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PREPARE TO BUY A HOME
Planning to buy a home in the near future? The sooner you get your money situation in shape, the easier it'll be to take on a mortgage loan. Here's how you can prepare your credit and finances for a future home purchase.
Determine how much you can afford. The amount of home you can afford depends on a variety of factors, including your income, credit score, debt-to-income ratio, and down payment. Generally, lenders recommend that you spend no more than 28% of your gross monthly income on housing expenses, including mortgage payments, insurance, and taxes. If you are a Veteran, that number can go as high as 45%. To calculate your monthly payments, use this online mortgage calculator .This will give you a good start in determining a home price you can afford. If you don't feel like doing all that , simply call one of our agents, and we will happily set you up with reputable lender.
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Use our home search page to get a detailed look at the market. It’ll show you the types of properties for sale and what sellers are asking for. Seeing exactly how much homes cost will help you determine how much you can actually afford. And with the pre-qualification letter you will get from your lender,
you will be all set to start looking. If homes in your desired neighborhood are outside your price range, you can delay buying until you make enough to qualify for the home you want , downsize the type of home you’re looking to buy, or search in a different area. There is no concrete answer as everyone's circumstances are different. You can of course call us. We will sit down with you and go over your very specific options.
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Make sure you have several credit lines: Having multiple lines of credit can help you build a strong credit score, which is important when applying for a mortgage. Having multiple lines of credit can also help you demonstrate to lenders that you are a responsible borrower and can manage multiple accounts. Additionally, having multiple lines of credit can help you qualify for a larger loan amount, which can help you purchase a more expensive home. Ideally if you dont have many credit lines, its best to establish them as early as possible. Just not during the mortgage lending process. BUT WAIT... If you do not have many credit lines, you can still purchase. Just let the lender know. No worries.
Avoid opening new credit lines and stop using credit for the moment: Once you’re 5 months away from applying for a mortgage, do not open any new credit lines, as this can temporarily lower your score. How much? As much as 10%.
That can be the difference in qualifying or not. In the excitement of getting your new home, some people rush out to charge new appliances or furniture before closing. Some even go as far as to get a new car. That's a BIG mistake, because even if you have a home under contract (Tied up), having a debt utilization ratio above 30 percent right before closing could disqualify your loan. So, unless you’re going to pay cash, have patience for your new furniture until after your loan is closed. Also, hold off on getting a car loan, as car financing tends to be more lenient than mortgage criteria. Trust me...don't do it!! Those of you that have credit limits under $1000.00 per card are especially cautioned as it does not take much to run up those cards.
Documents needed for a home loan
To help prepare for your home loan, it is necessary to prove you are a good credit risk, which requires you to provide documentation. The below list is just the beginning of what a lender will ask for. So before you contact a lender, at the very least, have these documents ready to send them. Use this checklist to organize your paperwork before you contact a lender. It may be a boring task today, but it’s better than a stressful situation tomorrow.
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1. Pay Stubs
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Lenders need to know you have stable income that will allow you to pay your mortgage each month. Bank on showing at least 30 days of income via pay stubs. If you don’t have paper copies, contact your workplace HR representative for digital stubs.
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2. Proof of Employment
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Your lender will likely use your pay stubs as proof of employment. But, in some cases, your lender may request a letter from your current employer to confirm your hire date and employment status.
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3. Employer Contact Information
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Again, steady income is the name of the game when it comes to securing a loan. Compile a contact list documenting your last two years of employment. Include all company names and addresses, along with names and contact information for your former bosses or HR representatives.
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4. Tax Documents
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For starters, most mortgage lenders want to see your last two years' tax returns. If you haven't yet filed a tax return for the most recent calendar year, your lender might request that you do so before applying. And if you live in a state with an income tax, the lender will likely want to see both your federal and state returns.
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W-2s or 1099s
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If you are an employee, your lender will want to see your two most recent W-2 forms.
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If you are self-employed, the lender will need your two most recent 1099s and may also request additional income documentation.
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5. Bank Statements
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Lenders want a snapshot of the money coming and going from your bank account. You will need all pages of bank statements for the last 3 months.
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6. Business Documents
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If you’re self-employed, work as a contractor or otherwise operate a business, your lender will want to see tax returns (again, signed), along with year-to-date profit and loss statements.
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7. Debt Information
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Your qualification to receive a mortgage loan comes down, in part, to your debt-to-income ratio. Your pay stubs and tax documents show your income. Next you’ll need to show any outstanding loans you have, including car payments, student loans, additional mortgages or credit card debt. Gather up-to-date statements that show your remaining balances. Go a step further and compile creditor names and addresses, account numbers, monthly payment amounts and outstanding balances of each account.
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8. Residential History
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Create a list of your home addresses for the last two years, along with landlords’ names and contact information, if applicable.
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9. Proof of Additional Income
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If you receive Social Security or disability payments, pension income, dividends or bonuses, you’ll need to show it. Potential homebuyers aren’t required to disclose child support and alimony payments; discuss whether it’s appropriate with your loan officer.
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10. Stocks, Bonds and Savings Statements
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Your total assets will count toward your ability to purchase a home. Provide statements showing the value of your CDs, IRAs, stocks, bonds or other securities, including any money you’ll use toward a down payment.
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11. Earnest Money Source
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After you make an offer on a property and provide earnest money — a deposit held in escrow that shows your commitment to purchase — you’ll need to prove the source of that money. If it came from your savings account, a copy (PDF) of your bank account history will do the trick. If you received the money as a gift from a family member or another way, you may need to provide a letter confirming the source. Basically the money from your grandparents will need to be accompanied by a letter saying it was a "GIFT."
You may be asked for additional documentation, but having these documents will surely speed up your application. Of course, the best way to avoid any delays during the application process is to get preapproved. You’ll still need to gather these documents for the preapproval process, so set aside a couple of hours and get it over with.
TIP – Make sure you keep a copy of EVERY document a lender ask for on a thumb drive or in free cloud storage like Google Drive. The reason? Lenders will always be asking for documents. Some docs more than once! If you have a copy of everything handy, things will go much faster.
BONUS TIP - Wanna see if you qualify for a first time homebuyer program? Check here : https://apps.floridahousing.org/StandAlone/FTHBWizard
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