What do you ask yourself when deciding if you are ready to buy a home? The four questions that follow are among the most important when determining if you should now consider a home purchase.

The test is self-scoring; simply indicate a "yes" or "no" next to each of the four questions after you have read the text. Then, total up your number of "yes" and "no" answers, and draw your own conclusions as to whether or not you are now ready to buy a home.

1. In Recent Years, Have You Had a Solid Employment Record?

Lenders want to know that you will have the ability to pay back a mortgage loan. One factor they look to is your employment history. Lenders consider working consistently for the last two years to be a solid employment record. This does not mean that you must have been at the same job for two years - only that you have been working consistently without any large unexplained gaps in employment. In fact, job moves are looked on favorably if the result has been the same or better pay.

However, if you have been working continuously for less than two years, this doesn't necessarily mean you won't be approved for a mortgage loan. The important thing is to be able to reasonably explain any gaps in employment. Reasonable explanations may include the fact that you were discharged from the military, recently finished school, work seasonally with work gaps between seasons, were temporarily laid off, or had an illness that prevented you from working. Explanations such as these may mean that you are still able to qualify for a mortgage loan even if you have had gaps in your recent employment history.

If You Answer Yes.

This means you have been working continuously for the last two years, or if you have not, you are able to provide a mortgage lender with reasonable explanations for any gaps in employment. If you can demonstrate a steady level of income and job history, the lender will have evidence of your capacity to pay back a mortgage loan.

If You Answer No.

Saying "no" to a stable work history means you have not been consistently employed over the past two years and have not kept up a regular and even income level. You may have been fired for cause. You might have big gaps in your job record. Or there may have been large drops in your income level that you cannot satisfactorily explain. If this is the case, it may not be the best time for you to borrow money to buy a home. Wait until you have a more solid employment record.

2. Do You Have an Established and Favorable Credit Profile?

Lenders can also get an idea whether you will pay your mortgage back based on your history of paying other bills. Lenders learn your bill paying history by obtaining your credit report. Your credit report contains a detailed history of your debts, your monthly payments on those debts, and how much time you have left to pay off certain debts.

Credit bureaus put together credit reports by obtaining information from a wide range of sources - credit card companies, banks that have given you car loans, department stores and gasoline companies that provide credit cards.

A credit bureau may not have a credit report for you if you have not had a credit card and have never borrowed money from a financial institution. If you cannot get a credit report from a credit bureau, you should try to create your own report. You can do this by documenting your monthly payments for such things as rent and utility payments (including gas, electric, water, and telephone services). Check with you mortgage lender; he or she may be able to work with you to create your own credit report.

You can find out what information is in your credit file by contacting a credit bureau. They usually are listed in the yellow pages of your phone book under "Credit Reporting Agencies" and will provide you with a copy of your report for free or for a nominal fee. The major companies are Experian (formerly TRW., Inc.), CBI Equifax, Inc., and Trans Union . Contact any of them for your credit report. See if any information is missing or inaccurate, so you can take steps to have the report corrected if necessary.

If You Answer Yes.

Saying "yes" to a good credit record means you have a history of paying your rent and other bills on time and will be able to prove that through a credit report or through compiling a nontraditional credit history. Although lender credit standards may vary, being late on a payment or having gone over your credit limit once or twice doesn't necessarily mean you don't have good credit - particularly if you can reasonably explain why. But if you show a repeated pattern of not paying accounts as agreed, it will affect your credit history. A good credit history tells the lender that you pay your obligations on time and use credit wisely - important information for a lender to know when you want to take out a mortgage loan.

If You Answer No.

An unfavorable credit profile may mean you do not pay your bills on time or you currently have more credit obligations than you have been able to handle. Information that may be considered negative includes late payments, repossessions, accounts turned over to a collection agency, judgments, liens, and bankruptcies. Negative information in your credit file may lead creditors, such as mortgage lenders, to deny you credit.

HomePath Hotline staff can refer you to nonprofit organizations that provide counseling services, such as helping you develop budgets and arranging repayment plans that are acceptable to you and your creditors. If there isn't a counselor near you, HomePath Hotline staff may be able to provide counseling. If you need a list of counselors in your area, call the HomePath Hotline at 1-800-7FANNIE (1-800-732-6643).

3. Have You Saved the Money for a Down Payment and Closing Costs?

Nearly all home buyers require a mortgage loan from a financial institution. However, few loans are for the full purchase price of a house. Instead, a lender will insist you contribute some portion of your own funds (the down payment) as part of the deal. Today, buyers can pay as little as 5 percent down. (In fact, some programs such as the Fannie 97^® mortgage, require as little as 3 percent down). There are also a number of government-sponsored loan programs, including Federal Housing Administration (FHA), Veterans Administration (VA), and Rural Housing Service (RHS) loans, that require little or no down payment for qualified borrowers.

Typically, however, most lenders require some form of down payment. For a $100,000 home, a 5 percent down payment requirement would be $5,000.

You also will need to pay a number of additional costs, called closing costs, that cover the legal transference of a property to your name and other costs associated with your taking out a mortgage. Closing costs generally range from 3 percent to 6 percent of the sales price of the home. So, if you were to buy a $100,000 house with a 5 percent ($5,000) down payment, you could expect to pay between $3,000 and $6,000 in closing costs.

Think about how much houses cost in your area and the type of mortgage down payment your loan will require. Then calculate the funds you have available to you for a down payment and closing costs. You may wish to use HomePath's Funds Available for Down Payment and Closing Costs worksheet on the "How Much House Can You Afford?" calculator to see how much money you now have available to you for a downpayment.

If You Answer Yes.

Congratulations! Saving sufficient funds for closing costs and a down payment is usually one of the hardest parts of being ready to buy a home. If you believe you have sufficient funds, you are in a good position to shop for a mortgage and get pre-qualified by a lender, so that you know how much you can borrow based on your income and existing debt. It is important that you honestly assess your amount of savings available for a down payment and closing costs. Lenders will seek to verify that you do in fact have sufficient savings to cover these costs when you apply for a loan.

If You Answer No.

If you do not now have at least a part of the money saved, you may be able to enlist the aid of a relative or a government or nonprofit agency that might give or loan you the money. Local housing agencies often offer loan terms that include no down payments. (Check with your state or local housing authority. The phone numbers usually can be found in the government "blue pages" of the phone book.)

However, if this type of down payment and closing cost assistance is not available and you have not already saved the money for at least part of those expenses, you should probably delay buying a house. Choose this time to begin budgeting some money from every paycheck that you can put into a savings account. Saving money over time in this manner significantly improves your chances of having a mortgage approved in the future.

4. Can You Afford Monthly Mortgage Payments for the House You Want?

HomePath^® offers you a number of mortgage calculators that will help you determine how big a mortgage you can afford. Generally, the amount of your monthly mortgage payment is limited to 28 percent of your gross monthly income. The amount of your total monthly debt is limited to 36 percent of your gross monthly income. These ratios are explained in detail in the How Much House Can You Afford? section of the HomeStarterPath on this site.

Staying within these lender guidelines will give you a certain range of monthly mortgage payments you can afford. The amount of these payments will depend on current interest rates.

How much will your monthly mortgage payments be for a certain sales price home and at certain interest rates? HomePath's How Much House Can You Afford? calculator will provide you an indication of your buying range. From your calculations, you will be able to judge if the amount of mortgage payments you can afford will buy you the type of house you want.

If You Answer Yes.

If you calculate that your income and your current debts are sufficient to allow you to afford monthly mortgage payments for a home at a certain sales and at a certain interest rate, then your next step may be to get to know what types of homes are available to you in the price range you can afford. You may wish to visit open houses advertised in the real estate section of your local newspaper, or contact a Realtor^® who can show you homes in your price range. You may also want to get pre-qualified by a mortgage lender, who can help verify that the calculations of your buying power are in the ball park of the amount of the money the lender will provide you for a mortgage.

If You Answer No.

If after investigating various types of mortgages, you are not happy with the mortgage amount you will qualify for, you may need to lower your sights and simply recognize that you'll have to buy a less expensive "starter home" or continue to rent. You may decide to wait to apply for a mortgage until your income increases. For example, is it possible for you to put in extra hours on the job to build up your income? Or do you or your co-borrower, if there is one, expect a raise in the near future? If so, you may wait a bit to buy a house so that you can qualify for a higher mortgage amount. In addition, if your existing debt is too high in relation to your income, you may be able to qualify for a larger mortgage by paying off some of this debt.