Even with unsteady home values and tough home
loan requirements, home ownership remains a desirable goal. But since you only
have so much money, you have to make choices. Keep in mind that the smartest
choices are made with your head, not your heart.

Line up your ducks. The process of choosing and buying a
home can be challenging, but it will go much smoother if you’ve gotten your own
personal house in order.

  • Check your credit. Go to annualcreditreport.com and look at least one of your three
    credit reports. Make sure all the loan information is correct and fix any
    errors. You might also want to buy a FICO credit score at http://www.myfico.com so you’ll
    what kind of loan you’ll qualify for.
  • Seek approval. Compare mortgage rates at local banks
    and credit unions, where you are more likely to get personal service, and choose
    one to get pre-approval. While you’ll still have to formally apply for a
    mortgage, pre-approval tells the seller that you’re ready to buy a house.
  • Pull your paperwork together. When you apply for a
    loan, you’ll need a financial statement showing your assets and debts, two years
    of tax returns, three months of bank and brokerage statements, recent paycheck
    stubs and maybe a letter from your boss confirming your employment.

Make smart choices. When you start shopping for a house, you
will want the right price, the right neighborhood and the right space. Chances
are, however, you’ll be able to swing only two of the three, at least for your
first home. So decide which ones matter most.

Be a good reporter. Walk the neighborhood, check out the
schools and crime statistics and get to know what’s nearby.

  • Get the details. Learn as much as you can about the
    house and the sellers, including how long the property has been for sale, the
    original asking price and what the owners themselves paid. Chat with neighbors
    to see if they will share any details on the sellers.
  • Dig a little deeper. Consider spending $25 or $30 on
    a background check on the sellers that may flag credit and rental histories,
    civil judgments and employment information. Knowing that a seller faces past due
    bills or legal problems could save you thousands of dollars when you’re
    negotiating. Websites Zillow,
    Trulia and PropertyShark may also
    have useful information.
  • Negotiate from your strengths. You have a down
    payment, a pre-approved loan and a thorough knowledge of the market. Start with
    a low price, with the aim of getting 30% or more below the bubble-era

What not to do. Don’t rush and don’t get seduced by a cool
place. Keep in mind that a house is a reward for, not the means to, a
well-managed life.

  • Don’t buy and move. Don’t bother buying if you aren’t
    going to be in your house at least a few years because the closing costs when
    you buy and sell won’t be worth it.
  • Don’t just go for cheap. You can fix up a trashy
    property in an up-and-coming part of town, but you can’t fix up a trashy
  • Don’t fall in love too fast. The first place you see
    may look up to date with new countertops and fresh paint, but it’s probably not.
    Look at many homes to assess what level of repair and amenities are good