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.

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.

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 start your house shopping.

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.

PMI - Private Mortgage Insurance
If you put less than 20% down on your home, you'll be charged PMI, Private Mortgage Insurance, as part of your monthly house payment. This insurance protects the lender from loss if you default on your loan and the lender has to sell your home to recover its money.

Once your loan principal drops to 80% of the total value of your home, either through paying loan principal or increasing the value of your home, you will no longer have to pay PMI.

PMI can be a very substantial cost, as much as 20% of your monthly payment, so get rid of it as soon as you can.

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.

Your first step is to get a copy of your credit report as soon as possible.

For more information on what is contained in your credit report, see our credit cards section.

If there are any errors on your credit report, contact the credit agency immediately. For other problems, earned problems we'll call them, there are ways to fix them, but it will take some time and effort. Don't trust anyone who claims to be able to fix your credit instantly or erase your credit history. It is illegal to falsify your credit rating. Here are ways to legally fix your credit.

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.

If you have insufficient credit history, you're in a good position to build good credit. If you can, get a credit card and be sure not to carry a balance on it. If you don't qualify for a credit card, apply for a department store charge card. Be sure to pay it off every month because those cards can have extraordinarily high interest rates.

Whenever you apply for credit, the inquiry by the potential creditor shows up on your credit history. If you have too many inquiries on your credit history, you need to play the waiting game. Stop applying for credit. These inquiries will become less relevant as time passes and, as long as you don't continue to apply for more credit, this will cease to be a problem fairly quickly.

If you just can't wait to fix your credit and you need to move forward with buying a house, you don't have to live with your mistakes for the next 30 years. Three things determine mortgage interest rates: your credit history, the amount of your down payment and your current income. If your credit rating isn't as positive as you'd like it to be (or as the banks would like it to be, really) try to increase your down payment and income to make up for it. Sure, easier said than done.

If worst comes to worst, you may have to accept a higher interest rate to start with. If you continue to improve your credit rating (which you will do, right?), you may qualify for a lower interest rate in a few years and then you can refinance your mortgage.

Document soup
When it's time to qualify for a mortgage, you'll need to document a lot of your financial life. That means digging through your files to retrieve documents you probably thought you'd never need again. Your document soup ingredients will probably include the following:

• The past two or three years of tax returns
• Paychecks or pay stubs for the past month that include your social security number
• W-2 forms for the past two to three years
• Recent credit card statements
• Payment records for all other loans
• Bank account statements for the past three months
• Brokerage account statements for the past three months
• Retirement account statement
• Your car title(s)
• Business tax filings if you are self-employed
• If you're selling a house, the sales contract
• Any bankruptcy documents
• Life insurance policies
• Documentation of any other sources of income, including a second job, anticipated overtime, sales commissions, bonuses, interest and dividend income, Social Security payments, alimony, child support, etc.
• If your employer is offering relocation assistance, a documented agreement
• A complete list of creditors, including minimum monthly payments and balances
• Cancelled checks from recent rent payment

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.