Am I Ready to Buy My First Home - Part 4, The Magic Number, Do You Know It?

Welcome back to Am I Ready to Buy My First Home Catch up with Part 1, Part 2, and Part 3, 

and without any further ado...

Am I Ready to Buy My First Home - Part 4

The Magic Number, Do you know yours?

If you don't have the money to buy your home flat out, chances are you're going to some sort of lender to get the funds.  In the past, especially in the mid-200's, getting credit extended to you wasn't an insanely difficult thing to do.  Since the housing crash in 2008 though, it has been quite a bit harder to qualify for good loans.  We've discussed a few of the things banks look at, your job and income situation, your cash reserves.  Today, we'll focus on another big factor for the banks:  Your credit and your debt.

You've probably heard of a FICO score before now.  If you keep you bills payed on time, show you can handle debt responsibly, and keep your debt limits down, you'll have a higher score than someone who can't do those things.  You're shooting for a perfect score of 800 and the closer you can get to that, the more comfortablle lenders will feel with entrusting their funds into your hands.  Scores under 620 are considered too risky by most lenders these days, and quite a few frown on anything below 650.  I highly suggest checking your credit report a few times a year just to make sure nothing looks unusual.  It's not uncommon to find erroneous, or outdated information on a credit report and the faster you can have those items fixed or removed, the closer you are to getting into your first home.

Don't despair if your credit score isn't up to snuff right now, there are a number of strategies that you can use to help bump your number up a bit.  It may take a bit of sacrifice and some time but those numbers aren't fixed in stone and you can do something to put yourself in a better position to buy your first home.

Join us next time when we discuss what else might be important on your credit report as we continue to explore the question:

Am I Ready to Buy My First Home?

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.

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