Qualifying Basics – First Time Homebuyer Survival Guide
From qualifying for a home home to shopping, offering and closing on your first home can seem quite overwhelming.
More often than not, not knowing what you do not know, is the greatest culprit for causing unnecessary stress and anxiety.
With this simple survival guide we will take the mystery out of the most basic steps you will take on your journey towards becoming a first time home buyer.
Qualifying for a Purchase Mortgage
All lenders are going to require that you provide documentation to support the answers to three basic questions:
- How much do you earn?
- How much do you save?
- Do you pay your bills on time?
The documentation you need to answer these questions is pretty easy to get and pretty easy to provide to your lender so that you can get an accurate appraisal of what you qualify for.
How Much Do You Earn?
There are really two parts to this question; the first what is your annual income, the second question is, how consistent is this income?
The lender is going to ask for the last 2 years W2’s, and your last 30 days worth of pay stubs. This establishes that you have consistent income that can be used as the basis for determining how much of your monthly expenses can be considered on your house payment.
If you are self employed or if your income fluctuates significantly, for instance you are paid strictly on commission, then the lender will require that you show a pattern of being paid this way and will most likely use an average of your last 2 year’s income from these sources.
Your employment history will also come up during this part of the qualifying process. A lender will want to see that you have worked in the same line of work, or profession for at least 2 years.
If you change jobs often, or do not have a 2 year history of employment, your lender may require further explanation.
If your entrance into the workforce was very recent due to being in school full time or being in the military, don’t worry.
There are exceptions for the 2 year work history, ask your lender about what documentation you need to support your employment history in these instances.
How Much Do You Save?
The lender is going to want to know where the money is coming from that you are using to cover your down payment and closing costs. The documentation required by the lender is usually only your most recent 60 days of bank statements, or statement from the accounts from which the funds are being used.
If you are receiving gift funds from a relative, and those funds have not been in your bank for at least the last 2 statement periods, you will want to mention this to your lender so that they can advise you about what documentation is required to source the gift funds.
Improperly sourced gift funds can throw a really nasty monkey wrench into the purchase process if not addressed early on, before you begin making offers on homes.
Do You Pay on Time?
This is your credit report. Depending on what loan program you are applying for, your credit scores can make a significant impact on the total cost of your home loan.
The most weight will be on how you have managed your credit in the past 12 months. If you have had late payments within the last 12 months, your credit score, and your ability to get qualified may be significantly impacted.
Different loan programs require different minimum credit scores, so it’s important to ask your lender to discuss all of your options with you.
Having a basic understanding of what to expect during the pre-approval process should go a long way toward relieving the anxiety and stress of wondering “if” you will be approved.
If you are not approved the first time, ask the lender specifically what piece of your financial profile you need to work on. Also, keep in mind that not all lenders have the same guidelines.
Big banks and credit unions will often be a little more strict in terms of credit qualifying, whereas a mortgage bank might be a little more flexible.
Ask an Expert
Buying your first house does not have to be stressful. This might be your first home, but an experienced mortgage professional does this over and over again, and has done so for many years.
There is a huge difference between an inexperienced mortgage call center and a mortgage expert. It’s important that you have an expert in your corner to guide you through the process.