Once you decide you are ready to purchase a house, you should take six month to prepare yourself before actually putting in an offer. During these six months, you will want to do the following:



1. Check your credit reports. Everyone is entitled to one free credit report each year from the 3 reporting bureaus: Equifax, TransUnion and Experian. You can obtain the credit reports from freecreditreport.com. Once you receive your report, check it carefully for errors. If you have any loans that are paid off that do not have the word "closed" on the credit report, get that corrected. Contact the issuing bank in writing and have them submit a letter to the credit reporting bureaus. This can take time to correct, which is why it is important to start this process 6 months before you need the mortgage.

2. Check your credit scores. A company called FairIsaac (myfico.com) is the one that compiles your credit score. This is a number assigned to you based on your credit history. The scoring takes the following into consideration: how much you owe, payment history, length of payment history, new credit applied for and types of credit lines open. Note that the score is not dependent upon your income! Credit scores range from 300 to 850. The higher your credit score is, the better the interest rate you will receive on your mortgage. If your score is 700 or better, you will receive the best rates out there. To improve your credit score, it is important to pay your bills on time. Do not miss or be late with any payments, and your score will start to rise. If you have a bankruptcy or delinquency on your account, this will take longer than 6 months to fall off your report. Bankruptcies take 10 years, and delinquencies (such as collections) can take 3 to 7 years to fall off the report.

3. Make a budget forecast. Owning a home results in more expenses than just the mortgage payment. You will also have to pay taxes, home owners insurance, possibly mortgage insurance, along with repairs for the upkeep of your home. This will give you an idea of how much you need to have available in order to know how much house you can afford.

4. Assemble your papers. Prior to visiting a mortgage broker, you should create a file with the following papers: W2 statements, last year's tax returns, your last 3 months of bank statements, your last 2 months of pay stubs (unless you are self employed). If you have had a bankruptcy in the past, also gather all that information.

5. Speak with a mortgage broker. Once you have established your credit report, know your credit score, and have a good budget, a mortgage broker can help you find the best mortgage for you. The broker will show you the different options between an adjustable rate mortgage, or a fixed rate mortgage. He or she will also be able to tell you how much your monthly payments will be, and what kind of interest rates are available to you with your current credit scores. This is where your income comes into play. Banks will want to see that you have a proper debt to income ratio. You need to have no more than 30% of your income going towards a housing payment.

Once you have worked with your mortgage broker, you will then get pre-approved for a mortgage. This pre-approval letter will let any sellers know how much mortgage you have been approved for, and it also shows them that you are serious as a buyer. Now you can go about the fun part of buying a house, which is looking at them!