whether or not you¿re interested in the amenity or not.

7. Resale. The ease of selling your unit is more dependent on what else is for sale in your building, since units are usually fairly similar. Single-family homes usually are more individual.

8. Freedom. Although you have a vote, the rules of the condo association can affect your ability to use your property. For example, some condos prohibit home-based businesses. Others prohibit pets. Read the covenants, restrictions, and bylaws of the condo carefully before you make an offer.

9. Proximity. You¿re much closer to your neighbors in a condo or townhome. If possible, try to meet your closest prospective neighbors before making a decision.

1. A real estate transaction is complicated. In most cases, buying or selling a home requires disclosure forms, inspection reports, mortgage documents, insurance policies, deeds, and multi-page government-mandated settlement statements. A knowledgeable guide through this complexity can help you avoid delays or costly mistakes.

2. Selling or buying a home is time consuming. Even in a strong market, homes in our area stay on the market for an average of __60__ days. And it usually takes another 60 days or so for the transaction to close after an offer is accepted.

3. Real estate has its own language. If you don¿t know a CMA from a PUD, you can understand why it¿s important to work with someone who speaks that language.

4. REALTORS^ have done it before. Most people buy and sell only a few homes in a lifetime, usually with quite a few years in between each purchase. And even if you¿ve done it before, laws and regulations change. That¿s why having an expert on your side is critical.

5. REALTORS^ provide objectivity. Since a home often symbolizes family, rest, and security, not just four walls and roof, homeselling or buying is often a very emotional undertaking. And for most people, a home is the biggest purchase they¿ll ever make. Having a concerned, but objective, third party helps you keep focused on both the business and emotional issues most important to you.

6. REALTORS^ are members of the NATIONAL ASSOCIATION OF REALTORS^, a trade organization of more than 1 million members nationwide. REALTORS^ subscribe to a stringent code of ethics that helps guarantee the highest level of service and integrity.

1. Decide how much home you can afford. Generally, you can afford a home equal in value to between two and three times your gross income.

2. Develop a wish list of what you¿d like your home to have. Then prioritize the features on your list.

3. Select three or four neighborhoods you¿d like to live in. Consider items such as schools, recreational facilities, area expansion plans, and safety.

4. Determine if you have enough saved to cover your downpayment and closing costs. Closing costs, including taxes, attorney¿s fee, and transfer fees average between 2 percent and 7 percent of the home price.

5. Get your credit in order. Obtain a copy of your credit report.

6. Determine how large a mortgage you can qualify for. Also explore different loans options and decide what¿s best for you.

7. Organize all the documentation a lender will need to preapprove you for a loan.

8. Do research to determine if you qualify for any special mortgage or downpayment-assistance programs.

9. Calculate the costs of homeownership, including property taxes, insurance, maintenance, and association fees, if applicable.

10. Find an experienced REALTOR^ who can help you through the process.

Not only does owning a home give you a haven for yourself and your family, it makes great financial sense, too.

This calculation assumes a 28 percent income tax bracket. If your bracket is higher, your savings will be, too.

Rent: _________________________

Multiplier: X 1.32

Mortgage payment: __________________

Because of tax deductions, you can make a mortgage payment¿including taxes and insurance¿that is approximately one-third larger than your current rent payment and end up with the same amount of income.

For more help, use Fannie Mae¿s online mortgage calculators at

http://www.fanniemae.com/homebuyers/calculators/index.jhtml?p=Resources&s=Calculators

1. Tax breaks. The U.S. Tax Code lets you deduct the interest you pay on your mortgage, property taxes you pay, and some of the costs involved in buying your home.

2. Gains. Between 1998 and 2002, national home prices increased at an average of 5.4 percent annually. And while there¿s no guarantee of appreciation, a 2001 study by the NATIONAL ASSOCIATION OF REALTORS^ found that a typical homeowner has approximately $50,000 of unrealized gain in a home.

3. Equity. Money paid for rent is money that you¿ll never see again, but mortgage payments let you build equity ownership interest in your home.

4. Savings. Building equity in your home is a ready-made savings plan. And when you sell, you can generally take up to $250,000 ($500,000 for a married couple) as gain without owing any federal income tax.

5. Predictability. Unlike rent, your mortgage payments don¿t go up over the years so your housing costs may actually decline as you own the home longer. However, keep in mind that property taxes and insurance costs will rise.

6. Freedom. The home is yours. You can decorate any way you want and be able to benefit from your investment for as long as you own the home.

7. Stability. Remaining in one neighborhood for several years gives you a chance to participate in community activities, lets you and your family establish lasting friendships, and offers your children the benefit of educational continuity.

To calculate whether renting or buying is the best financial option for you, use this calculator courtesy of Ginnie Mae:

http://www.ginniemae.gov/rent_vs_buy/rent_vs_buy_calc.asp?Section=YPTH

1. They don¿t ask enough questions of their lender and miss out on the best deal.

2. They don¿t act quickly enough to make a decision and someone else buys the house.

3. They don¿t find the right real estate professional who is willing to help you through the homebuying process.

4. They don¿t do enough to make their offer look good to a seller.

5. They don¿t think about resale before they buy. The average first-time buyer only stays in a home for four years.

Reprinted with permission from Real Estate Checklists and Systems (www.realestatechecklists.com)

Reprinted from REALTOR^® Magazine Online by permission of the NATIONAL ASSOCIATION OF REALTORS^®

Copyright 2005. All rights reserved.