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Be Ready to Buy Your First Home

By Karen Cheney

First-time home buyers have it tough. The supply of homes for sale is tight, and lenders are tightfisted.

THE TURNING-POINT CHECKLIST

12 months in advance 
Make sure the time is right. Use Trulia.com’s rent or buy calculator to see if you’d really come out ahead, based on loan rates, taxes, and where rents and prices are headed in your area.

Clean up your act. Devote this year to saving money and paying down debt. You’ll need at least 3.5% down for an FHA loan, or 10% to 20% for a conventional mortgage. Lenders also like to see job stability, so settle in for now.

Learn what you like. When a home catches your eye — a listing, say, or a photo — pin it to a board on Pinterest. Or try Swipe, a new app from the site Doorsteps, which lets you browse listing photos and mark them pass or save.

Six months out 
Look better to lenders. To boost your credit score, order your free credit reports atannualcreditreport.com and fix any mistakes. Pay bills on time, chip away at credit card balances, avoid new debt, and don’t close any accounts or apply for new credit. The average credit score for approved mortgage applicants is 755.

Figure out what you can buy. Use an online calculator like the one at Zillow.com to estimate how much house you can afford based on your income, savings, and debts.

Forecast future bills. With an idea of how big a house you can buy, you can do a more detailed budget. Scan listings for property taxes on homes you like. Get a homeowners insurance quote at Insweb.com. Call local utility companies for the typical bills. And tack on 1% of the home’s value for yearly maintenance.

Three months out 
Pick your loan. Fixed mortgage rates, now 4.4%, may edge up to 5% this year, forecasts HSH.com. If you are confident this is a starter home, you can save with a 7/1 adjustable-rate loan, now 3.5%. The risk: You end up staying longer than seven years and rates rise sharply. Most — 92% of mortgage borrowers — opt for fixed-rate loans.

Prove you’re a serious shopper. Based on your income and credit, a bank will give you a mortgage pre-approval.

Even better in a hot market: Pay a few hundred to go through underwriting upfront.
Find a guide. Look for a realtor who has worked in the neighborhood where you hope to live. And in a tight market like today’s, ask candidates what their strategies are for unearthing listings and handling potential bidding wars.

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