Getting Your Finances in Order
A crucial step in starting your search for a new home is
having a clear idea of your financial situation. By getting a handle
on your monthly income, expenses and long-term debts, you'll have a much better idea
of what you can afford and how much you'll need to borrow.
Step #1 - Get pre-approved by a lender!
For lenders to verify this information, they're
going to need to look at your financial records. It is also
important to remember that you should include records for each
person who will be an owner of the house. So before you even visit
the bank, make sure you'll be able to provide copies of these
important documents:
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Paycheck Stubs
Pay stubs provide the lender with proof of employment and income.
Remember that 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.
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Bank Statements
In order to qualify you for a loan, most lenders will also ask you
for copies of your bank statements showing current balances. Ideally, they'd like to see a
steady history of savings--or at the very least, that you're not
bouncing checks every month.
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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,
it's important to note that lenders generally consider your income
as the amount you paid taxes on--not the gross income of the
business. Most lenders will want a copy of two-years of your most
recent tax returns.
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Dividends & Investments
Lenders will usually consider long-term investment dividends, as
well as your investment portfolio, when evaluating your income.
Copies of stocks, mutual funds, investment income, retirement/401k
balances should be provided to your lender.
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Alimony/Child Support
If you receive steady payments as part of a divorce settlement or
for child support, you can also include this as part of your gross
income. Just remember that lenders will want to see a copy of your
divorce/court settlement verifying the amount of the payments.
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Credit Report
Virtually every lender will want to see a copy of your credit
report as part of the loan application process. The report lists
all of your long-term debts, as well as your payment history. In
general, they will require you to pay for the credit report
(approximately $25), but if you have a recent copy, they may
accept that instead.
Obtain your credit report from three major sources:
Equifax - www.equifax.com
Experian Credit Data -
www.experian.com
Trans Union -
www.transunion.com
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Print a copy of our Buyer Requirements for Loan Applications
Checklist.
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