Check Your Credit Report

Becoming familiar with your credit report is an important part of financial fitness at all stages in life. But it's especially important when you're ready to buy a house. The better your credit rating, the better interest rate you're likely to get. So while you're taking the time to save money for a down payment, take some time to get your credit report in order.

If you have poor debt ratios, meaning too much debt compared to your income, start paying down your debt. That's not an easy thing to do. But it's crucial in repairing your credit and getting favorable interest rates.

Prepare to Qualify

If you think owning a home is for you, start planning for it right now. You need to get your finances in order, save for a down payment and mentally prepare for the responsibility of owning a home.

Down Payment

The down payment is usually expressed as a percentage of the price of the house. A $10,000 down payment on a $100,000 house would be a 10% down payment.

How much do you need to save for a down payment? It depends on a lot of variables.

Different banks require different amounts, between 3% and 10% depending on the program, and often give better interest rates for down payments larger than 10%. Some programs even will let you put 0% down.

No matter how much you need for a down payment, save more. There are a lot of fees included with buying a house and you'll be in much better financial shape when you move in if you've given yourself a little padding.

Unless you're some kind of a financial magician, don't try to pull this down payment out of your finances all at once. Decide how much you want to spend on a house and how much you will need to save for a down payment. Saving a reasonable amount every month, you can compute a target date when you will have your down payment and can start your house shopping.

Government Assistance

Check with your local city or county government for special programs that may offer down payment assistance or reduced down payment requirements. To qualify, your household income will need to be lower than the program's income requirements, or you'll need to buy a home in an area targeted for redevelopment.

If you're going to be saving money, you might as well have it work for you. Check into short term Certificates of Deposit (CDs) and Money Market Accounts to earn some interest while you're adding more to savings. It won't be a lot of interest but every little bit helps.

Get Pre-qualified

Negotiating for a house is a lot easier when you have a check for the full amount in your back pocket. That's about what you have when you pre-qualify for a mortgage. Based on your financial strength, a lender will give you a firm commitment on a loan for a certain amount even though you haven't yet identified a specific property.

You can shop around for houses with confidence, knowing that if you find one within the amount of your pre-approval, you will get financing if you decide to buy it. And when it comes time for negotiations, you're in a much better position because the seller knows you can get the financing.