1. Know how much you can afford.
Before you look at a house, it's best to come up with a number that you know you can afford. One of the reasons so many people got sucked into the subprime mess is because they were stretching to buy more house than their budget would allow. Low interest adjustables and interest-only loans made the monthly payments seem affordable—until now, of course. Use the worksheet to see what your mortgage budget really is. This will also help you budget for other important household costs such as maintenance, taxes, insurance, etc.
2. Get your financial house in order.
Have you saved enough for a solid down payment? In recent years lenders have allowed for very little or sometimes even no down payment, meaning homeowners financed as much as 100 percent of the purchase price. That strategy has certainly backfired. There's nothing like a solid down payment to help you build equity in your home immediately, to impress a potential lender and to help you avoid expensive private mortgage insurance. If you don't have the cash now, come up with a savings plan that will help you reach your goal soon.
In addition to saving for a down payment, you need to take a close look at your credit history. Any problems on your credit report and you won't qualify for a good rate—especially these days when lenders are tightening their standards. Learn more about how to raise your credit score.
3. Look for a good lender or mortgage broker.
This will take some expert shopping. Interest rates can vary significantly within a single local market. You'll need to check various credit union, Internet lenders and banks—large and small—before you buy. Start your search at HSH.com, where you can get a list of current lenders and the rates they're offering on various mortgages throughout the country.
If your credit history is less than blemish-free, you may find you need to go through a mortgage broker. A good broker has access to more loans and more types of lenders than you can find on your own. To find a good mortgage broker, ask around and do your research. A good place to start is HSH Associates website, HSH.com.