The important questions that many people don’t think and research before they make a decision to buy the house that are can you afford a house, how much can you afford?, focusing on what their mortgage payments will be, ignoring other monthly payments. This oversight puts many people down the wrong path to bad debt. For example, your monthly expenditures will be more than just the home loan, there will also be homeowners insurance, flood insurance, mortgage insurance, utilities, garbage, cable TV, groceries, unexpected auto repairs, lunch money, and many other obligations. They must all be accounted for in your budget spreadsheet.

You should start planning 6 months before you expect to buy. You need this time to clean up your credit report, and get funds that are contributed by family into your account long before the lenders go looking for it. Most lenders do not allow money given to you by family members to count toward a down payment, so you have to bury it early in your account. You can get your credit report from sites like Experian, True Credit or Equifax. If you plan on buying in June and July like many families, you need to start planning your finances in January. You should get your credit report at least once every year to verify it for accuracy, and make certain your credit score is up to par. If your credit is clean and you have your down payment ready to go, you won’t need as much time to plan. Buying a home is a very serious investment that must work right on the first try with no mistakes. Patience and planning wins this game, do not be impulsive. Make sure your credit is clean, and then apply for a home mortgage on the web at online mortgage sites like Quicken Loans. Be sure to read our chapter All About Mortgages, Home Loans & Avoiding Scams.

Everyone has a credit score calculated at the time your credit report is requested. It’s based on over 100 different proprietary variables and algorithms developed by Fair Isaac (FICO). The range is 300 to 850. You can get your credit score from Experian, True Credit or Equifax. Most lenders consider people above 650 to be prime borrowers, meaning they will most likely be approved at favorable rates. According to my credit report from Equifax, 71% of the people with a credit score from 500-550 will default on their credit. Another 51% of buyers with a credit score from 550-600 will default on their credit. That’s pretty scary. This is why lenders run your credit report and head straight for your FICO Beacon score.