It is easy to imagine your perfect home and to visualize your life there. But it's much harder to buy the home you want if you don't know how to get mortgage financing. So let's take a closer look at what you should know.

How Lenders Assess You

Three main factors are required to qualify you for a loan:

1. Affordability:

Lenders calculate your debt-to-income ratio (DTI), which shows them how much of your income will go towards your bills. For example, lenders will allow you to spend up to 43 percent of your income on housing and other bills.

2. Credit Health:

Lenders will pull your credit reports from Equifax, TransUnion, and Experian. They then base their loan approvals on the average of these three scores. Lenders will pull your credit reports, which will include scores. They also take into account your entire credit history. Your lender will not use your credit scores if you do not run them. They must pull your reports, and they will most likely give you a different score than what you can get as a consumer. For a free credit review, see below.

3. Skin in

Lenders take into account your down payment, and the amount of money left after closing on a home. They then compare this to the DTI to determine how quickly you can build up reserves. Lenders will allow very little down, and not all loans require any money after closing. However, it is important to consider whether you would like to purchase a home without any reserves even in these situations.

Know Before You Owe

Planning for mortgages is more than just budgeting for a downpayment. When buying a house, you will need to plan for three types of cash to close.

Down Payment

A loan can be obtained with no down for current or former military personnel. All other applicants can make as little as 3 percent down on a conventional loan and as little as 3.5 percent on FHA loans. A minimum of 20 percent down payment is required if you want to avoid paying extra monthly mortgage insurance.

One-Time Closing Fees

These fees include title insurance, transaction settlement fees, lender and appraisal fees, and home inspection fees.

Prepaid Costs Due At Closing

It is possible that closing on a home occurs in the middle of a month or during a local property tax cycle. The interest you pay on your mortgage over the remaining month is prorated. You prepay it at closing. The same applies to property taxes. Lenders will require that you prepay one year of homeowner's insurance when you close. If you are getting a loan that requires that you save money for property taxes or insurance by making monthly payments into an account, you will have to prepay this account -- it's called an "escrow" or impound account.

The federal government offers a program called Knowledge Before You Owe. This requires that all lenders follow a standard format to disclose cash-to-close line items to you.

You can then see how much cash you will need. This will help you avoid surprises. It's a good idea to get in touch with a lender, even if it's early in your home-buying research. These disclosures will allow you to get a precise assessment of the cash required to fulfill your home-buying goals.

Budgeting For Mortgages

The homeowner's budget goes beyond the mortgage payment. If the down payment is lower than 20%, it includes property taxes and insurance.

These items should be included in your mortgage calculator when you are planning your mortgage budget. These monthly cost line items will be provided in the disclosures above when you are ready to speak to a lender.

Current tax law allows homeowners to deduct property taxes and mortgage interest from their gross income in order to pay less tax. However, when budgeting for homeownership, budget with the pretax numbers. This is because the monthly tax bill will be based on the current tax rate. The tax benefit comes after each tax return is filed.

You should find out the homeowner's association dues if you are buying a condo, home, or other property in a planned community such as a gated one. Then, include that information in your budget.

You are also responsible for maintaining and maintaining the home as a homeowner. Therefore, it is important to include this cost in your budget.

Preparing For The Mortgage Process

You can save money for a downpayment and cash to close. Lenders also allow you to receive gift funds for a home-buy.

You might be eligible for gift assistance if you are able to. The rate of home appreciation in your region may exceed your savings rate making it more costly to purchase the same home later than it is now.

As for making sure your credit is clean, there is only one Federal government-sanctioned free credit report service -- AnnualCreditReport.com. This can be used to examine your credit history and determine if you have any derogatory items.

Credit card balances are the main factor that causes credit scores to fluctuate month to month. Keep your credit score high by limiting your credit card balances to 30% of your credit limit.