The idea that you need a substantial cash reserve to be able to make a big purchase like a new home is fairly obvious, but for all the advice out there about getting ready for that first home purchase, there is not a lot of discussion about exactly how to do that. Should you pay off existing debts first? Do you need to raise your credit rating? It can be tough to tell what the best options are going to be. Here are some tips to get you started.

Setting up the savings

The first thing you need to do is to create a savings plan that is automatic and that lets you take a “hands-off” approach. That is, one where you still save without having to remember to take a lot of extra steps to do it. Here is how you can accomplish that:

• Save all your windfall money when you find it.
• Set up automatic deductions from your paychecks.
• Budget to ensure those deductions are counted as an expense.
• Make sure the budget is set up sustainably-do not deprive yourself.

The reason for the last point is to make sure there are no necessities or excessive temptations that might undermine you. After you have a savings plan, it is also time to think about debt and credit.

When to pay off debt-and when not to

The fact is that when you pay off debt before seeking to buy a home, you are spending money that you might otherwise be able to put toward the down payment. At the same time, though, your credit rating does affect both the size of the mortgage you will be able to obtain and the rates available to you, so it is important to make sure you have raised it as much as you can.

• Pay off any high-interest debts that might complicate your finances after the purchase.
• Pay off debts and maintain regular payments until you manage to get your credit to at least 650 to avoid being penalized.
• Remember, regular and consistent payments are more important than paying off a balance, and they do more to help you.

Preparing to make your purchase

Keep an eye on your debt-to income ratio and make sure that you follow through with your savings plan to ensure you are able to find the right home. When the time comes, if you have any questions about legal matters concerning the purchase, it might be a good idea to talk to a real estate lawyer.