How to buy a house, Step 0

Okay, so... first question you will probably have is why did I put this step out of order?

Answer: Because it is in this order that I discovered this, and because I wanted you to be thinking about what you want and what you can afford.

This step is really the first step, once you decide you are going to want to buy, you need your bank accounts in order. What do I mean by this?

You will want no strange things going on, nothing looking unusual... No deposits and no withdrawals that do not make sense.

So, an example:

I have several accounts and have a habit of transferring money between my accounts. You would think that the bank would know this, but, apparently they didn't, so one day they saw a 'deposit' and thought that I was being given an undeclared gift of $17.42 to help me buy the house (No, I am not kidding!) angry, they called me up and demanded I explain this 'gift' to them.

Yes, they thought I had lied to them and was receiving a GIFT OF $17.42 to help me buy a house.

Sounds silly, yes? They were serious as a heart attack. (this was USAA Federal Savings Bank, they're the ones that asked and had no idea about PayPal or eBay, true story. It's like they live in 1845, electronic docs? Sure. Sign a PDF file electronically? Hell NO, what is that, witchcraft!)

So, I got all new bank statements and showed them how I had sold something via PayPal, and then transferred the money into my bank from PayPal.

Moral of the story: For the 3 - 6 months prior to your loan application being filed, don't do anything but deposit paychecks and pay bills. DO not transfer money around, sell anything on eBay, nothing. You want these idiots, er, uh, 'bankers' who apparently have no idea about eBay or PayPal to be looking at your accounts and see nothing but bills paid (on time of course) and paychecks deposited.

And of course, prior to applying for the loan, pay down credit cards and save up a few thousand dollars more than the down payment and closing costs. That $2000 or $3000 extra in your bank accounts will give them a 'warm fuzzy' feeling and help them to trust that you can pay back the mortgage!