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6 tips on getting finances in shape to buy a home

Published on NewsOK Modified: February 27, 2013 at 4:58 pm •  Published: February 27, 2013

Even if you end up getting a loan that requires private mortgage insurance, once you've made enough payments to build your stake in the home to 20 percent, you can apply to have PMI waived. And until then, PMI is tax-deductible.

In addition to a down payment, you'll also have to set money aside for closing costs, which can run into the hundreds or sometimes thousands of dollars.


A person's credit score is a critical element of how lenders determine how much money homebuyers can borrow and at what interest rate.

Baehr says buyers seeking a shot at the most favorable interest rate on a home loan must generally have a FICO score of at least 720 out of 850. Loans backed by the Federal Housing Administration require a FICO score of at least 580, but you'll pay a higher interest rate.

Prospective homebuyers should check their credit report for any errors that may be weighing down their credit score. Disputing errors can take months, so it's best to get this process going well before you'd like to buy a home. Baehr recommends getting started six months in advance.

A major component of one's credit score is the ratio between how much credit you have available versus how much debt you're carrying. You can improve your credit score by paying down debt over time, another reason to get started well before you apply for a mortgage.

Consumers are entitled to a free credit report every 12 months from each of the credit bureaus: Experian, TransUnion and Equifax. You can get copies at .

In addition, avoid taking on new debt in the months before you set out to buy a home, as new loans or credit cards can ding your credit score temporarily.

Even borrowers who like to use their credit cards often and pay down the balance every month should refrain or ease back on using credit cards for a couple of months before applying for a home loan, Baehr says.


When it comes time to formally apply for the loan, lenders will probe deep into your financial records.

Get ahead of the requests by pulling together at least three months of bank statements, pay stubs, and at least two years of income tax filings.

If you're going to be receiving financial help from family on the down payment, the bank will want to know the source. That might mean that your benefactor may also need to show bank statements related to their financial gift to you as well, Baehr said.


Before you begin your home search, ask a lender to assess how much you can borrow. Once the lender issues you a pre-approval letter, it's a solid indication of what you can spend.

"It's not like having cash in hand, but it's almost as close," Larsen says.

One caveat: Understand the difference between a preapproval letter and being prequalified for a loan.

Being prequalified for a loan doesn't commit the lender. It's basically an opinion drawn from a cursory assessment of your financial profile. A preapproval letter is preceded by a thorough credit and income review, though the loan won't go through until all of the borrower's financial information is verified.