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Today, more than two-thirds of the country owns their own home. Before you become a proud homeowner yourself, your first step is to determine if you are really ready. Your decision to buy a home is a big one -- maybe one of the biggest financial decisions you'll ever make. That makes it especially important to arm yourself with the facts about home buying.

This page shows you some helpful tips to help you decide if you are ready. Once you know that buying a home is the right choice for you, read on. This section is loaded with lots of great guidance to make buying your home a fun and rewarding experience!

Is Your Credit in Order?

It's critical that you get a copy of your credit report and credit score a few months before making such a major purchase. Check your report thoroughly to make sure there isn't any negative or incorrect information that could hurt your chances of getting a favorable mortgage. Spend this time to get things in order -- for example, catch up on any overdue payments.

Can You Afford It?

Do you have the down payment? The down payment is a percentage of the value of the property that you are required to pay up front. Down payments can range from 3 - 20% of the property value, depending on the type of mortgage and the area where you are buying the house. if your down payment is less than 20%, you may be required to purchase mortgage insurance.

Do you have the closing costs? Closing costs include points, taxes, title insurance, financing costs, and other settlement costs. These costs generally range between 2 - 7% of the property value. You will receive an estimate of these costs from your lender after you apply for a mortgage.

Can you prove you have the money? If your money is in a savings account, the lender will need proof that the money's there, for how long, and that it wasn't borrowed. Some communities have special programs that allow first-time buyers to accept gifts towards the down payment. But some lenders require a certain amount of the down payment come from savings you have accumulated personally. In almost all cases, the lender requires a gift letter verifying that the gift does not have to be repaid.

Other Questions to Answer

Have you been employed regularly for the past two years, receiving dependable and adequate income?
Do you always pay your bills on time?
Is your total debt, including credit cards and car loans, manageable?
After you pay the down payment and closing costs, can you afford the mortgage and other expenses, such as electric, water, and repair costs?
Do you plan to live in the house for at least two years so that it builds some equity?

If you can answer yes to at least most of these questions, now is probably a great time to consider buying!

Understanding Credit Scores

A credit score is a number lenders use to help them decide: "If I give this person a loan or credit card, how likely is it I will get paid back on time?" It is generated through statistical models using elements from your credit report; however, your score is not physically stored as part of your credit history on the credit file. Rather, it is typically generated at the time a lender requests your credit report, and is then included as part of the report.

Your credit score is a fluid number, and it changes as the elements in your credit report change. For example, payment updates or a new account could cause your score to fluctuate. There are many different credit scores used in the financial service industry. Your score may be different from lender to lender (or from car loan to mortgage loan), depending on the type of credit scoring model that was used.

History of credit scores
Credit scores came into wide use in the 1980's. Long before credit scores, human judgment was the sole factor in deciding who received credit. Lenders used their past experience at observing consumer credit behavior as the basis for judging new consumers. Not only was this a slow process, but it was also unreliable because of human error.

Lenders eventually began to standardize how they made credit decisions by using a point system that scored the different variables on a consumer's credit report. This point system helped to eliminate much of the bias that previously existed; however, it was still tied to intuitive measures of creditworthiness and was not based on actual consumer behavior.

Credit granting took a huge leap forward when statistical models were built that considered numerous variables and combinations of variables. These models were built using payment information from thousands of actual consumers, which made scores highly effective in predicting consumer credit behavior. When combined with computer applications, scoring models have made the credit granting process extremely fast, efficient and objective, facilitating commerce and helping consumers quickly get the credit they need.

Improving Credit

Top 10 Ways to Improve Your Score

10. Learn what your current FICO® Credit Score is and what appears on your credit report.

9. Don't open new credit cards that you don't need just to increase your available credit. This approach could backfire and actually lower your score.

8. Try to keep your total account balances as low as possible. High outstanding debt may negatively affect your score, as you have a greater chance of missing payments.

7. Correct any incorrect information that might appear on your credit report.

6. If your credit is severely damaged, or you have a very short credit history, there are still ways to improve your credit over time. Consider opening new accounts responsibly and paying them off on time.

5. If you fall behind on paying a bill because of illness, unemployment, or family issues, write a short explanation to the credit reporting agencies. They will add it to your credit report. Also, call your creditor to explain the circumstances and, if possible, work out a payment schedule you can meet.

4. If you need help managing your credit, contact a reliable nonprofit agency, such as:

Consumer Credit Counseling Service (CCCS)
800/388-2227
www.cccsinc.org

3. To minimize the number of inquiries on your credit report, don't apply for multiple credit cards over a short period of time, or for a card you're not likely to get. Apply for new credit accounts only as needed.

2. Make all of your payments on time. If forced to miss a payment, be sure to pay the following month. Accounts more than 60 days past due will be indicated on your credit report.

1. Continue to check your credit report regularly, correcting errors and inaccuracies that can damage your credit score.

Credit Reporting Agencies

Experian

Equifax

Transunion

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