1.Pay down your debt. The bank wants your total debt to be no more than about 38% of your income. If your income is $3000/mo. then the bank figures your total debt can be $1140/mo. But if you already have $1000/mo. in debt, then you have only $140/mo. left for mortgage payments. Pay down your debt as much as possible to increase your borrowing power. Pay down the highest-interest debt first (credit cards) before lower interest debt (car loans, student loans).

Once you pay off your credit cards get in the habit of paying them off every month and never carry a balance. Few things can kill dreams of home ownership better than credit card debt. Pay down that debt! If you have a hard time paying down your debt then use the technique advocated by Charles Givens: Pay Yourself First. Every time you get a paycheck, take a portion of that paycheck and apply it towards your goal of paying down your debt first. If you wait to take care of everything else first you may never have anything left over to pay down your debt with.

2.Get the down payment together. If you don't already have a down payment saved, start saving now. If you have a hard time saving then use the Pay Yourself First technique mentioned above: Every time you get a paycheck, put a portion in your savings account first. Pay yourself first so that money is definitely saved. It may help to have a separate account for your down payment, so it's easy to see its size completely separate from any other savings you may have. Remember, having a sizable down payment is the #1 factor in being able to qualify for a loan -- especially being able to qualify for a bigger loan.

.Clean up your credit report. Good credit not only helps you qualify for a loan in the first place, it helps you get a better deal when you do get a loan.