2. Finances

Financial self-analysis is important before you begin to get swept away in the idea of your dream home.  Check your credit; it's important to have a good credit history in order to qualify for a low mortgage rate.  Make sure your credit report accurately portrays your financial situation.  If there are problems make sure to get them straightened out immediately.  It could make a huge difference in the price you will end up paying for a home.

Establish your budget:  How much money do you have for a down payment?  How much money do you earn?  All of these questions are important to ask.  Experts say that you shouldn't pay more than 28% of your gross income for your mortgage payment (this includes principal, interest, taxes, and insurance.)  Your debt to income ratio can change this amount.  That's why it's important to speak to a mortgage broker about getting prequalified or preapproved for a mortgage.  A morgage broker will help you sort out the many different options available to you and help you to choose a loan that will suit your needs.

Prequalification:   This is a simple process that takes into consideration very basic information regarding your financial status.  This can be done over the phone or online.  Prequalified buyers do not hold much power over a buyer that is preapproved.  That is because a prequalified buyer is only told that they might qualify for a certain amount of money.

Preapproval:  The lender will take an in-depth look at your financial situation and will perform an extensive check on your financial status.  You will then be given the exact amount that you are eligible to receive.  Most sellers require that only preapproved buyers write contracts on their home because this will ensure that there will not be any financial obstacles later on.

Your realtor can help guide you through the process of deciding on a lender and can also help explain some of the more complicated advantages and disadvantages of certain loans.  Your agent will also work with you and the lender to ensure that everything goes smoothly.