The home buying process is an exciting and challenging time in any person’s life. Before you start the process of purchasing a house it is in your best interest to prepare and plan, thereby ensuring you find the best option for you and your family.

If you intend to finance your next home, the first step in the home buying process is to review your credit report to verify if there are any inaccuracies. Most lenders will require at least a 620-middle credit score for mortgage financing. The three main credit agencies are: Equifax, Experian, and Transunion. Your credit scores may affect more than just your mortgage options, they may also impact your ability to get a new job, get approved for a car loan, or even a credit card. By law, you can receive one free credit report each year to ensure all your information is correct at: annualcreditreport.com. Once you receive your free copy, make sure you thoroughly review your report for errors and to prevent identity theft.

The following factors are used to calculate your credit score:

• Payment History (35%) – Late payments, judgments, bankruptcies, foreclosures, and collections will all negatively affect your credit.

• Balances Owed (30%) – Higher balances on revolving debt and personal loans will negatively impact your credit scores.

• Length of Credit (15%) – Established on-time credit accounts positively affect your credit scores.

• Inquiries (10%) – When you apply for new debt, lenders will pull your credit report which in turn will lower your credit scores. Inquiries will be reported for 2 years.

• Types of Accounts (10%) – It is important to have a variety of open credit, including: auto, personal, and revolving credit.

Your credit score summarizes your credit history into one number. There are many factors that influence your credit scores. Below are some of the factors that affect your scores. Using this information will help you improve your credit quickly.

• Inquiries – Too many inquiries for new credit cards and/or loans.

• Late Payments – Too many late payments. Recent late payments have a greater impact on your credit scores.

• New Credit – Too many recently opened accounts.

• Revolved Credit Balances – Average balance of revolving accounts are too high. You can typically increase your credit scores by paying your credit card balances below 30% of their available limits.

Decide How Much of a Monthly Payment You Can Afford

Lenders typically will use up to 31% of your income towards your total mortgage payment and up to 45% of your income towards your total monthly debts (including your mortgage payment). All income should be used when calculating your monthly income, including: W2, self-employment, alimony and child support, retirement, and rental income. In addition to deciphering how much you can afford monthly for your new house, you will need to determine how much money you can save for your down payment and closing costs. Unless you qualify for a down payment assistance program, you will likely need at least 3% for a down payment and another $3000 to $5000 for closing costs. You will also need additional funds for moving expenses. Depending on the house you find, you may also need money for appliances, repairs, and furniture. Before you are ready to start searching for your next home, you should contact a reputable lender and apply for a mortgage, review your mortgage options, and complete the pre-approval process.