The first and most important step in buying a home is getting prequalified for a home loan.  

Steps

·        Get a referral for a lender or mortgage broker from a friend, relative, co-worker or real estate broker.

·        Provide the following information: gross monthly income and total monthly payments (car payments, minimum monthly payments on credit cards, child support payments and all payments you have to make every month).

·        Get your "ratios." You or your lender can add all your debts together and compare that number to your income to arrive at your total debt-to-income ratio. Your percentage should be under 36 for the best interest rate. The lower the number, the better.

·        Give your lender authorization to pull your credit report. The report should include a FICO (Fair, Isaac and Co.) score, which is the credit scoring system most widely used by lenders. (A credit score is a system of calculating the risk of lending to you based on several factors, including how long you've been at your present job, your occupation, how long you've been at your present address, the ratio of your balances to your available credit lines, whether you are a home owner, the number of recent inquiries into your credit, your age, the number of credit lines you have, the years you have had a credit in the credit bureau database, and such derogatory items as bankruptcy, collections against you, foreclosures and slow pays.) A FICO score of 680 or better is considered "A+" (excellent), and with good ratios and other positive factors should get you the best interest rates available.

·        Have a lender prepare a letter of prequalification for you. The letter should state that your initial financial and credit information has been reviewed and looks good, though it will also state that the letter is not a guarantee of a loan.

Tips

·        Once you find a home and are ready to write an offer, have your lender or mortgage broker write a letter of prequalification only for the loan amount you're seeking with that offer. That way the seller doesn't know if you can afford more.

·        If you're self-employed or have been on the job for less than two years, the lender may require additional information.

·        You don't have to use the same lender that prequalified you. Shop around and compare rates.

Warnings

• Prequalified is not the same as preapproved. In a hot market, you're going to want to go the extra step and get preapproved for a home loan before you make an offer on a home.
• Lenders consider many factors in prequalifying you for a loan, including credit, income and debt, type of property and amount of down payment.