Beware: the number the bank offers in financing might be more than you realistically can shell out each month. Housing shouldn’t take up more than a third of your budget.

Mortgage rates

In the early ’80s, interest rates were in the low 20s. Today, good credit can get you a mortgage rate around 5 percent to 6 percent, and sometimes lower with a larger down payment.

“Right now, rates are in the low to mid 5′s,” said James M. Dix, senior mortgage loan consultant with Lundin & Associates. “Due to the influx of money from the federal government, we have lower rates than normal. We may start to see rates creep up as early as the second quarter of 2010.

“With the low rates, the tax credit for first-time and move-up buyers and prices that are very favorable, I’ve never seen such a good time to buy as right now.”

How do mortgage rates impact your wallet?

A mortgage of $100,000 after down payment with 5 percent interest costs $537 a month, while $90,000 at 6 percent interest is $540. so a 1 percent difference impacts your buying power by 10 percent of the purchase price.

Another example: $100,000 at 5 percent interest costs $537 a month, while $100,000 at 5.5 percent costs $568. so that 0.5 percent means you pay an extra $31 a month, $372 a year, and $11,160 over the life of the loan.

FHA loans

Federal Housing Authority home loans are insured by the U.S. government and are popular with first-time homeowners because they require only 3.5 percent down. (Ask a lender before pre-approval if they offer FHA loans. Not all do.)

Compared to conventional loans, FHA tends to allow a higher debt ratio with a smaller down payment. also, the private mortgage insurance (an extra $50 to $100 a month if you don’t put down 20 percent) is lower than with a conventional loan. If you sell your home, your FHA loan and rate can be transferred to the new homeowners if they qualify. If interest rates go up, that’s a good potential selling point.

Check your credit score

Butchered credit can’t be fixed overnight. to start improving your score before pre-approval:

Get a copy of your updated credit report to make sure there are no errors. you sometimes can get errors corrected quickly.

Keep credit card balances below 30 percent to 50 percent of their limit.

If you don’t have any credit history, open up a credit card just to show you can be trusted with credit.

Pay off balances. your credit score could improve up to 30 points as soon as an account balance is paid.

Getting pre-approved for a loan is your first step