From the Virginia Society of Certified Public Accountants - Presented by Dean Knepper, CPA, CFP®


April 26, 2006) — It’s spring, the time of year when “for sale” signs pop up on lawns as quickly as wildflowers. If you’ve been thinking about buying your first home, you probably already know that it’s likely to be one of the biggest investments you’ll make. The best way to approach your purchase is as an educated consumer. The following advice from the Virginia Society of CPAs will help get you started.

Examine your finances

Before you start house hunting, review your financial situation to determine how much of a down payment you can make and how large a monthly mortgage payment you can handle. Most lenders use the 28/36 rule to determine whether prospective homebuyers can comfortably meet their monthly mortgage payment. Though somewhat flexible, the 28/36 rule requires that your monthly housing costs do not exceed 28 percent of your total monthly income and your total debt load, including your mortgage payment, does not exceed 36 percent of your monthly income.

Check on your credit

Lenders rely heavily on credit scores when determining whether to grant a mortgage. Your credit score is a number determined by a statistical analysis of the information contained in your credit file. It looks at factors such as your payment history,your outstanding debts, and how many places you have applied for credit recently. Many lenders use FICO scores, developed by the Fair Isaac Corporation, to assess your credit risk. Generally, lenders consider a FICO score above 700 to be good.

One of the best ways to improve your credit score is to pay your bills on time. Other steps you can take include paying off as much credit card debt as you can and postponing any applications for new credit.

If you would like to know your credit score, contact the Fair Isaac Corporation at or call (800) 342-6726. You may also order your credit score from the Annual Credit Report Service at or by calling (877) 322-8228.

Your credit report is an important part of the scoring system, so it is a good idea to review your report to make sure it’s accurate. Credit reports can be ordered online at the Web site for the Annual Credit Report Service shown above. Ordering your credit report early in the house hunting process will give you time to correct any errors before submitting your mortgage application.

Get pre-approved by a lender

Next, visit a bank, credit union or mortgage company to learn about the different mortgages available and get pre-approved for the mortgage type that best fits your needs. Don’t confuse pre-approval with pre-qualification, which is based on a cursory review of your financial position. Pre-approval means you have submitted a complete loan application, and the lender has verified your information, checked your credit, and determined how much of a mortgage you can comfortably carry. When you’re pre-approved, the lender commits, in writing, to the specific dollar amount it is willing to lend you.

Once you have a written commitment, you know exactly how much you can spend. This will not only help you feel more secure, it may also give you a negotiating edge. This is particularly true when there are multiple offers on your home of choice and the other buyers are not pre-approved. The pre-approval tells the seller that you already have the financing in place.

Meet with a CPA

If you would like additional guidance in understanding and preparing for homeownership, consult with a CPA.


The Virginia Society of CPAs is the leading professional association dedicated to enhancing the success of all CPAs and their profession by communicating information and vision, promoting professionalism, and advocating members’ interests. Founded in 1909, the Society has nearly 8,000 members who work in public accounting, industry, government and education. This Money Management column and other financial news articles can be found in the Press Room on the VSCPA Web site at


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