I'm continuing my series Am I Ready to Buy My First Home with Part 2 (If you missed part 1 you can check it out here)
Am I Ready to Buy My First Home - Part 2
Is Your Income Steady?
This may seem extremely simplistic to some people but I'm going to break things down so we're all on the same page:
- Houses cost money
- If you don't have enough money to buy a house on your own, you'll need to borrow money
- Banks and other lenders have money that they lend out for people buying homes
- You must pay back this loan, and the interest that comes with it (a.k.a. a mortgage)
- Banks have a lot of rules on who they'll lend to based on how likely they feel they'll be paid back, in full
- You must appease the Lender Gods
The first thing banks will look at is what you're income stream looks like. For people that are steadily employed with a track record of employment behind them this isn't too difficult at all. Show them a couple of your last pay-stubs and the last two years' tax returns and you're golden.
But what if your income depends a lot on bonuses that can vary year to year? What if you're self-employed and things are just now starting to look great for you. Well, you've got a tougher road to travel. Typically, banks still want to see the last two years of records so they get a feel for what you can afford. Just be aware that the paper work stack may be a lot thicker and you may have to provide a lot more evidence than the regularly employed.
Here's a quick little tidbit the self-employed may find useful. If you grossed $200,000 last year but you wrote off $100,000 in expenses, guess what lenders will consider your qualifying income? That's right, only $100,000. I'm not a tax expert, and you should certainly consult yours about your own situation, but keep in mind that what may be good for you tax-wise, may hurt ability to qualify for a larger loan.
Join me for Part 3 as we take a look at a few other things lenders like in my Am I Ready to Buy My First Home Series