Financial Considerations

real estate financeSo, you want to buy a new home? Planning for that now, taking steps to simplify your finances, and gathering the documents you need in advance will make your first visit with a loan officer easier.

Credit, Debt and Your Good Name

  • Early in the process, pay down debt. In particular, eliminate small remaining balances and close out any lines of credit you don’t use, want or need. If you have too much available credit, it may hurt your ability to secure a mortgage. Order a copy of your credit report from all three reporting agencies to ensure that they are correct well before you meet with your bank or financial institution. If there are any corrections that need to be made to your credit reports, you should make them before applying for a mortgage. It’s a good idea to check your credit regularly, at least once a year, for monitoring purposes.

Prepare a Budget

  • Although the typical guideline is that a mortgage payment should be 28% of your income for a conventional loan with a total monthly debt load (including a mortgage) not to exceed 36%. FHA loans suggest 29% for the mortgage with a total debt load of 41%. Your guidelines may vary based on your credit rating. Talk with your loan officer to determine your own situation. A good solid budget will help you to determine where you are now and will help forecast what type of mortgage payment you will be able to make comfortably. A new house should make your life more enjoyable and a proven budget will help ensure that your purchase does not increase your stress level.

Gather Documentation

  • Before meeting with your banker or loan officer, you will need to collect several documents to expedite the pre-qualification process, the pre-approval process and the final loan approval. You will need the following documents with you for your first meeting:
    • W-2 and income tax returns for the previous two years (more may be requested if you are self-employed or have more than 25% of your income from commissions)
    • Copies of pay stubs for the last 30-days, including a year-to-date figure (and spouse’s paystubs if you are married)
    • Financial records related to child support (if you are paying or if you are receiving payments)
    • Financial records of alimony (whether you are paying or receiving)
    • Bank Statements on all accounts (including investments) for the most recent monthly or quarterly reporting period for you and anyone purchasing the house with you
    • Name and address of your landlord(s) for the past two years if you are a renter
    • Clear copy of the front and back of drivers license, social security card, and resident card for all parties purchasing the house