1. Get your finances in order

The first step for home buyers is not to look for a home - but to understand how much home you can afford. This section deals with financing.

Most people finance the purchase of a home and that means getting a mortgage. A very important step in getting that mortgage can be done immediately: do not make any changes to your financial situation!

Lenders will soon be combing over your financial life and they want to see consistent income and spending habits. For at least three months before applying for a mortgage (and until closing), do not make any big purchases. Don’t make any big in- or out-flows from your accounts. Don’t apply for other loans or credit cards. Above all, don’t change jobs.

Here’s what lenders will eventually be looking at:
  • Tax returns and W-2’s for the last two years (minimum)
  • Pay stubs from the last 3 months (minimum)
  • Bank statements for the last 3 months, minimum. You don’t want anything embarrassing there. Avoid overdrafts – you’ll have to provide a written explanation for each one.
  • If you have unusual sized in or outflows, you will have to explain it.
  • If someone (like a family member) gives you money, you will have to fill out a form noting it and getting their signature.
  • Statements on student loans.
  • At least 3 months statements of investment accounts. Note if you will be taking money from these accounts for your home.
    (Note: if you are a first-time home buyer, you can take up to $10,000 from your IRA to use for the down payment without an early withdrawal penalty, though you will have to pay tax on the gains)
  • You’ll have to document the monthly payments of your previous residence. If you were renting, usually you will have to show the copies of ONE YEARS’ worth of rent payments.

Start getting your financial documents in order now. Having these in place will help speed up the home buying process.


What can you really afford?

Please wait...