A: Know what you can afford is the first rule of home buying, and that depends on how much income and how much debt you have. In general, lenders don't want borrowers to spend more than 28 - 35 percent of their gross income per month on a mortgage payment or more than 36 - 50 percent on debts. It pays to check with several lenders before you start searching for a home. Most will be happy to roughly calculate what you can afford and prequalify you for a loan.

The price you can afford to pay for a home will depend on six factors:
1. gross income
2. cash available for down payment and reserves as required by the lender
3. your outstanding debts
4. your credit history
5. the type of mortgage you select
6. current interest rates

Another number lenders use to evaluate how much you can afford is the housing expense-to-income ratio. It is determined by calculating your projected monthly housing expense, which consists of the principal and interest payment on your new home loan, property taxes and hazard insurance (or PITI as it is known). If you have to pay monthly homeowners association dues and/or private mortgage insurance, this also will be added to your PITI.

This ratio should fall between 28 to 35 percent, although some lenders will go higher under certain circumstances. Your total debt-to-income ratio should be in the 36 to 50 percent range.

Q: What do I do if I get turned down for a loan?

A: Increasing numbers of loan applicants are finding ways to buy their own home despite past credit problems, a lack of a credit history or debt-to-income ratios that fall outside of traditionally acceptable ranges. Ask the lender for a full explanation, then appeal the decision in writing.

Q: What is the first step when looking for a home loan?

A: Most experts recommend that you should get prequalified for a loan first. By being prequalified, you will know exactly how much house you can afford. Almost all mortgage lenders now prequalify people, and many of them can even do it on the Internet. You also can do your own affordability calculations; most recent consumer books on home buying include steps to doing so, as do various real estate Internet sites.

Q: How do you qualify as a first-time buyer?

A: In general, lenders define a first-time home buyer as someone who has not owned any real estate -- whether a personal residence, vacation home or investment property -- during the past three years. Lenders verify an applicant's status by examining their income tax returns, checking to see that the individual did not take any deductions for mortgage interest or property taxes.

Appraisals & Market Value - Q & A

Q: How is a home's value determined?

A: You have several ways to determine the value of a home. An appraisal is a professional estimate of a property's market value, based on recent sales of comparable properties, location, square footage and construction quality. This service varies in cost depending on the price of the home. On average, an appraisal costs about $300 for a $250,000 house.

A comparative market analysis is an informal estimate of market value performed by a real estate agent based on similar sales and property attributes. Most agents offer free analyses in the hopes of winning your business.

You also can get a comparable sales report for a fee from private companies that specialize in real estate data. You also can find comparable sales information available on various real estate Internet sites.

Q: What exactly is bad credit?

A: There are numerous types of credit report problems that would cause a lender to reject your application for a loan. Such problems include: missing a credit card payment, defaulting on a prior loan, filing for bankruptcy in the past seven years or not paying your taxes. Other black marks on a credit report include a judgment filed against you (perhaps for non-payment of spousal or child support) or any collection activity.

If you feel that your credit report is wrong, experts say it's best to take it up with the organization or company claiming you owe them money. But if you've been late paying your bills, regroup by paying in full and on time for six months to a year to prove to the lender that the late payments were an aberration. You can order a copy of your own credit report by calling the three major credit reporting agencies: Experian at (800) 392-1122, Equifax at (800) 685-1111 and Trans Union at (312) 408-1050. You may learn more about how items on your credit report influence your credit score at www.myfico.com

Q: What if there is a credit reporting mistake on my report?

A: There is no fast and easy way to repair damaged credit that took months or years to occur. The law allows negative information to appear on an individual's credit record from seven to 10 years. Credit problems are the main reason would-be home buyers are denied a loan. The first step to clearing up your credit is to get a copy of your credit report to make sure that the negative credit information is indeed accurate. For a copy of your report, contact one of the three major credit reporting agencies: Experian at (800) 392-1122, Equifax at (800) 685-1111 and Trans Union at (312) 408-1050.

The bureaus should provide instructions on how to read the report and how to dispute any inaccuracies it contains. If your credit report is correct, take care of any outstanding delinquent obligations first. Lenders usually won't consider any borrower who has had a delinquent payment in the past year.

Q: Will bad credit prevent someone from getting a home?

A: There are numerous types of credit report problems (which may or may not be your fault) that would cause a lender to reject your application for a loan. Such problems include: missing a credit card payment, defaulting on a prior loan, filing for bankruptcy in the past seven years or not paying your taxes. Other black marks on a credit report include a judgment filed against you (perhaps for non-payment of spousal or child support) or any collection activity.

If you feel that your credit report is wrong, experts say it's best to take it up with the organization or company claiming you owe them money.

But if you've been late paying your bills, regroup by paying in full and on time for six months to a year to prove to the lender that the late payments were an aberration.
You can order a copy of your own credit report by calling the three major credit reporting agencies: Experian at (800) 392-1122, Equifax at (800) 685-1111 and Trans Union at (312) 408-1050.

Q: Where do I get information on consumer credit laws?

A: For information on consumer credit laws, contact the National Foundation for Consumer Credit, 8701 Georgia Ave., Suite 507, Silver Springs, MD 20910; call (301) 589-5600.

Q: What do I do if I get turned down for a loan?

A: Increasing numbers of loan applicants are finding ways to buy their own home despite past credit problems, a lack of a credit history or debt-to-income ratios that fall outside of traditionally acceptable ranges. Ask the lender for a full explanation, then appeal the decision in writing.

Q: What do I do about bad credit?

A: Credit problems are the main reason would-be home buyers are denied a loan. The first step to clearing up your credit is to get a copy of your credit report to make sure that the negative credit information is indeed accurate. For a copy of your report, contact one of the three major credit reporting agencies: Experian at (800) 392-1122, Equifax at (800) 685-1111 and Trans Union at (312) 408-1050. The bureaus should provide instructions on how to read the report and how to dispute any inaccuracies it contains.

If your credit report is correct, take care of any outstanding delinquent obligations first. Lenders usually won't consider any borrower who has had a delinquent payment in the past year.

Q: How do you clear up bad credit?

A: There is no fast and easy way to repair damaged credit that took months or years to occur. The law allows negative information to appear on an individual's credit record from 7 to 10 years. The first step is to check your existing credit record. Anyone can obtain copies of their own credit report free of charge if they have been turned down for credit recently. For a fee, people can request copies of their own credit report from the three major credit reporting agencies. The bureau also should provide instructions on how to read the report and how to dispute any inaccuracies it contains.

If the credit report is correct, take care of any outstanding delinquent obligations first.

Resources: * "Rebuild Your Credit: Law Form Kit," Nolo Press, Berkeley, Calif.; 1993.

Q: How long do bankruptcies and foreclosures stay on a credit report?

A: Bankruptcies and foreclosures can remain on a credit report for seven to 10 years. Some lenders will consider an borrower earlier if they have reestablished good credit. The circumstances surrounding the bankruptcy can also influence a lender's decision. For example, if you went through a bankruptcy because your employer had financial difficulties, a lender may be more sympathetic. If, however, you went through bankruptcy because you overextended personal credit lines and lived beyond your means, the lender probably will be less inclined to be flexible.

Federal Housing Administration - Q & A

Q: How does FHA work?

A: The U.S. Department of Housing and Urban Development offers a variety of loan insurance programs through the Federal Housing Administration which require approximately 3 to 5 percent cash down. FHA loan limits vary depending on the county where the property is located. FHA loans administered by HUD are originated by private lenders. For more information, contact lenders who offer FHA loans or a regional HUD office.

Resources:
* "FHA Forms, Booklets and Publications," U.S. Department of Housing and Urban Development Printing Branch, Room B-100, 451 7th St., Washington, DC 20410; call (800)767-7468.

Q: Which lenders offer FHA loans?

A: Lenders who handle Federal Housing Administration loans typically advertise in the Yellow Pages under "real estate loans" and in the real estate sections of newspapers. FHA also supplies limited lists of approved lenders. For general qualifications and program details, see the FHA brochure, "How to Qualify for an FHA Loan." To order, write the U.S. Department of Housing and Urban Development, Printing Branch, Room B-100, 451 7th St., Washington, DC 20410; (800) 767-7468.

Q: Is a low offer a good idea?

A: While your low offer in a normal market might be rejected immediately, in a buyer's market a motivated seller will either accept or make a counteroffer. Full-price offers or above are more likely to be accepted by the seller. But there are other considerations involved:
* Is the offer contingent upon anything, such as the sale of the buyer's current house? If so, a low offer, even at full price, may not be as attractive as an offer without that condition.
* Is the offer made on the house as is, or does the buyer want the seller to make some repairs or lower the price instead?
* Is the offer all cash, meaning the buyer has waived the financing contingency? If so, then an offer at less than the asking price may be more attractive to the seller than a full-price offer with a financing contingency.

Q: What contingencies should be put in an offer?

A: Most offers include two standard contingencies: a financing contingency, which makes the sale dependent on the buyers' ability to obtain a loan commitment from a lender, and an inspection contingency, which allows buyers to have professionals inspect the property to their satisfaction. A buyer could forfeit his or her deposit under certain circumstances, such as backing out of the deal for a reason not stipulated in the contract.

The purchase contract must include the seller's responsibilities, such things as passing clear title, maintaining the property in its present condition until closing and making any agreed-upon repairs to the propert