Taking out a mortgage is a huge financial journey, but few people can afford to pay for a new house in cash on the barrelhead. Houses are not cheap and a mortgage doesn’t come without strings. Running into one blindly could cause your financial downfall. Make sure you know what you’re doing before you sign the paperwork. These tips and steps can help you prepare to get a mortgage and find the best one for your particular circumstances.

Step 1: Check Your Credit

Check your credit before approaching any mortgage providers. You’re entitled to one free credit report from each of the three major credit reporting firms each year. Visit www.annualcreditreport.com to order your free credit reports without any solicitation for buying other products from Experian, Equifax or TransUnion. You’ll get to view and print your credit report – but it won’t include your credit score. You may have to pay for that.

Step 2: Repair Your Credit

If you have any black marks on your credit report – missed payments, charged off accounts, late payments and the like – contact each of the creditors to whom you owe money and make arrangements to pay them off. You don’t have to pay a fortune to a credit repair company to fix your credit or increase your credit score. There are many things you can do on your own to remove bad credit marks from your credit report and improve your score. If there are mistakes on any of your credit reports, contact the reporting agency immediately to dispute the report and have the item removed from your credit report.

Step 3: Gather Your Down Payment

The more you can afford for a down payment, the less you’ll have to borrow on your mortgage. Since you pay interest on everything you borrow, an extra thousand dollars down payment can save you hundreds of dollars a year on your mortgage payments, and thousands – even tens of thousands – on the total cost of your home. In addition to reducing the total amount you’ll pay for your home and your monthly mortgage payment, a larger down payment may reduce the interest rate you’ll be asked to pay, which will reduce those costs even further.

Step 4: Figure Out What You Can Afford

Before you start shopping for a new home, figure out what you can afford to pay for a monthly mortgage. You’ll find mortgage calculators at many websites where you can enter your income and monthly expenses and calculate how much house you can afford to buy. Keep in mind that there are lots of other expenses associated with owning a home in addition to your mortgage payment – homeowners’ insurance, taxes and water bills, to name just a few. Most mortgage calculators take all of those into account when figuring out the monthly payment you can afford, and use the monthly payment to extrapolate how much you can afford to spend on a house.

Step 5: Educate Yourself

Before you start shopping around for a mortgage, get familiar with the terms and lingo you’ll hear when you start looking. You should know what points are and how they make a difference to your mortgage rate, the typical fees associated with a mortgage, the laws regarding mortgage insurance in your state and typical closing costs associated with home mortgage loans. The more you know, the easier it will be to decide which mortgage offers are reasonable and which are taking advantage of your lack of knowledge.

Step 6: Education Part II

Beyond the lingo, you also need to understand the various types of mortgages offered so that you can choose the one that’s best for you. It’s important to clearly understand the conditions, features and drawbacks of each type of loan. For example, an interest-only loan may offer lower monthly payments in the early years, but that comes at the cost of coming up with a big payment at the end of the interest-only period. That may make sense if you’re in a profession where you can count on a big jump in salary or much better credit in two years or five years, but it can be a major trap if you’re not being realistic about your future prospects. Before you start shopping around for a home mortgage, learn the differences between fixed rate mortgages and adjustable rate mortgages (ARMs), balloon mortgages, interest-only mortgages and more.

Step 7: Get Pre-approved

Most Realtors prefer to deal with buyers who have been pre-approved for a mortgage. The pre-approval isn’t a guarantee that you’ll get a mortgage for a particular house, but it does tell the Realtor that a lender is willing to lend you money to buy a house. The pre-approval process is completely about you and your ability to pay off a loan for a certain amount of money. Once you’ve found the house you want to buy, the lender will go on to decide whether they’ll lend you money to buy that particular house. At that point, the mortgage process shifts focus to the property itself.

Step 8: Shop Around

Don’t accept the first mortgage you’re offered. Shopping around can make an enormous difference in the interest rate you end up paying for your mortgage. There are many different types of organizations offering home loans and mortgages, so check around to find the one that makes the most sense for your needs. Keep in mind that even a few hundredths of a point difference in interest payments can make a huge difference in the overall cost of the loan.

Once you’ve got a pre-approval letter in hand, you can start shopping for a house with the reasonable certainty that you’ll be approved for a mortgage when you’re actually ready to buy. Choose a real estate agent you trust, and always make sure you have a lawyer look over your mortgage and contracts before you sign on the bottom line for your new house.