Am I Ready to Buy My First Home - Part 2, Income

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.

money house

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