Have a clear understanding of your finances before beginning your
real estate search. You'll have a good idea of what you can afford and how much
to borrow. Lenders will verify all your financial information You should have
records available for each person who will be an owner of the real estate - such as:
Last 2 year W-2 forms
1 month of paystubs
Last 2 months Bank Statements
List of all Liquid Assets (401K, Checking, Savings, etc)
Complete Tax Returns (Self-Employed Only)
Business License (Self-Employed Only)
Name, Address, Phone Number of Employer
Name, Address, Phone Number of Landlord (Renters Only)
Paycheck Stubs - Lenders are most interested in your average income. Not
only will they want to see this month's paycheck, but also how much you've been making for
the past two years. Steady employment is also more attractive to lenders, so if you've
been hopping from job to job, be prepared to discuss the reasons why.
Bank Statements - Most lenders will ask you for copies of your bank
statements in order to qualify for a loan. Ideally, they'd like to see a steady history of
savings or at the very least, that your checks are not bouncing.
Tax Records - It's always a good idea to save copies of your tax returns,
especially if you're self-employed. If you own your own business, lenders generally
consider your income as the amount you paid taxes on and not the business gross income.
Dividends & Investments - When evaluating your income lenders will
usually consider long-term investment dividends, as well as your investment portfolio.
Alimony and Child Support - If you receive steady payments as part of a
divorce settlement or for child support, you can include it as part of your gross income.
Lenders will want to see a copy of your divorce court settlement verifying the amount of
the payments.
Saving for the Down Payment- Saving funds for a down payment should be
part of an overall program to get your finances in order prior to shopping for real
estate. This includes rounding up financial records, examining your spending habits, and
setting a budget you can live with.
How much is required? - The down payment is usually expressed as a
percentage of the overall purchase price of the real estate, and varies depending on the
lender, the type of financing and amount of money being lent. In the past, the typical
down payment was 20%, but in recent years lenders have been willing to offer conventional
financing with as little as 3% down. FHA and VA financing programs, also require minimal
down payments.
Private mortgage insurance - Typically, if your down payment is less than
20% of the purchase price, lenders will require you to carry PMI, or private mortgage
insurance. It protects the lender in case of loan default, and usually involves an
up-front payment at closing, as well as a monthly premium. Once you have paid off 20% of
the loan, you can request the policy be canceled.
Gifts - Lenders may allow you to use gift funds for the down payment, as
well as for related closing costs. The gift may come from family, friends or other
sources, but remember that lenders usually require a "gift letter" stating the
gift doesn't have to be repaid. Some lenders will also require you to pay at least a
portion of the down payment with your own cash.
Earnest money - Buyers are usually required to deposit earnest money with
the seller when they make an offer. If the offer is accepted, the earnest money is then
credited towards the down payment.
Credit Report - Lender will want to see a copy of your credit report as
part of the loan application process. In general, they will require you to pay for it. |
