If the credit report reveals unfavorable information, the lender may turn down your loan. Therefore, it is up to you to make sure your credit report is accurate and free of errors. Errors can occur on your credit history when the credit bureau posts information to a name that is similar to yours, or posts, for example, a son's information to his father's account. Errors can also occur when the credit bureau has incorrect social security numbers. If such mistakes appear, you must contact the appropriate credit bureau. It is very important to fix credit errors for such items as late payments, liens, judgements and bankruptcies with letters of explanation. Credit bureaus are required to help you clear up any errors in your account in a reasonable amount of time (usually 30 days).

In some cases, a negative credit report does not prevent a buyer from obtaining a loan. Credit problems can often be explained, especially those resulting from the loss of a job, prolonged illness, hospitalization, death in the family, a divorce or other event that created extraordinary financial pressure and adversely affected your ability to pay your bills. All credit problems can be solved with time and by making payments in a timely manner for several consecutive years.

If a loan applicant's credit report contains unfavorable ratings over a period of years that cannot be rectified, there is probably little hope for loan approval. The condition of your credit report will affect your ability to get the best interest rates and terms, called an "A" paper loan. If you have an unfavorable credit history, you may need to see a lender who specializes in less-than-perfect credit loans or a specialist in "B" or "C" mortgages.

The following are some helpful hints that will help you improve your credit report and obtain a loan:

• Get a copy of your credit report early and check your report on an annual basis. It is easier to straighten out a credit problem with a company that is still in business.

• Always let the lender know if you have had credit problems, even if they are not found on your credit report. Sometimes the lender will send a request for rating of credit that has not been reported to the credit bureaus. By anticipating any difficulties that may arise, lenders can solve many potential problems.

• When explaining credit problems to a lender, it is a mistake to blame the problem on a misunderstanding with the creditor unless the misunderstanding can be cleared up.

• Have unfavorable entries that are outdated deleted from your credit file. Any adverse credit information that is older then seven years - except bankruptcy, which can be reported for 10 years - should be removed from your credit report.

• Avoid too many inquiries into your credit, which may be interpreted as an indication that you are having financial difficulties or may be over-extending yourself.

• Keep your account balances below 75 percent of your available credit.

• Negative information loses its potency over time. If you can show that you are consistently making your payments in a timely manner, the negatives from your past will not affect you.

• Cancel inactive credit cards because the lenders will calculate a payment for any available credit limits. For example, you have three unused credit cards with a total of $15,000 available credit; the lender may calculate the minimum payment of $250, even if there is no balance on the account. This example shows that an unused card will affect your ability to obtain a loan, so don't just cut up the card - send a letter to the credit card company and cancel your account.

• If you do not have any credit cards or have not borrowed any money for cars or furniture, you probably don't have much of a credit history. You can create your own credit history with payments that are not reported to the credit bureaus. Keep a copy of the bill and the check that paid the bill for the past 12 months. Bills that are not reported to the credit bureaus include rent, telephone and utilities, cable TV, and car insurance.

• Don't go on a shopping spree until the loan is closed or the home is yours.

Adequate money for a down payment and closing costs

For most people who want to buy a home, the down payment is the biggest barrier. The fact that 80 percent of all families have little or no savings makes the down payment one of the most difficult parts of buying a home. Saving for a down payment takes planning, budgeting and time. You will also need to decide on the size of the down payment that you want to make, whether it is five percent, 10 percent or 20 percent.

There are some advantages to purchasing a home with 20 percent down, but it will take more time to save the larger down payment. With 20 percent down you can avoid private mortgage insurance (PMI), get a lower interest rate, and qualify more easily. In some parts of the country, the home prices are increasing so fast that by the time you save the down payment for the home, the price of the home has gone up and you now can no longer afford the home. If you are having difficulty saving the down payment, you might look at some other resources for the down payment. Here are a few options:

• Borrow against your 401K

• Sell some stock or bonds

• Borrow the cash value on your insurance policy

• Get gifts from family

• Save your tax refund

• Refinance other investments

• Sell some of those collectibles

• Refinance or sell a vehicle, boat or RV

In some cases, borrowing or refinancing items you already own can incur additional debt that may affect your ability to borrow the loan amount you want. The money has to be derived from a source acceptable to the lender. Generally, you are not allowed to borrow your down payment or closing costs, except when the loan is secured. For example, you could borrow against a stock account, another home, or a 401K. All of these would be secured loans, but borrowing against a credit card is an unsecured loan and is not an acceptable form of down payment. In addition, the down payment needs to be "seasoned" from a lender's point of view, meaning that the down payment must be in your account for at least three months. You will need cash not only for a down payment, but also for closing costs, prepaid expenses and reserves.

Closing Costs

Closing costs are the expenses incurred that are incidental to the sale of real estate. These incidental fees and expenses may be charged by the lender, title company, closing agent or inspection company. Some of these costs, such as credit reports, appraisal fees and inspection costs, need to be prepaid. Others can be added to your expense bill and paid when the property ownership is exchanged. Your closing costs will vary, and are based on the loan package and the locality of the home you are purchasing. To help you determine your closing costs for a specific loan amount and location, use the buyer's calculator. The closing costs that you pay can be divided into two groups - non-recurring costs and recurring costs. These closing costs can add up to approximately 2.5 percent of the purchase price of the property. The following is a list of some of the closing costs that you might incur:

Non-recurring closing costs

• Loan fees and discount points

• Lender processing and underwriting fees

• Appraisal fee

• Title and escrow fees

• Inspection fees

• City or County transfer taxes

• Attorney's fees

• Recording fees

• Proration of interest on the loan

• Homeowner's insurance and flood insurance

• Impounds for taxes and insurance

• Proration of property taxes

Remember to set aside enough money for the closing costs and the down payment, so you don't get caught short at the closing. Get a closing cost estimate from your lender, which shows you all of the costs you will be charged for the loan. You may also use the buyer's calculator to get an estimate of your closing costs.

An acceptable property

One of the key elements in obtaining a loan is the property that secures the loan. The lenders expect you to repay the loan as agreed, but if you default, they will foreclose on the property and sell the home to recover their money. The lenders will analyze the property as potential owners, because if you fail to make your payments, the lenders might have to take ownership of the property.

Most standard financing requires the property to be in average condition as determined by the appraiser. The appraiser becomes the lender's eye and will look for indications of potential problems, including holes in the walls, doors, floor, ceilings or roof. They will also be looking for safety hazards, such as illegal wiring and non-permitted work or improvements to the structure. Some deferred maintenance is acceptable, but if the house warrants a "below average" rating, special financing programs may be necessary. The lenders will also be concerned if the property is in a flood area or a special studies zone, or if the property or builder is involved in a lawsuit. Properties that fall outside of standard guidelines include mobile homes, vacant land and properties with acreage.